Morgan Stanley Downgrades GM, Ford Amid Chinese Supply Risks and Rising Delinquencies

Shares of major auto manufacturers came under pressure as Morgan Stanley's Adam Jonas downgraded several companies, including $General Motors (GM.US)$ , $Ford Motor (F.US)$, $Rivian Automotive (RIVN.US)$ , and $Magna International Inc (MG.CA)$. He highlighted risks from China's overproduction and rising delinquency rates in the U.S. auto market.

Jonas noted that China produces 9 million more cars than it sells, impacting competition. He stated, “We are downgrading our view of the U.S. auto industry to In-Line from Attractive,” citing concerns over inventory levels, vehicle affordability, and rising credit losses.

He emphasized that U.S. inventories are increasing, while vehicle affordability remains strained, with average monthly payments exceeding $720. As subprime defaults decrease, prime defaults are on the rise, highlighting the financial strain on consumers.

Jonas pointed out that in 2023, China accounted for 29% of global auto sales and over 40% of global auto capacity, leading to competitive pressures for U.S. manufacturers. He also expressed concerns about the capital intensity required for new technologies like ADAS and AV, questioning the financial health of traditional automakers.

He cautioned that the positive effects of rate cuts may be short-lived, historically lasting only about six months, before the sector potentially underperforms again.