Last week, automotive supplier stocks rebounded on the speculation that the worst is behind it. Advance Auto Parts (AAP) traded as low as around $39 before closing at $41.38. Use car seller CarMax (KMX) jumped from around $74 to as high as $79.53 on Sep. 26.
CarMax posted revenue that beat analyst consensus estimates. This also lifted Carvana (CVNA), CarGurus (CARG), and Vroom (VRM). However, the small rate cut of 50 bps is nowhere near enough to lower loan loss provision risks ahead. Used car dealers need to sell high-priced vehicles to cut down their inventory. Unfortunately, consumers already paid market adjustments during the pandemic. Vehicle prices are also too high.
Consumers will pressure dealers to force automotive makers to slash prices. Eventually, firms like General Motors (GM), Ford (F), Toyota (TM), Honda (HMC), and Hyundai (HYMTF) will need to offer generous incentives. Until then, sales will worsen on a year-on-year comparison.
Speculators also bet on Magna (MGA) trading at attractive prices. The stock bottomed at nearly $40 to close at $42.73. Unfortunately, Fisker’s bankruptcy removes Magna’s growth catalyst in the EV sector. Once the buying momentum ends, beware of Autoliv (ALV),
BorgWarner (BWA), and Aptiv (APTV) stocks pulling back.
Take profits if the share price in the aforementioned stocks weakens in the coming days.
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