In this article, we’ll discuss the 8 auto stocks analyst Itay Michaeli at Citi has a bullish stance on.
In a research note issued on August 2, Itay Michaeli at Citi increased the EPS estimates for multiple auto stocks as we head into the second half of 2022. He cited the increase in optimism in management’s tone during the Q2 2022 earnings call of these companies as the reason for increasing his forecasts. Michaeli added that the reiteration of guidance and the resilience of demand in the US automobile sector were expected during the earnings call. However, the bullishness on the European auto market shown by the management of various automobile companies was a surprise, considering the economic uncertainty and supply chain-related issues. He anticipates the feeling of optimism to flow to the investors and result in the outperformance of the auto sector against the broader market in 2022. After incorporating the impact of positive developments, the analyst increased the target prices for notable companies like Ford Motor Company (NYSE:F), Tesla, Inc. (NASDAQ:TSLA), and Visteon Corporation (NASDAQ:VC).
The automotive industry has undergone substantial changes as it strives to meet rising consumer expectations and overcome the obstacles connected with autonomous, electric, and hybrid vehicles. The international automotive industry recovered from setbacks brought on by the pandemic with a respectable 5.3% increase in sales in 2021. The industry is going through a transformation as the focus is shifting from conventional fuel-powered vehicles to electric vehicles to reduce the adverse impact on the environment.
EV Revolution
As per Bloomberg data, global EV sales exceeded expectations last year. Between 2020 and 2021, the sales almost doubled to 6.6 million units. By 2030, the sales are projected to reach 32 million units yearly. From 2011 to 2021, EV sales increased by a staggering 174 times on a global scale. Over the same timeframe, EV sales in the United States surged by 38 times. Furthermore, the sale of accessories and auto replacement parts online is anticipated to reach $50 billion globally in 2022. The aftermarket will see an increase in demand for specialized services and equipment maintenance due to the rising EV population.
There are significant limitations to these upbeat predictions, though. Consumer demand seems to be evident, but before EV manufacturing and sales can expand, the automotive industry needs to act swiftly to remove key obstacles. These include strained supply chains following the Russia-Ukraine conflict, a dearth of battery-producing gigafactories, inadequate productivity in already-existing facilities, and the lack of public charging infrastructure.
Michaeli’s Stance on Tesla, Inc.
We would also like to highlight Michaeli’s contrarian call on one of the leading EV producers globally, Tesla, Inc.. Although the analyst increased the price target on Tesla, Inc. from $375 to $425, he still maintained a Sell rating on the stock. The target price reflects a potential downside of over 50% from the closing price as of August 5. The analyst increased the EPS forecasts for the second half of the year following the company’s Q2 2022 earnings beat due to strong execution.
However, Michaeli believes that the valuation of Tesla, Inc. “remains challenged.” He highlighted that his investment thesis would only change if he saw more concrete proof of progress from the deployment of Level 4 autonomy and RoboTaxi. Level 4 of driving autonomy is regarded as High Driving Automation. This means that in case something goes wrong, the artificial intelligence (AI) embedded in the automobile will be able to intervene on its own without the need for human assistance in the majority of circumstances. However, a human can manually override also. According to Tesla, Inc. CEO Elon Musk, the autonomous RoboTaxi service will be a combination of Uber Technologies, Inc. (NYSE:UBER) and Airbnb, Inc. (NASDAQ:ABNB). Musk also added that RoboTaxi is not getting designed by keeping a launch city in mind, but it would be a general solution that could work across the planet.
Photo by Marvin Meyer on Unsplash
Our Methodology
Let’s begin our list of the eight auto stocks on which Michaeli has a bullish stance. We will go through the comments made by the analyst and discuss the growth drivers for these companies. The stocks have been ranked according to the number of hedge fund holders as of the first quarter of 2022.
8. Polestar Automotive Holding UK PLC (NASDAQ:PSNY)
Polestar Automotive Holding UK PLC (NASDAQ:PSNY) went public on June 24 through a SPAC deal. The trading of shares commenced one day after the successful merger with the SPAC Gores Guggenheim.
The EV maker intends to use the $890 million generated by the IPO to fund its operations for the next three years as the company is looking to design and manufacture new EV models and achieve profitability. Polestar Automotive Holding UK PLC was established in 2017 as a result of a joint venture between Swedish auto manufacturer Volvo and Chinese auto giant Geely. The company consolidated its operations and prepared itself for the hyper-growth phase before coming out to raise capital.
Michaeli initiated coverage on Polestar Automotive Holding UK PLC with a Buy and a High-Risk rating and a target price of $13. The analyst expects the company to gain nearly 6% of the global market share by 2030. Michaeli also favored Polestar Automotive Holding UK PLC’s asset-light model due to the presence of strong partners.
Although the analyst presented a positive outlook on Polestar Automotive Holding UK PLC stock, he also highlighted a few expected headwinds. Foreign exchange fluctuations and volatility in commodity prices and supply could adversely impact the operations of Polestar Automotive Holding UK PLC in the future.
7. Fisker Inc. (NYSE:FSR)
Number of Hedge Fund Holders: 16
Fisker Inc. (NYSE:FSR) is a Manhattan Beach, California-based manufacturer of EVs. The company was founded and is led by widely known car designer Henrik Fisker and his wife Geeta Gupta-Fisker.
In a research note issued on August 4, Michaeli increased the price target on Fisker Inc. from $27 to $28 and maintained a Buy rating on the stock. The analyst highlighted that he found no unexpected updates in the company’s “fairly encouraging” Q2 2022 results. He also added that at the current valuation, the setup plays in favor of Fisker Inc. as the company heads towards achieving important milestones.
Industry experts think that Fisker Inc. may require a liquidity injection in the next six months to execute the Ocean ramp plan, which involves increasing the production of the company’s all-electric SUV Fisker Ocean. However, it could be difficult to achieve this as the rising interest rate, and concerns related to growth have made access to new capital challenging. There is also a near-term execution risk hanging over the company as its complete production is based in Austria, and the country could face the brunt of the gas shortage in Europe.
Moore Global Investments was the leading hedge fund investor in Fisker Inc. during Q1 2022.
6. Lucid Group, Inc. (NASDAQ:LCID)
Number of Hedge Fund Holders: 16
Lucid Group, Inc. (NASDAQ:LCID) is a Newark, California-based luxury EV company. The company is led by CEO Peter Rawlinson. He was the former chief engineer of the Tesla Model S.
Although the company reported weak Q2 2022 results on August 3, the Citi analyst reiterated his Buy rating on Lucid Group, Inc. stock with a target price of $28. Lucid Group, Inc. reported disappointing results as supply chain constraints at its Casa Grande factory near Phoenix, Arizona, took a toll on the quarterly results. These developments caused the company to lower its 2022 production guidance to 6,000 – 7,000 units only as opposed to the prior guidance of 12,000 – 14,000 units.
However, experts consider Lucid Group, Inc. as one of the strongest EV players outside of China that could survive in a challenging macroeconomic environment. The luxurious Lucid Air has the longest range of 517 miles with the most efficient battery.
Out of the 912 hedge funds being tracked by Insider Monkey at the end of Q1 2022, 16 funds held a stake in Lucid Group, Inc..
5. Luminar Technologies, Inc. (NASDAQ:LAZR)
Number of Hedge Fund Holders: 16
Luminar Technologies, Inc. (NASDAQ:LAZR) is an Orlando, Florida-based provider of vehicle safety and self-driving products and technologies.
Michaeli gave Luminar Technologies, Inc. stock a Buy rating with a target price of $24 on May 6. The analyst thinks that Luminar Technologies, Inc. can be termed a long-term investment. It has the first mover advantage in the key Light Detection and Ranging (LiDAR) technology that is an integral part of the sensing technology for autonomous driving to progress.
The company reported its Q2 2022 results on August 8. Luminar Technologies, Inc. recorded revenue of $9.9 million, beating the analysts’ estimates of $8.59 million. Furthermore, the company raised the FY22 guidance for its forward-looking order book to a growth rate of 60% YoY, from prior guidance of 40%.
Founder and CEO Austin Russel is the biggest shareholder in Luminar Technologies, Inc., with a stake of over 38%.
In addition to Luminar Technologies, Inc. and Visteon Corporation, Michaeli also has a positive outlook on Ford Motor Company.
4. Visteon Corporation (NASDAQ:VC)
Number of Hedge Fund Holders: 25
Visteon Corporation is a Michigan-based automotive electronics supplier that was spun off from Ford Motor Company more than two decades ago.
On August 2, Michaeli increased the price target on Visteon Corporation from $115 to $128 and maintained a Neutral rating on the stock. The analyst noted that the company reported “solid” Q2 2022 results, which reflected stellar margins, strong launch execution, and costs under control. Michaeli raised the full-year EPS estimates for Visteon Corporation from $4.07 to $4.90.
Visteon Corporation outperformed the revenue and EPS forecasts for the quarter. Revenue increased by 39% YoY to $848 million and outperformed the consensus forecast of $719.49 million. Meanwhile, the adjusted EPS of $1.34 was 48 cents higher than the consensus estimate. Visteon Corporation also provided strong guidance as it sees 2022 revenue to be in the range of $3.15 billion to $3.35 billion. The midpoint of $3.25 billion is $30 million higher than the analysts’ forecast of $3.22 billion.
Overall, 25 hedge funds held a stake in Visteon Corporation at the end of Q1 2022, up from 24 in the preceding quarter.
3. BorgWarner Inc. (NYSE:BWA)
Number of Hedge Fund Holders: 27
BorgWarner Inc. (NYSE:BWA) is an Auburn Hills, Michigan-based provider of automotive suppliers. The company has 93 sites spread across 22 countries.
Following the company’s Q2 2022 results, Michaeli increased the price target on BorgWarner Inc. from $43 to $45 and reiterated a Neutral rating on the stock. BorgWarner Inc. reported revenue and adjusted EPS of $3.76 billion and $1.05, respectively, outperforming the analysts’ estimate of $3.7 billion and 86 cents.
BorgWarner Inc. reiterated its 2022 revenue guidance to be in the range of $15.5 billion – $16 billion. The guidance assumes an organic growth of 11% to 14%. The midpoint of $15.75 billion is $140 million higher than the consensus estimate. BorgWarner Inc. also raised its adjusted EPS guidance to $4 – $4.40 from prior guidance of $3.90 – $4.25.
Here’s what Oakmark Funds said about BorgWarner Inc. in its Q4 2021 investor letter:
“We had the opportunity to purchase BorgWarner for a high single-digit multiple of our estimate of normal earnings due to elevated cyclical concerns and uncertainty about the longer term impact of powertrain electrification on the business. Currently, the company’s earnings are depressed due to semiconductor supply constraints that are impacting the entire industry. We expect these constraints to prove transitory, and we’re confident that component shortages will be resolved in the coming years. Furthermore, we believe that OEMs are likely to rely heavily on third-party suppliers, like BorgWarner, to leverage R&D expenses to enhance innovation and speed-to-market in an electrified world. For decades, we’ve been impressed with how BorgWarner management has successfully acquired and scaled fuel efficiency technologies for internal combustion engines. We see strong parallels and underappreciated potential in the acquisitions the company has made over the past 5+ years in key electric vehicle technologies. We believe the company is well-positioned to manufacture and integrate new propulsion systems and components to meet customer demands.”
Bailard Inc was the leading hedge fund investor in BorgWarner Inc. during Q1 2022.
2. Autoliv, Inc. (NYSE:ALV)
Number of Hedge Fund Holders: 35
Autoliv, Inc. (NYSE:ALV) is a Stockholm, Sweden-based provider of safety supplies to the automotive industry. The company has a presence in over 27 countries.
On July 25, Michaeli increased the price target on Autoliv, Inc. by 18.67%, or $14 to $89, after the company posted strong Q2 2022 results. The analyst maintained a Neutral rating on Autoliv, Inc. stock. He sees a positive trajectory for the margins as the management’s commentary on cost recoveries was upbeat.
The Q2 2022 results reflected the ability of Autoliv, Inc. to combat inflation as the company reported a significant EPS beat after raising its prices in June. Autoliv, Inc. reported an adjusted EPS of 90 cents that outperformed the analysts’ forecast of 36 cents by a significant margin. Revenue increased by 3% YoY to $2.08 billion, beating the analysts’ expectation of $2.04 billion.
Beddow Capital Management increased its stake in Autoliv, Inc. by 5% during the second quarter of the year.
1. Ford Motor Company (NYSE:F)
Number of Hedge Fund Holders: 46
Ford Motor Company is a Dearborn, Michigan-based auto manufacturer. The company has the distinction of being the fourth biggest auto manufacturer in the world.
On August 2, Michaeli increased the price target on Ford Motor Company from $15 to $16 and reiterated a Neutral rating on the stock. The analyst closed his “90-Day Upside Catalyst Watch” on Ford Motor Company as he thinks that the near-term catalysts have been factored into the stock. Michaeli increased the full-year EPS estimates on Ford Motor Company from $1.98 to $2.02. The company is in the process of simplifying the operations of conventional fuel-powered automobiles.
Furthermore, Ford Motor Company is also working towards making its operations leaner as it believes that there is an excess workforce at some locations. In July, the company reported a 36.6% YoY jump in auto sales to 163,942 vehicles as opposed to the auto industry experiencing a fall of 10.5% during the same period.
Ford Motor Company was discussed in the Q1 2022 investor letter of Baron Funds. Here’s what the fund said:
“Ford is another example of typical industrial manufacturing business executive mindsets. The April 18, 2022, Bloomberg Businessweek cover story features Ford CEO Jim Farley behind the wheel of an electrified Ford F-150 Lightning. The article is titled, “Hey Elon, THIS is a truck.” I thought the article was terrific. One idea especially stood out to me. Since the F-150 is such a popular vehicle, it “argued for a gradual approach to electrification. Essentially the company retrofitted an existing F-150 with an electric powertrain rather than develop an entirely new truck.” No all-in financial and operation bet by this company on electrification.”
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This article is originally published at Insider Monkey.
