For Immediate Release
Chicago, IL – March 18, 2021 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: General Motors Company GM, Ford Motor Company F, CarMax, Inc. KMX and NVIDIA Corporation NVDA.
Here are highlights from Wednesday’s Analyst Blog:
Chip Crunch Throwing Auto Market in Disarray: No Quick Fix in Sight
Thanks to massive innovation and technological advancement, cars on the roads are becoming more like computers on wheels and these vehicles have a voracious appetite for chips. An average modern car comes with around 150 microchips for various applications including GPS navigation, in-car entertainment, bluetooth connectivity, electronically adjusted seats, engine controls and automotive braking systems. The bad news is the global shortage in the semiconductor supply, which is wreaking havoc on the auto industry.
What Has Really Led to This Chip Supply Crunch?
The primary reason is lower production by automotive chip makers amid coronavirus-induced sluggish vehicle demand and factory shutdowns. Then again, overall increase in consumer demand for electronics sucked up spare capacity. While carmakers slammed brakes on chip orders, electronic manufacturers witnessed significant demand uptick on next-gen gaming consoles, 5G smartphones, laptops, et.al, which snapped up any excess supply.
Meanwhile, pent-up demand and preference for personal mobility amid the socially-distant milieu resulted in faster-than-expected rebound of vehicle sales in the latter part of 2020 and current year. Trade restrictions on top China-based chip maker, Semiconductor Manufacturing International Corporation, also aggravated the crisis.
Near-Term Hiccups for Auto Biggies
Carmakers are now scrambling to procure semiconductors, which are forcing them to undergo production cuts, idle factories and furlough employees. U.S. auto giant General Motors has extended production stoppage at the San Luis Potosi plant through the end of March. Downtime at Fairfax and CAMI is extended to at least mid-April.
Further, operations in the firm’s Gravatai plant in Brazil will remain suspended in April and May. Notably, the company is manufacturing certain 2021 light-duty pickups sans fuel management module, which would lower the vehicle’s fuel economy numbers.
As it is, General Motors has warned that 2021 pretax profits might take a $1.5-$2 billion hit, thanks to the shortfall of semiconductor chips. Its closest peer, Ford anticipates the chip issue to curtail production of the hot-selling F-150 pickup and adversely impact 2021 adjusted EBIT to the tune of $1-2.5 billion.
General Motors and Ford currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Winners & Losers
The semiconductor shortage will soon result in delays in new car deliveries across various key auto brands. Dealers of new cars are likely to be left with huge orders but no inventories to meet the demand.
Consumers will have a hard time in finding new vehicles and specific models at dealerships. While most of the auto giants including Volkswagen, Honda, General Motors and Daimler are likely to suffer from the chip famine in the near term, things are still looking up for retailers specializing in the sale of used cars.
With demand for cars remaining high but not many new inventories on the lots, prices of used cars are likely to go up further. As such, stocks like CarMax are not likely to get affected, and may witness top- and bottom-line growth amid rising demand for used vehicles.
Needless to say, the semiconductor industry remains one of the biggest beneficiaries amid the soaring demand for microchips. Per the latest World Semiconductor Trade Statistics data, the global semiconductor market is now predicted to improve 8.4% in 2021, based on double-digit growth of memory and optoelectronics. As such, key semiconductor players like NVIDIA are poised to gain from the same.
The current chip famine is not only challenging President Biden’s goal to rev up manufacturing of automobiles (especially electric vehicles) in a bid to spur economic growth but is also casting a doubt over security of the nation’s supply chain system. While concerted efforts are being undertaken by the Biden administration, chipmakers and automakers to ease the microchip shortage, they will most likely provide long-term benefits but not ease the current supply glitch anytime soon.
Per IHS Markit, the chip shortfall could result in global light vehicle production loss of around 1 million units in the first quarter itself. The agency expects the industry to grapple with the shortage of semiconductor chips at least till third-quarter 2021.
While the chip supply is expected to meet demand by the third quarter, it is not likely to make up for the lost production volumes through first-half 2021. Nonetheless, looking at the present scenario, it’s anybody’s guess how quick the auto industry will recover from the chip crisis.
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