Limited competition from Chinese OEMs and a more favorable regulatory environment will likely underpin American automakers this year, blunting what Piper Sandler analysts Alexander Potter and Ben Johnson predict will be a 1.2% decline in North American vehicles sales.
The conditions above will lead to “positive earnings revisions for U.S. OEMs,” Potter and Johnson write, and are most compelling for Ford (F) and General Motors (GM), both of which were upgraded to Overweight from Neutral.
The team also upgraded Stellantis (STLA) to Overweight but called the set-up “messier” for the Netherlands’s-based automaker with more China risk and lower margins.
With Ford (F), the decision to de-emphasize Europe and EVs (with a $19.5B write-down), leaves the company able to refocus on its most lucrative segments, while also spending less on compliance given more “conciliatory” CO2 policy. Potter and Johnson’s new 2027 outlook for Ford (F) implies EPS of $1.95 versus the consensus of $1.77 with EBIT of $10.8B, matching the highest in the post-financial crisis era.
Acknowledging that General Motors (GM) has been one of the top performers in their coverage, Potter and Johnson admit “upgrading GM now makes us feel a bit silly.”
This is because GM’s total return – including dividends – has consistently outpaced the S&P 500, and its trailing 12-month, 3-years, and 5-years return ranks it #2, #3, and #1, respectively in Piper Sandler’s coverage. A shift away from EVs will also boost GM’s (GM) EBIT by $800M in 2025 despite “flattish” revenue. And with minimal China risk and a less punitive EPA, GM’s (GM) forecasts now look “beatable.”
Stellantis’ (STLA) recent fall from grace with a dramatic share loss and management turnover seemed appropriately reflected in the stock’s below-average multiple. But the parent company of Jeep should get a boost from new launches and an “intriguing” joint venture with Leapmotor that will help mitigate the impact of Chinese competition in Europe. Potter and Johnson now assign Stellantis (STLA) a P/E of 6x (from a low of 3x to 4x) on the conviction that “earnings have bottomed.”
The team also delivered a notable upgrade at Aptiv (APTV) to Overweight and downgrade to Neutral for Borg Warner (BWA), calling the former “attractively valued” and the latter with a balanced risk/reward.