Morgan Stanley has revised its outlook on the U.S. auto industry, lowering it from Attractive to In-Line, citing headwinds such as rising inventory levels, affordability concerns, and increasing competitive pressure from China, which has shifted from being a source of demand to one of global oversupply.
The report highlights that China's automotive industry is now producing around 9 million more units than it consumes, exerting pressure on global markets. Morgan Stanley warns that this excess capacity is likely to find its way into other regions, intensifying competition for U.S. automakers.
"Even if these units don’t end up directly on U.S. shores, the 'fungibility' of lost share and profit by key U.S. players adds pressure here at home," Morgan Stanley analysts said in a Wednesday note.
As part of its sector review, Morgan Stanley downgraded key automakers, including General Motors (NYSE:GM), Ford (NYSE:F), and Rivian (NASDAQ:RIVN).
GM was moved from Equal-weight to Underweight, while its price target was cut from $47 to $42. Ford and Rivian stocks saw the same downgrades, with their price targets lowered from $16 to $12 and from $16 to $13, respectively.
“Our downgrades to F and GM are underpinned by our expectation for greater share loss through end of decade, price/mix headwinds, and China, regulatory compliance, and EV/AV/ROW/Other risk which can impact profitability driving lower normalized earnings and valuation,” analysts noted.
For RIVN, the downward revision reflects their “incorporation of the capital intensity of AV/ADAS which may be required to fulfill the technological underpinnings that attracted Volkswagen as a JV partner.”
As such, analysts hiked their annual capital expenditure estimates by $200 - 300 million per year beginning in 2026.
Alongside GM, F, and RIVN downgrades, Morgan Stanley also cut its ratings on Magna International (NYSE:MGA) and Phinia (PHIN), while upgrading franchise dealers such as Asbury Automotive (NYSE:ABG) and Lithia Motors (NYSE:LAD), among others.