Automakers are experiencing a pivot: Analyst

The auto sector experienced a challenging week, with major players Tesla (TSLA), Ford (F), and General Motors (GM) all reporting weaker-than-expected earnings. Dan Levy, Barclays senior autos analyst, joins Market Domination to discuss the current state of the auto industry.

Levy identifies a trend in the auto industry: "a pivot to demand constraints and away from supply constraints." He explains that in recent years, demand was strong while supply was weak. However, "that's really flipped this year," with automakers now "grappling with this reality" of softer demand.

Regarding the potential impact of the upcoming election on the electric vehicle (EV) market, Levy notes that automakers will likely continue with their product planning cycles "regardless of who is in office". However, he points out that a Trump-Vance administration could potentially change the Inflation Reduction Act's EV tax purchase credit and might lead to softer regulatory mandates for the industry.

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This post was written by Angel Smith

Video transcript

It's been a rough week for the auto industry, major us automakers, Tesla Ford and General Motors all reporting weaker than expected earnings amid mounting competition in China and lackluster ev demand for more.

We're bringing in Dan Levy, senior autos analyst at Barclays and Dan, it wasn't just the US automakers.

You know, we heard from ST anti, we heard from Mercedes.

It seems like the pain here is pretty broad.

So just big picture.

What's your read on the health of the auto sector right now and whether there are any green shoots or light at the end of the tunnel or whatever analogy you want to use?

Yeah, thank, thank you so much Josh and Julie for, for hosting me.

Look, I think that the auto industry, the theme this year has been a pivot to uh demand constraints and away from supply constraints, right?

I think what we've seen is that the last few years supply was a constraining factor.

Demand was quite strong and that's really flipped this year and that's where the automakers and the entire supply chain is really getting pushed.

The other thing that we've seen is that the EV picture has changed dramatically.

And again, very similar picture.

We went from a market that was highly supply constrained where demand was viewed to be quite robust.

And that dynamic has flipped quite dramatically this year to a market where there's now excess supply and demand has has waned a bit.

And so I think that the entire supply chain, automakers suppliers alike are really grappling with this reality.

This year.

Dan, I wanna stick with evs for a second because another theme dynamic that investors are trying to figure out um is politics, Dan, election year and, and a question that's come up is let's say Trump bans take the White House and investors I think are trying to game out Dan, you know what that would mean for the EV market?

I mean, let, let's say you did eliminate Dan, you know, federal ev subsidies.

What would that mean for your coverage universe?

Yeah, Josh, it's, it's a very good question and it's, it's very topical look.

Um I think there's two sides to this.

On one hand, automakers have very long planning horizons.

They are focused on uh you know, longer term strategies.

And so it's not so easy to flip around your strategy, flip around your product planning cycle based on who's in office.

So there is a piece of this that will continue regardless of, of who is in office.

But at the same time, Trump has been very clear about taking away the mandate.

That means two things.

You know, we could see some impact to Ira.

You know, there's an purchase credit tax, purchase credit and there is also a lot of regulatory mandates that dictate uptake of, of evs whether it's EPA nhtsa or on a state basis, the California Zev program under Trump, we could see a lot of that soften but that could be a very long process for him to soften those, those standards, they won't go away, but they could easily be softened.

And, and to your point in about automakers are really, this is true of many industries, right?

They want consistency, they want that long run planning ability, even if Trump were to enter office.

Is it possible that the automakers would keep on their same trajectory with emissions reduction uh abilities for their vehicles, for example?

Or would they be forced to pivot if the market itself pivoted?

Well, look at the end of the day, automakers have to sell products that consumers want, right?

They can put out the automakers can put out whatever targets they want on ev transition.

But if it's not underpinned by consumer demand and it's not going to work now critically, you know, we uh you know, regulatory mandates and government as a whole has played a key role globally in an easy uptake.

So we will certainly see some change in behavior by the automakers.

We think if you have a, you know, a change in the regulatory mandates, but again, that is being balanced with the desire to have a long term planning cycle and uh and, and a product plan.

And Dan, we haven't had the chance to chat with you since uh Tesla reported, but I, I did wanna get your, your take on that print as well, Dan, I know you're still equal weight on the name.

Certainly a lot of bulls, Dan, they're still now pointing to October and the Robo Taxi event.

So, so just to get your thoughts on the print and that event, Dan, what, what, what do you think we could hear there?

Yeah.

Well, look, the, the print was uh a focus even if for a brief moment back on, on fundamentals, right?

That's been one of the challenges here with Tesla stock is that the focus had shifted so heavily to fundamentals that we sort that to, to uh the long term vision of autonomy and A I that there was a lot of feedback that we got into earnings and people just didn't really know what a print would even matter for Tesla.

And this was sort of a wake up call of, ok.

Even if for a brief moment, they do matter.

We, the headline result was this was a margin.

Ok. And there were a few things going on in the margins, but the biggest piece was the discounting that they needed to do to push units.

So even though you had a very nice delivery beat that.

We saw, you know, at the beginning of July that, you know, now we see that, that that was really driven by, by pricing that, that they had to use to push those units.

So for a brief moment, the focus is on fundamentals and margin and there is a reset on margins that has to happen that may then that may wane though as we go back to this longer term focus and the question on autonomy and the pivot there and that's what we're going to get in October.

Uh when they talk about Robo Taxi Day and the strategy there.

The other thing that they mentioned is they said there's going to be a few other things that they'll unveil or show at October.

We don't know what it is, but we suspect could be new products possible.

It is the new low cost model that they told us would be, you know, start production in 2025.

Dan.

Thanks a lot for your perspective.

Appreciate it.

Thank you so much, Josh and Julie.