Ford, General Motors stock rallies face uncertainty as earnings kick off

The stock rally for America’s traditional automakers may face a reality check with companies starting to report results amid an industrywide semiconductor shortage and an uncertain outlook heading out of the pandemic.

Ford Motor Co. and General Motors Co. have drawn renewed interest from investors as they join the race to capture more of the electric-vehicle market dominated by Tesla Inc., the world’s most valuable car company.

But quarterly earnings -- beginning with Ford on Wednesday and followed by General Motors next week -- will leave investors and analysts balancing the companies’ gas-car-fueled performance at the start of the year against their outlook for the future, all against the backdrop of a global shortfall of computer chips.

Pandemic-related supply-chain disruptions and a sudden jump in the demand for products that use those chips -- from laptops and phones, to home appliances and cars -- has led carmakers including Ford, Volkswagen AG and Toyota Motor Corp. to halt production and idle plants.

“Global auto production in first quarter saw a large negative impact from semi shortages, although likely not as much as feared a month ago," Deutsche Bank AG analyst Emmanuel Rosner wrote in a note on April 22. “Conversely, production schedules for the second quarter seem to be coming under deeper pressure than anticipated from prolonged shortages, and the potential to make up large lost volume in the second half seems to be diminishing."

The industry’s first quarter will likely be stronger than initially projected by analysts after a report showed auto sales for the period largely surpassed expectations and rose from a year ago.

But the outlook is likely to face more scrutiny.

“More important than first-quarter results will be the status of 2021 financial outlooks, which in most cases had been provided earlier prior to an exacerbation of the global semiconductor shortage," Bank of America Corp. analyst John Murphy wrote in a note. Murphy said a number of companies may reaffirm their 2021 guidance -- although that will likely rely on a stronger second half of the year to make up for any first-half weakness.

That may cause some investors to reassess the recent stock price gains. General Motors Co. and Ford Motor Co. have both risen over 40% this year, dwarfing the nearly 12% advance in the broader S&P 500 Index.

Analysts will also be watching for any update on the two companies’ plans for reinstating their dividends, which were suspended last year. GM’s Chief Executive Officer Mary Barra in February said the company will comment on it “later in the year."

“In our recent conversations with investors, we sensed a certain degree of apathy towards the sector, and lack of great stock convictions," Deutsche Bank’s Rosner said. While he sees room for further gains for both GM and Ford shares, he said that would require the companies to prove their mettle in electric and self-driving cars.

What Bloomberg Intelligence Says:

“Ford’s first-quarter results should be buoyed by robust pricing and volume gains in high-margin segments, with SUV volume growing 14% and pickup trucks 5% against a 1Q 2020 curtailed by pandemic-related shutdowns -- while car sales cratered 57%. A global chip shortage adds a dose of uncertainty on 2021 guidance of $8 billion-$9 billion in adjusted Ebit, vs. $2.8 billion in 2020 and $6.4 billion in 2019."

“General Motors is navigating supply shortages by leaning on high-margin pickups and SUVs. Production in first quarter was down 10% -- adjusted for discontinued car models -- but total unit sales rose 4% and average transaction prices were 3% higher."