'Sell' ratings have been issued for Tesla Inc (NASDAQ:TSLA), Ford Motor Company (NYSE:F) and Volkswagen Group (XETRA:VOW) as a looming electric vehicle (EV) oversupply leads to pressure on profit margins.
Equities research company Redburn, which is owned by investment bank Rothschild, raised a red flag over the EV market, predicting a challenging phase as margins fall due to an oversupply of a million vehicles during a period when companies are continuing to plough significant investment into the sector to grow or at least maintain a share of the market.
In a '360-degree' examination analysis of battery electric vehicle (BEV) demand, analysts said the flood of new cars onto the market, partly from China, represents nearly 10% of EV sales volume, "potentially leading to sustained price pressures and a drive towards consolidation, partnerships, and even failures within the industry".
Tesla, despite its current technical leadership, is facing margin pressure due to lower pricing and rising investment needs, leading Redburn to rate it as 'sell', alongside Volkswagen and Ford, which are also perceived to be facing significant EV challenges.
Redburn identified two manufacturers as having "compelling valuations" due to their strategic preparedness for the uncertain pace of electrification: Stellantis NV (NYSE:STLA, EPA:STLA) and BMW AG (ETR:BMW).
Stellantis is viewed as particularly undervalued, with its upcoming platform scale and pragmatic partnership approach poised to sustain market-leading returns. "We expect its relative outperformance to become more noticed by the market in the year ahead," analysts wrote.
BMW, on the other hand, has a platform flexibility that has "lent itself to consistent production that will help it manage soft patches in demand, regardless of powertrain mix."
BMW's next-generation electric platform offers less margin pressure from electrification compared with competitors, the analysts believe.
'Neutral' ratings were doled out for Porsche AG (ETR:P911), Mercedes-Benz, Renault, and General Motors Company (NYSE:GM), which reflect concerns over falling margin expectations through 2024.