Proceed with caution in the auto industry, analyst says

After General Motors (GM) and Hyundai (HYMTF) announced a joint agreement to explore clean energy technologies and other automotive advancements, Wolfe Research managing director and senior research analyst Emmanuel Rosner joins Market Domination hosts Julie Hyman and Josh Lipton to explain why he is cautious about the auto industry.

“There are some real unprecedented structural challenges for the industry,” Rosner says, explaining that “megatrends” in the space, like electrification, autonomous driving, and software adoption, are “taking significantly longer to play out” than initially expected.

“Automakers have been making massive investments” into these trends but are yet to see the payoff as monetization is “taking significantly longer.”

Rosner notes that "massive market share shifts” also affect the auto industry as “there have been some winners in electrification,” namely Tesla (TSLA) and Chinese automakers.

“The five Chinese OEMs and Tesla have essentially been winning," taking market share from traditional automakers.

The analyst remains cautious about the auto industry at large, saying that given these “tremendous structural challenges.”

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Naomi Buchanan.

Video transcript

Let's talk about automakers as well.

General Motors and Hyundai have signed an agreement to explore joint product development, manufacturing and future clean energy technologies.

That team up coming is automakers I capital efficiency, several of which are adjusting electrification plans amid slowing demand.

And so this is just one of the many structures challenges that are facing the automotive industry.

Our next guest taking a cautious industry view on the sector here with more wolf research managing director and senior research analyst Emmanuel Rosser.

Emmanuel, it's good to see you.

Um, you have switched firms, but you got lots of interesting things to say about autos, as always.

Um, I do want to get your specific take on that ownership, but first I want to get your big picture take on what the auto industry is experiencing right now.

As I just mentioned, we've seen pull back in EV production plans.

We've seen various surveys that show people aren't planning to buy EVs or even hybrids in the same numbers.

Do you think that the industry is rising to meet that changing challenge?

Yeah, thanks so much for having me.

Um, I think there's some real unprecedented structural challenges for the industry.

Right here.

Um uh, some of them is what you mentioned.

Essentially, a lot of these mega trends that were expected are taking significantly, longer, uh, to play out.

We're talking about the electrification, autonomous driving adoption of software.

So automakers have been making massive investments into it and are not able to monetize them.

Uh, because it's really taking significantly longer.

The price points are too high, but then others are also massive market share shifts.

Uh, there have been some winners in electrification so far.

It's been Tesla, and it's been, you know, Chinese automakers.

Over the last five years, the top Western automakers have lost five points of global auto share.

While you know there, five Chinese OES and Tesla have essentially been winning seven points.

And so they are absolutely eating.

You know, some of the traditional legacy automakers lunch because they were able to take advantage of lower cost nimbleness, you know, speed to market and come up with a product at the right price point.

Um and, um, in a product that consumers want to to to have.

So this has been tremendous structural challenges like the return on capital from some of these automakers recovered, um, have been under massive pressure because of large investments and unprofitable, uh, product.

And we really worry, um, how difficult it will be, uh, to change this, uh, over.

So this partnership announcement is definitely today a step in the right direction.

It shows that the automakers acknowledge the problem and that they want to be more efficient partner up in order to come up with product at a lower investment cost, but the the road is going to be very long.