Automakers' Double Downgrade

Among the stocks hit hard yesterday were those of big automakers. 

GM (GM) and Ford (F) were given double-downgrades by Wells Fargo auto analyst Colin Langan. The analyst went straight from buy ratings on the stocks to an outright sell, skipping a neutral rating.

In his 77-page report, Langan said that the recent spike in raw material prices have “massively changed the economics of the transition to battery electric vehicles." Langan said he believes the spike in raw material prices like nickel has delayed the cost parity between EVs and gas-powered cars by “at least a decade.”

He said supply chain pressures will also hurt the automakers’ planned transition to EV production. He noted that 2022 could be a year for “peak profits” for the legacy automakers.

Langan also slashed his price targets. He took his target for GM from $74 down to $33, and dropped his Ford target from $24 to $12. GM shares closed down nearly 5% at $35.56, while shares of Ford closed down 3% at $12.44.

The analyst also had comments on Tesla, cutting his price target to $900 from $960. However he kept his hold rating on Tesla. Tesla (TSLA) shares ended the day down about 1% at $728.

"The auto industry is facing the triple-threat of supply chain disruptions, persistently high prices for raw materials, and a potential slowdown in consumer spending. Investors have no appetite for slowing growth, which will put pressure on the entire sector for the foreseeable future," said Caleb Silver, Editor-in-Chief of Investopedia.