The automotive industry’s growth stalled in 2020. General Motors’ [GM] share price has been flat on the year-to-date (through 17 November’s close), while shares in its peer Ford [F] took a 7.11% tumble in the same period. With both companies seeing some uplift in November, what are the driving forces behind Ford and General Motors’ share prices?
Despite hitting a roadblock earlier this year, General Motors’ share price gained 193.9% since dropping to a 52-week low of $14.33 on 18 March. The stock continued to rally in the second half of the year, hitting a new 52-week high of $42.54 in November.
Meanwhile, Ford’s share price climbed 120.96% from its 52-week low of $3.96, recorded on 23 March (through 17 November). It is currently trading 8.57% below its 52-week high of $9.57, which it hit on 18 December 2019.
In the few months following the market sell-off in March, both stocks struggled to regain ground as the coronavirus depressed sales and manufacturing. Production plants across the automotive industry started to return to pre-pandemic levels at the beginning of June, when countries around the world were beginning to emerge from lockdown.
Both stocks were again hampered by September’s market correction but, since then, Ford’s share price and General Motors’ share price have both picked up speed. General Motors’ share price has climbed 38.18% since the end of September and Ford’s has risen 29.63% in the same period.
Turnaround on debt
While both doubled their debt to circa $30bn during the first quarter of their fiscal year to help navigate the coronavirus crisis, according to CNBC, General Motors have seen a turnaround in fortunes between the second and third quarters.
For the three months to 30 June, the Detroit-based automakers reported revenue of $16.78bn, down 53% from the previous quarter’s revenue of $36.1bn, and cash burn of $7.8bn. It reported a net loss of $758m compared to a $2.41bn net profit in the year-ago quarter. During its earnings call, General Motors said it expected to generate between $7bn and $9bn in free cash flow in the second half of the fiscal year.
General Motors' net loss compared to $2.1bn profit in 2019
In the third quarter, General Motors swung to a net income of $4.05bn, up 74% from the $2.35bn profit posted last year. Revenue rose marginally to $35.48bn from $35.47bn in the year-ago quarter.
In comparison, Ford posted a net income of $1.117bn for its second quarter, up 654% from the $148m net income posted in the three months to the end of June 2019. Revenue was down 50% to $19.4bn. Cash burn for the quarter was $5.3bn.
Ford's Q2 net income - a 654% YoY rise
For the three months to the end of September, Ford reported a marginal year-over-year revenue gain, up from $36.99bn to $37.5bn. It posted net profit of $2.385bn, up 461% from last year’s net profit of $425m.
A better-than-expected uptick in sales, mainly in the US and China, drove these quarter-over-quarter revenue changes. This was triggered by the easing of lockdowns, shelter-in-place orders and travel restrictions. Consequently, production plants were able to return near to pre-pandemic operation levels.
In the second quarter, Ford’s US sales were down 33% year-over-year at $433,869. Sales for the third quarter were down 5% at $551,796, but up 27% on the second quarter. Ford saw its sales in China increase by 25% relative to last year.
General Motors delivered 492,489 vehicles in the second quarter, down 34% year-over-year, and delivered 665,192 vehicles in the third quarter, down 10% from the year-ago period. Sales in China were down 43% in the second quarter but up 12% in the third quarter. The automaker also reported that sales had been improving sequentially each month — a sign that the stalling auto industry is recovering.
Number of vehicles delivered by General Motors in Q2 - a 34% YoY drop
Both Ford’s share price and General Motors' share price could be pushed higher as the automakers pivot to electric vehicles with their answers to Tesla’s [TSLA] Cybertruck. Ford announced an electric addition to its flagship F-150 truck series in June, while General Motors unveiled the Hummer EV in October. Both are scheduled for release in 2021.
Benchmark’s Michael Ward believes that production of new F-150s could propel Ford’s share price significantly higher. In early October, he raised his rating for the stock from Hold to Buy and increased the price target from $7.25 to $10. Following its third-quarter earnings release, he raised the latter again to $11.
In a research note seen by Barron’s, Ward said that September’s production level had been better than expected. This followed months of low truck inventories as a result of the shutdowns enforced by the pandemic.
“By our estimates, inventory will end the year about 100,000 units below target, proving a tailwind for earnings into the second half of 2021,” he wrote.
“By our estimates, inventory will end the year about 100,000 units below target, proving a tailwind for earnings into the second half of 2021” - Michael Ward
Wedbush’s Dan Ives sees a scenario where General Motors could become a major player in the EV space, bucking a widely held view that traditional automakers can’t compete with the likes of Tesla.
“General Motors will offer 20 new EVs for sale by 2023, which is an impressive number of models,” he wrote in a note seen by Barron’s.
Wall Street is generally more bullish on General Motors’ share price than Ford’s share price. There are 17 ratings for both stocks, according to MarketBeat. Ford has six Buys, eight Holds, and three Sells. General Motors, however, has 12 Buys, four Holds and just one Sell. The consensus price targets are $8.78 and $42.24, respectively.