As you’re probably quite aware, used-car prices soared during the pandemic amid a shortage of vehicles, creating hardship for many Americans.
That trend ended definitively last June, as vehicle-supply rebounded. But after seven straight monthly declines, wholesale used-car prices rose 1.5% to $19,918 in January from December, according to Cox Automotive’ Manheim, a used-vehicle marketplace.
To be sure, the January price was down 11% from a year earlier, but the monthly increase may signal an ominous trend.
"The principal reason for improving used retail [auto] sales early in 2023 is the price decline in retail that was a product of last fall’s wholesale price declines,” said Cox Automotive Chief Economist Jonathan Smoke.
“Now dealers are restocking at higher prices, so the retail price trend will reverse soon. It will be tough to maintain positive sales momentum with higher prices, especially as rates keep rising.”
So perhaps prices will continue rising for a few months and then fall again.
Meanwhile, you may be wondering about the condition of major auto-company stocks. Here is Morningstar’s take on perhaps the two most important U.S. players.
General Motors Seen Doing the Right Thing
(GM)
Morningstar analyst David Whiston assigns the company no moat (durable competitive advantage). But he puts fair value for the stock $78, compared to a recent price of $42.25.
“We see General Motors with a competitive lineup in all segments it competes in, combined with a reduced cost base, finally enabling it to have the scale to match its size,” he wrote in a commentary.
“We think GM's earnings potential is excellent because the company has a healthy North American unit and a nearly mature finance arm with GM Financial.”
Further, GM’s purchase of 80% of autonomous-car maker Cruise and GM’s connectivity and data-gathering operation via OnStar “position GM well for this new era,” Whiston said.
“Cruise is offering autonomous ride-hailing with its Origin vehicle. And GM targets $50 billion of Cruise revenue in 2030, after just $1 billion targeted in 2025.”
Tesla: Positive Long-Term Outlook
(TSLA)
Morningstar analyst Seth Goldstein gives the company a narrow moat and puts fair value for the stock at $220. It recently traded at $210.
After Tesla’s fourth-quarter earnings report, “we updated our forecast for deliveries in 2023 to 1.8 million from 1.6 million,” Goldstein wrote in a January commentary.
Tesla's price cuts, announced in January, will boost demand, he said. To be sure, in February, after his report, the company trimmed the reduction a bit for its Model Y SUV.
“Given Tesla's price declines and our view that lithium contract prices will rise in 2023, … we expect automotive gross profit margins to contract further in 2023,” Goldstein said.
Looking long-term, “we expect Tesla to drive gross margin improvement from lower raw materials prices and the full ramp-up of its new plants, including its battery manufacturing operation.”
