Leading automaker stocks fell sharply Thursday after reports surfaced that a global semiconductor shortage could add to further production cuts in the months ahead. Chips, in general, have been in short demand since the pandemic hit amid reduced production from manufacturers and a range of supply chain holdups. In the automotive industry, carmakers use the devices for a range of critical functions, such as driver assistance systems, navigation control, and in-car entertainment.
- Several leading automakers said they plan to temporarily cut production due to semiconductor shortages.
- Look for entries in Ford (F) shares around $11.70, where the price finds a confluence of support from a horizontal trendline and the 200-day simple moving average (SMA).
- Toyota (TM) shares encounter chart support at the $158 area from a previous resistance level and the 200-day SMA.
In a research note cited by Barron's, RBC analyst Joseph Spak told investors that chip shortages could remain an ongoing issue for automakers due to the older, more durable devices needed in the auto industry and competition for microchips in other end-use markets. However, Spak argued that strong demand for cars would fuel higher pricing and reduce inventories, helping to offset semiconductor shortages.
Below, we take a closer look at looming production cuts at two leading automakers: Ford Motor Company (F) and Toyota Motor Corporation (TM). We'll also analyze their charts and point out significant trading levels to watch.
Ford Motor Company (F)
The 118-year-old automaker said that it plans to temporarily suspend production of its popular F-150 pickup truck at its Kansas City assembly plant due to chip-related shortages arising from a resurgence of COVID-19 cases in Malaysia. The development comes just several weeks after the company halted production for a large part of July at eight of its other North American manufacturing factories amid chip shortfalls. Although Ford stock has slipped in recent weeks, it has jumped 44% year to date (YTD), outpacing the S&P 500 over the same period by 26% as of Aug. 20, 2021.
Ford shares recently broke down below a trendline that connects multiple swing lows over the past 15 months, which could give rise to further short-term weakness. Investors should look for buying opportunities in the stock at the $11.70 level—an area on the chart that finds a confluence of support from the green horizontal trendline and upward sloping 200-day simple moving average (SMA).
Trendlines are easily recognizable lines that traders draw on charts to connect a series of prices together or show some data's best fit. The resulting line is then used to give the trader a good idea of the direction in which an investment's value might move.
Toyota Motor Corporation (TM)
Japanese automaker Toyota Motor surprised investors Thursday, announcing that it plans to slash global production next month by 40% due to supply-chain backlogs caused by rising Covid infections across Southeast Asia. The company said that 14 of its Japanese plants would be affected and that it planned to scale back operations in North America, China, Europe, and other regions. The reductions see Toyota's September global production target of 500,000 units at its lowest level since May 2020. Since the start of the year, the company's stock has carved out a 9% gain and offers investors an enticing 2.54% dividend yield.
After forming what looks like a double top pattern, the Toyota share price gapped below key support at $174 on above-average volume Thursday that may bring additional sellers out of the woodwork in the near term. However, look for bulls to defend the $158 area, where the price appears well supported by a previous resistance level and the 200-day SMA.
Gapping occurs when the price of a stock, or another asset, opens above or below the previous day's close with no trading activity in between.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.