Chip shortages, supply chain disruptions and depleted inventory levels are just three of the headwinds auto stock investors have been dealing with in recent quarters. On Tuesday, Bank of America analyst John Murphy said auto investors can now add skyrocketing gas prices to the mix of problems for the auto industry.
Murphy said the near-term impact of rising gas prices should be minimal for auto stocks, but it may begin to weigh on long-term demand at some point. U.S. gasoline prices are up more than 100% year-over-year to $4.176 per gallon, and Murphy highlighted three ways soaring gas prices are impacting the auto industry.
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Pain At The Pump: First, Murphy said higher gas prices may negatively impact the new vehicle sales mix. While gas prices typically don't hurt overall unit demand, consumers may start to choose more lower-margin, fuel-efficient passenger cars or even electric vehicles over higher-margin crossovers, trucks and SUVs.
Second, Murphy said the recovery in total U.S. miles driven could be in jeopardy. He said miles driven is the best way to measure vehicle demand, and the average American is on track to spend an additional $727 on gas this year compared to the 2017-2021 average.
Finally, Murphy said gas prices above $5/gal could start to hurt consumer confidence.
"Assuming that gas and oil prices collectively continue to rise, the annual expenditure of an average household in the US will increasingly rise, and potentially even surpass, that of the 5% historical level," he wrote in the note.
How To Play It: Despite the gasoline worries, Murphy remains bullish on legacy automaker stocks. Bank of America has the following ratings and price targets for major automaker stocks:
- Toyota Motor Corp (NYSE:TM), Buy rating and $221.49 target.
- Ford Motor Company (NYSE:F), Buy rating and $30 target.
- General Motors Company (NYSE:GM), Buy rating and $100 target.
Benzinga's Take: The negative impact of rising gas prices may hurt auto stock earnings in 2022, but the market has made clear in recent years that it doesn't care much about the automaker's massive profits and revenue numbers. Instead, auto investors are seemingly laser-focused on the industry's next-generation EV and autonomous vehicle technology.
