STLA vs. California - Assessing the Investment Landscape Amid Emissions Policy Disputes

Stellantis N.V. (STLA), one of the globe's leading automakers, was formed in 2021 from the merger between Fiat Chrysler Automobiles and the PSA Group. The company's portfolio includes illustrious brands like Ram, Chrysler, Dodge, Fiat, and Jeep, and it has a strong presence in North America and Europe.

STLA has disclosed plans for significant workforce downsizing at its Jeep manufacturing plants in Detroit and Toledo, Ohio. The company has attributed its dire decision to the stringent emissions regulations enforced by California.

STLA’s Detroit plant, known for manufacturing the Jeep Grand Cherokee, may witness a potential impact on around 2,455 employees and roughly 1,225 workers at the Toledo facility – which is responsible for producing the Jeep Wrangler and Gladiator models – are also expected to bear the brunt of the downsizing decision.

To respond to the sluggish sales performance of its Jeep brand, STLA has made strategic moves to adjust production levels accordingly. These include transitioning from an alternative work regimen to a customary two-shift operation at its Toledo location and eliminating one out of three shifts at the Detroit facility, which currently employs 4,600 individuals. The intended job reductions are projected to take effect as soon as February 5.

Let’s understand the issue in detail...

Since this summer, STLA has substantially curtailed its shipments of internal combustion engine (ICE) vehicles and EVs to dealers in the 14 states that adhere to the stringent rules set forth by the California Air Resources Board (CARB).

Consequently, consumers shopping in these jurisdictions are typically presented with a stock of plug-in hybrid SUVs. However, an order must be placed for those interested in buying an all-electric version or an ICE model.

Quite contrarily, dealers trading in states operating beyond CARB standards face a disproportionately different situation with scarce or no hybrids in stock, essentially providing an ICE-only product lineup. The underpinning rationale for STLA's strategic supply management is to meet CARB's emission standards in those 14 states, enabling manufacturers to sell a fixed percentage of zero-emission vehicles and plug-in hybrids.

But here’s the challenge for the Jeep producer. In 2020, STLA rivals Ford, Honda, Volkswagen, and BMW entered an exclusive agreement with California, delineating unique compliance criteria considering nationwide sales rather than solely focusing on CARB's jurisdictions. STLA argues that such a modification disrupts industry balance by unfairly tilting it in favor of the brands due to the more achievable nature of these revised targets.

After the initial agreement, Volvo and Geely acceded to the pact with California, leaving STLA in an unfavorable position as their request to participate was rejected. Seeking an explanation, STLA alleges that the rebuff resulted from Chrysler's public protestation against California's assertive act of promulgating autonomous rules in 2019. This drew attention, provoking similar challenges led by other automobile manufacturers such as General Motors (GM) and Toyota.

GM was prominently outspoken among those opposing California's regulatory authority, culminating in a stern confrontation. As a reaction, California declared it would cease purchasing vehicles from GM for its fleet requirements. The discord was resolved in January 2022 when GM consented to adhere to California's stringent emission standards.

Recent developments include STLA formally challenging the stand by submitting a petition to California's Office of Administrative Law, indicating accusations against the state for clandestine regulatory maneuvering involving selective automakers in direct violation of the California Administrative Procedure Act and claiming it amounts to a “double standard.”

The requested reevaluation of the framework agreement represents a bid to prompt the state’s Office of Administrative Law to invalidate the contract. While this outcome is improbable, it serves to reestablish an equal playing field with those car manufacturers who previously expressed a more favorable stance toward reinforcing emissions regulations.

Probable Impacts on STLA

STLA has actively opposed President Biden's endeavors to curtail carbon emissions and promote EVs. They allege that the stringent regulations risk imposing multi-billion-dollar penalties on their operations.

The automobile manufacturer has voiced support for lowering emissions, citing it as a challenge to California to address its "competitive disadvantages" and ensure fair product distribution across all states.

Earlier this year, STLA revealed plans to cease the supply of non-hybrid vehicles in states adhering to California's stringent emissions regulations in compliance with these rigorous environmental standards.

The discontinuation of gas-only vehicle shipments to 14 states, in the absence of specific customer orders, may lead to substantial repercussions for STLA. The automaker's sales and market share could decline significantly, while costs might escalate, eroding profit margins.

Moreover, the recently filed petition by STLA, charging CARB with executing an “underground regulatory scheme” against the company, casts a shadow of potential legal disputes. Fines, penalties or sanctions from CARB or other administrative bodies could emanate from the proceedings.

Furthermore, it is expected that STLA will revise its vehicle distribution strategy, adjusting it based on CARB emission compliance per state. This shift may result in restricted gas-only model availability for dealers in non-CARB states. Consequently, such constraints could initiate ripple effects on customer satisfaction, loyalty, and retention, potentially impacting dealer profitability and operational efficiency.

Diminishing SUV production, a recent move by STLA, might endanger the company's ability to meet customer demands. Ultimately, this could lead to a substantial impact on the company's revenue figures.

Other factors that should be considered…

Despite STLA's gradual progression toward EVs, the company's investment in this sector is substantial. The Jeep Wrangler 4xe and Chrysler Pacifica hybrids remain among California's top-selling EVs. However, business performance is volatile.

STLA announced a recall of over 32,000 vehicles last month due to potential fire hazards. Declining sales of Jeep ICE variants and soaring interest rates have compelled the company to adopt aggressive cost-reduction measures. This change may result in major disruptions for numerous employees' livelihoods.

It is not the first time the company attributed layoffs to the EV transition. About 1,350 employees at STLA's Illinois plant were laid off, citing the same rationale. This development comes at a compelling time as Detroit's "Big Three" – General Motors, Ford Motor Company, and STLA – are simultaneously exploring cost-cutting strategies.

This follows the recent agreement to significant wage enhancement in response to United Auto Workers' strikes this year. Consequently, many positions within the automotive industry face uncertainty, leading to widespread usage of the term "restructuring" in the current discourse.

STLA is indeed the proprietor of several well-known brands. However, the perceived quality of these brands falls short when matched against some competitors. Management will need to remain steadfast in addressing and circumventing this issue.

The auto giant has set its sights on putting 47 EVs on the road by the end of next year. Of course, such a target is easier said than done. To successfully execute this plan, STLA must continue to innovate with new model introductions and astutely invest without placing undue risk on profit margins or destabilizing the company's financial footing. The successful implementation of this intricate transition represents the primary risk and question concerning STLA stock.

The difficulty of this task becomes more pronounced when compared to peers such as Tesla, which has already established streamlined profitability through its vehicle production.

Determining wise investment strategies that properly steer STLA forward while confronting a market saturated with inexpensive Chinese vehicles is challenging. Moreover, predicting the outcome of this endeavor remains incredibly tough.


At the current share price, STLA’s shares look tantalizingly cheap. Its forward P/E and Price/FCF multiples are 3.44 and 2.51, respectively, lower than the industry averages. Also, the company pays an attractive dividend yield of 6.53%.

Bottom Line

STLA is at a crucial juncture. The auto industry is immersed in an epochal shift toward electrification. Despite STLA's robust cash flows, it lags behind premier EV manufacturers in key areas of technology, sales, and future competitiveness. As a newcomer within the EV space, STLA recognizes the need to accelerate its progress, with monumental investments lined up over the forthcoming decade.

Investing in STLA is not without risks. The viability of the investment hinges on the company's ability to generate a meaningful amount of cash flow this decade. If it fails to do so, this could significantly hinder the funding earmarked for its transition to EVs.

The increasing global demand for EVs could place STLA in a precarious position and negatively affect its cash flow from operations. With an influx of automakers vying for market share, the fierce competition in the EV market could pose significant challenges to STLA. However, the potential rewards could be substantial if the company implements its strategies effectively.

STLA must successfully navigate numerous hurdles, including imminent economic turbulence, pricing pressure, rapidly evolving consumer preferences, attacks from emerging competitors, and, importantly, the strategic handling of disputes related to emission policies.

It is somewhat eyebrow-raising that layoffs transpire so swiftly following the confirmation of the latest "record" UAW agreement, a pact envisioned to establish the most robust job security in the face of transitioning to Battery Electric Vehicles (BEVs) and hybrids. Contrary to expectations, job numbers appear to be contracting rather than expanding, marking yet another occasion where grim reality dawns after the initial euphoria dissipates.

Considering the waning demand for their " premium SUVs, " one might question if STLA ever alluded to the fact that they'd be reducing shifts and trimming employee numbers at their twin Jeep plants, considering the waning demand for their "premium SUVs." This comes despite the Fifth-Generation Grand Cherokee only halfway through its minimum six-year cycle.

Moreover, it is curious that they place the onus on California's stringent CARB regulations – rules that have existed long before. It would be expected that STLA has crafted or is at least devising strategies to roll out more BEVs and hybrids to enhance compliance with CARB regulations.

Interestingly, recent layoff news and issues with the CARB have kept investor confidence strong. Indeed, STLA stock experienced a decrease of less than half a percent on Thursday last week, a minor setback that has since been regained. However, given the current circumstances, potential investors might consider waiting for a better entry point in the stock.

Top 4 Christmas Stocks to Buy in 2023

As the festive season ushers in, thoughts gravitate toward the traditions of exchanging gifts, feasting with family, and warming up by the fireside, all while the holiday shopping spree kick-starts with much vivacity.

The holiday period invariably translates to a considerable economic surge for retailers and related sectors, starting with "Black Friday" – a day marked in retail history for transfiguring from the “red” of losses into the “black” of profits. This year's consumer expenditure reached an unprecedented high, with $9.8 billion splurged on Black Friday deals and an outstanding $12.4 billion on Cyber Monday.

A record-breaking 200.4 million consumers shopped during the five-day holiday weekend, extending from Thanksgiving Day through Cyber Monday, outpacing last year's peak of 196.7 million. As per the National Retail Federation (NRF), the average spend was $321.41 on holiday-related purchases throughout the Thanksgiving weekend. Toys, electronics, and gift cards emerged as the most coveted items.

An unprecedented festive surge is projected this December as retailers anticipate record-breaking consumer expenditure. This period, often correlated with the 'Santa Rally,' generates a stock market surge during the concluding week of December, extending into the New Year. LPL Financial found that since 1950, a Santa Claus rally has occurred around 79% of the time.

These staggering statistics oppose the predictions of some economic analysts who warn of an imminent recession within the U.S. and expect the current equity rally to stumble as the year concludes.

The holiday period shopping traditionally elevates sales for retailers and associated businesses, resulting in potential stock price increases. The year-end rally boosts investors’ portfolios, whereas professional traders often regard it as crucial when calculating their end-of-year bonuses. There is no doubt that the Santa Claus rally this year would be broadly embraced, given the volatilities witnessed.

Investment focus is increasingly geared toward stocks providing substantial opportunities in the immediate future. Some stocks could be more profitable than others if secured before their price rise. Hence, many investors opt for Christmas stocks to capitalize on the bustling holiday shopping season.

Given this backdrop, let us delve into an in-depth analysis of, Inc. (AMZN), Visa Inc. (V), Walmart Inc. (WMT), and Etsy, Inc. (ETSY) now., Inc. (AMZN)

Amazon has established itself as a global behemoth, wielding substantial market dominance fostered by its vast network. As we approach the holiday season, there is strong anticipation that the retail stock will experience a considerable rise.

This prediction comes from AMZN’s record-breaking sales in November, with one billion items sold over 11 days of extended promotional deals. This impressive feat was achieved despite the "biggest ever global strike" orchestrated by Make Amazon Pay, an activist campaign that advocated for improved pay and better working conditions for laborers.

According to AMZN, customers purchased more than 500 million products via independent sellers during the holiday shopping festivities and an exponential growth in Prime membership signups throughout this period was witnessed.

The company has disclosed that shoppers saved nearly 70% more on their purchases than the previous year, with promises of "millions more deals" being made available until December 24.

The company attributes much of its success to a large, loyal customer base, who trust the brand and greatly value its services. AMZN's variety of client benefits during the festive season – expeditious delivery, discounts, enticing deals, streamlined return and refund policies, and rewards, enhance repeat purchases and encourage referrals.

With recent inflationary pressures easing, consumer sentiments are showing signs of improvement, bolstering the potential for increased spending. Combining these factors, December could be a highly profitable month for AMZN.

For the fiscal fourth quarter ending December, its revenue is expected to grow 11.2% year-over-year to $165.85 billion, while EPS is expected to increase significantly year-over-year to $0.76.

Wall Street analysts expect the stock to reach $177 in the next 12 months, indicating a potential upside of about 20%. The price target ranges from a low of $145 to a high of $210.

Visa Inc. (V)

V, a leading fintech corporation, is commanding in the global credit and debit card markets. Acting as an essential intermediary between purchasers and vendors, V conducted over 192 billion transactions in 2022 across 160 nations.

The company's significant role has generated substantial profits for V and its shareholders. For the fourth fiscal quarter of 2023, the firm reported revenues of $8.61 billion, a 10.6% year-over-year increase. Its income amounted to $4.68 billion, with earnings per share at $2.27.

V’s unique business model allows consumers desiring to postpone their holiday expenses with minimum risk and maximum benefit. V profits whenever individuals make higher charges on their cards, with both transaction value and quantity contributing to the income. As V does not offer direct loans to consumers, the impact of defaulting is substantially lower.

Expressing high hopes for the company's future, V's CEO Ryan McInerney stated, "There is tremendous opportunity ahead, and I am as optimistic as ever about Visa’s role in the future of payments.”

However, America faces a mounting credit card debt crisis. As of September 2023, the total card balance reached a record high of $1.08 trillion. Strikingly, the average credit card interest rate touched 27%, representing the highest figure in nearly three decades.

As we enter the holiday season, consumer spending on credit cards is expected to rise. Deloitte reports that the average holiday shopper anticipates expending $1,652 this year, the most considerable amount seen in the past three years. Much of this spending will be charged to cards. In an October survey of 1,036 consumers by, 38% indicated that they anticipated carrying holiday credit card debt into the new year.

Although increased consumer debt translates into more risks for V, the potential spending slowdown also threatens the company as it has fewer tools for growth. Despite the company's valuation not being as high as in the past, this could represent an excellent opportunity for those aiming to take advantage of the inevitable credit card spending surge over the festive season.

Analysts expect V’s revenue and EPS for the quarter ending December 2023 to increase 7.7% and 7.3% year-over-year to $8.54 billion and $2.34, respectively. Moreover, Wall Street analysts expect the stock to reach $277.47 in the next 12 months, indicating a potential upside of 8.9%. The price target ranges from a low of $243 to a high of $295.

Walmart Inc. (WMT)

WMT has evolved into a powerful force within the omnichannel market. Strategic acquisitions of companies like Bonobos, Moosejaw, and Parcel and collaborative partnerships with industry heavyweights like Shopify and Goldman Sachs bolstered this transformation. Further expansion efforts, including implementing delivery systems Walmart + and Express Delivery, and investing in Flipkart – a renowned e-commerce platform – are a testament to this ongoing evolution.

The innovative strategies have consolidated WMT's position within the turbulent retail market, enabling it to remain resilient and competitive in an ever-changing industry landscape. WMT ensures its sustainability and competitiveness in this evolving ecosystem by continually adapting and initiating changes.

The retail giant experienced increased customer footfall and elevated spending throughout the third quarter, alongside improvements in operating margin and cash flow. These constructive developments in WMT’s performance indicate ample liquidity to invest in growth and reinforce its dominating market presence.

As WMT approaches the holiday season with substantial customer traffic, it stands poised to generate profitable returns. For the quarter ending January 2024, its revenue is expected to increase 3.9% year-over-year to $169.09 billion, while EPS is anticipated to reach $1.64. Further enhancing its appeal, the company currently offers a dividend yield of 1.49%, making its stock a more attractive option to potential investors.

Wall Street analysts expect the stock to reach $180.79 in the next 12 months, indicating a potential upside of about 18%. The price target ranges from a low of $163 to a high of $210.

Etsy, Inc. (ETSY)

Esteemed as an online destination for unique handcrafted and vintage goods, ETSY is the perfect marketplace for customers searching for original gift ideas, especially during the active winter holiday season. The extensive assortment of products on ETSY – encompassing everything from jewelry and apparel to toys and home décor – caters to its impressive 97.3 million active users through 8.8 million dynamic sellers.

Operating under a distinctive business model that leverages network effects and switching costs generates intrigue. However, sustained growth is crucial in maintaining investor enthusiasm. Despite firmly standing by its unique market position within a vast potential landscape, ETSY's obstacles in augmenting gross merchandise sales (GMS) post-pandemic suggest a potential limitation in product demand.

For the fiscal fourth quarter ending December, its revenue and EPS are expected to increase 1.8% and 17.1% year-over-year to $821.75 million and $1.34, respectively.

With a focus on unique gifts and crafts, ETSY is well-positioned to experience significant stock elevation during the seasonal gifting period, complimented by the ongoing market recuperation and declining inflation trends.

Are General Motors (GM), Ford Motor (F), and Stellantis (STLA) Investors Facing a Troubled September?

The automobile industry navigated a tumultuous period featured by the pandemic-induced supply chain hiccups, soaring inflation, and climbing interest rates. However, the situation is improving lately thanks to the surge in EV demand.

According to Cox Automotive, during the first half of 2023, new vehicle sales in the U.S. surged 12.3% year-over-year, taking total sales to 7.69 million units, exceeding the estimated projections of 7.65 million.

However, this respite in the auto industry could be short-lived due to looming tensions wrought by potential strikes threatened by the United Auto Workers (UAW) union at Stellantis (STLA), Ford Motor Company (F), and General Motors (GM), should contractual negotiations not reach a successful conclusion by September 14, 2023.

In a recent authorization vote surrounding the possibility of walk-outs at these major plants, referred to as the ‘Big Three,’ employing 150,000 UAW-unionized workers, an overwhelming 97% of UAW members voiced their support.

UAW has outlined several ambitious targets. There will be a determined attempt to reinstate specific contractual provisions relinquished during the 2007 negotiations, including retiree health insurance and the abolition of a conventional pension scheme.

Since 2010, the number of U.S. automobile manufacturing jobs has risen. However, exponential advancements in EVs, increasingly supported by the government, could result in mass staff layoffs.

The main apprehensions of American autoworkers are twofold. First, the predicted transition to EV production could usher in layoffs and factory closures. Second, because many battery production companies are joint ventures, these entities might not pledge primary allegiance to union demands.

Adding to the frustration, workers have expressed discontent over profit distribution, claiming that corporate executives pocket vast returns, leaving little for the rank-and-file.

Substantiating this fear is that each of the three auto manufacturers has scaled down their employment figures over the past year. In June, Ford undertook a series of layoffs impacting nearly 1,000 workers across its gas-powered, EV production, and software development sectors. While it rationalizes the reductions as realignments based on ‘skills and expertise,’ hiring was reported only in ‘key area.’

Similarly, GM shut down an IT center in Arizona in October last year and initiated layoffs impacting about 940 workers. Moreover, the company acknowledged that over 5,000 salaried employees had opted for buyout offers as part of a broader cost-saving execution amid economic recession fears.

Furthermore, STLA, following a similar suit, offered buyouts to over 33,000 employees in April to avert layoffs that have befallen other automakers.

Amid these events, the union has vocalized its intent to secure protection against employment terminations and plant closures.

Potential Impact of the Strike

Halting production for even one big automaker during a strike could have acute ramifications, directly harming thousands of workers, and the companies could face significant financial losses due to diminished sales and stalled production.

F employs the highest number of UAWs, approximately 57,000 across all its U.S. manufacturing units, while its counterparts GM and STLA have 46,000 and 44,000 UAW members, respectively.

The UAW has amassed over $825 million in its strike fund to provide employees on strike with a weekly allowance of $500, projected to be exhausted within 11 weeks. Strikers would lose out on wages that would only be partially offset by the union’s weekly benefit.

During strikes, the financial implications for auto companies can be catastrophic. The 2019 40-day strike reportedly cost GM a staggering $3.6 billion. A prolonged strike may also threaten the UAW’s efforts to restore its reputation after several corruption allegations.

The fallout from a strike on the 'Big Three' automakers could result in production delays or potential shutdowns, influencing their overall revenues. Meanwhile, there has been news of F preparing its salaried and white-collar workforce to step into production roles should the UAW members initiate a strike.

Negotiations ensuing these situations could add over $80 billion in labor costs to each automaker over the contract period and increase the likelihood of work stoppages.

The Anderson Economic Group forecasts that potential work stoppages could inflict an economic loss exceeding $5 billion within 10 days. Similarly, Deutsche Bank hypothesizes that each automaker could endure earnings losses ranging between $400 million and $500 million for each week of halted production.

It could jeopardize production schedules within the Big Three's auto manufacturing realm. If the production losses escalate rapidly, it might lead to approximately 1.5 million units forfeiting. However, these aggressive tactics primarily favor the interests of the UAW rather than the companies or their shareholders.

If the demands are fulfilled without any revisions to other benefits, the hourly labor cost for automakers will more than double, representing a significant increase compared to the rates settled in the preceding four-year agreements.

Considering the current scenario, let us understand where the ‘Big Three’ automakers stand.

Stellantis N.V. (STLA)

Headquartered in Hoofddorp, the Netherlands, STLA reported a record-breaking earnings report for the six months ended June 30, 2023. Its net revenues increased 11.8% year-over-year to €98.37 billion ($104.52 billion), while adjusted operating income grew 11% from the year-ago value to €14.13 billion ($15.32 billion). The company’s net profit rose 37.2% year-over-year to €10.92 billion ($11.84 billion).

Following these impressive financial results, STLA projects that its adjusted operating income margin will reach double digits and maintain a positive industrial free cash flow for the 2023 fiscal year.

On August 24, it announced the expansion of its SPOTiCAR program to the U.S. This initiative aims to streamline vehicle purchases for individuals and businesses through digital tools and specialized dealerships, thereby increasing customer satisfaction and future product value.

On August 23, the company completed an agreement with AGI, a leader in nationwide branded infrastructure programs for more than 50 years, to support national U.S. dealership electrification and EV charging capabilities. These moves are expected to help STLA fulfill its Dare Forward 2030 strategy to achieve 50% battery-EV sales by the end of this decade. This strategic partnership with AGI will significantly augment STLA's revenue generation capacity.

As a result of such developments, Analysts expect STLA’s revenue and EPS in the fiscal year (ending December 2023) to be $205.16 billion and $5.70, registering growths of 7.8% and 3.2% year-over-year, respectively. Moreover, the company surpassed the consensus revenue estimates in all the trailing four quarters.

Shares of STLA have gained 28.9% year-to-date and lost 10.9% over the past month to close the last trading session at $18.30.

Institutional investors and hedge funds have recently changed their STLA stock holdings. Institutions hold roughly 29.3% of STLA shares. Of the 433 institutional holders, 200 have increased their positions in the stock. Moreover, 60 institutions have taken new positions (7,111,951 shares), while 42 have sold positions in the stock (30,938,367 shares).

Ford Motor Company (F)

Legacy automaker F posted better-than-expected second-quarter earnings and raised their respective 2023 projections.

During the second quarter, F’s revenues rose 11.9% year-over-year to $44.95 billion, and automotive revenues peaked at $42.43 billion, surpassing the $40.38 billion estimate. The net income almost tripled to $1.92 billion, marking an 187.4% year-over-year increase.

The automaker raised its full-year adjusted EBIT guidance range from $9 billion and $11 billion to $11 billion and $12 billion while simultaneously raising its adjusted free cash flow guidance from $6 billion to $6.5 billion and $7 billion. The company anticipates to hit an 8% EBIT target by 2026.

In August, SK On, EcoProBM, and F announced a C$1.2 billion investment to construct a cathode manufacturing facility that will provide materials to supply batteries to solidify the EV supply chain in North America. With production anticipated to commence by the first half of 2026, the facility is expected to produce up to 45,000 tonnes of CAM annually. Being F's inaugural investment in Québec, this new facility aligns with the company's goal of localizing vital battery raw material processing in regions where EV manufacturing occurs.

On August 1, F reopened its Rouge Electric Vehicle Center after a six-week expansion project, increasing its capacity to 150,000 units by the fall to meet the heavy demand. Nevertheless, a strike projected for September threatens to curtail the benefits of this additional capacity, given the likely slowdown in production.

Investor apprehension was fueled by multiple facets of the company's earnings and guidance. Notably, the EV segment of the business, recently rebranded as Model E, reported a pre-tax loss of $1.08 billion. The firm anticipates losses for this segment could mount to $4.5 billion in 2023, a startling increase of 50% compared to previous estimates.

Amid a global price war, F reduced prices for its 2023 Motor Trend Car of the Year F-150 Lightning Electric Truck, directly responding to price cuts implemented by rival Tesla. Consequently, this strategy spurred a six-fold demand surge in orders and over 50% for its XLT trim level. The price cuts are anticipated to dent the profitability of industry players.

Additionally, the company has publicly acknowledged the slow pace of EV adoption and consequently has dialed back its ambitious EV production plans. The company now expects to hit an annual production capacity of 600,000 vehicles by 2024 instead of 2023 while being “flexible” about the goal of 2 million vehicles it previously forecast by 2026.

Analysts expect F’s revenue and EPS in the fiscal year (ending December 2023) to be $166.11 billion and $2.07, registering 11.5% and 10.2% year-over-year growths, respectively. Moreover, the company surpassed the consensus revenue estimates in three of the trailing four quarters.

Considering these developments, F’s shares have been facing pressures, sending its stock down to May 2023 levels. Over the past year, the stock declined 22.8% and 10.3% over the past month to close the last trading session at $11.90.

Institutions hold roughly 54.7% of F shares. Of the 1,798 institutional holders, 773 have decreased their positions in the stock. Moreover, 131 institutions have taken new positions (12,514,405 shares), while 135 have sold positions in the stock (18,347,658 shares).

General Motors (GM)

Detroit’s auto giant, GM, reported impressive revenue and profit growth, upgrading its profit prediction for the second time this year. Despite global challenges, the company continues to see robust demand for its vehicles and reduced expenditure.

For the fiscal second quarter that ended June 30, 2023, GM’s total revenues grew 25.1% year-over-year to $44.75 billion, while its adjusted EBIT rose 38% year-over-year to $3.23 billion. Its net income attributable to stockholders rose 51.7% year-over-year to $2.57 billion, while its adjusted EPS came in at $1.91, representing a 67.5% increase year-over-year. GM’s adjusted automotive free cash flow amplified 294.3% year-over-year to $5.55 billion.

The company has revised its net income expectations for the ongoing fiscal year from an earlier high-end estimate of $9.3 billion to $10.7 billion. Its automotive division’s free cash flow is also expected to come between $7 billion and $9 billion, up from $5.5 billion to $7.5 billion.

This impressive financial performance, fueled by a thriving conventional auto business spotlighting profitable trucks and SUVs, has facilitated the company's intensified entry into the electric vehicle (EV) sector. GM said it would increase cost-cutting measures through next year by an additional $1 billion in expenditures.

Investors can look forward to significant potential gains if the company successfully leverages new business opportunities and smoothly transitions from reliance on internal combustion engine sales to EVs.

By aligning focus on the promising sectors of electric and autonomous vehicles, connected services, and new business models, GM anticipates being able to double company revenue by the decade’s end. Additionally, it envisages its EV wing reaching profitability by 2025, boasting an EV production capacity of 1 million units in North America and approximately $50 billion in EV-generated revenue.

GM's endeavors to explore fresh avenues of income are highlighted by its autonomous robotaxi unit, Cruise. The company recently declared the commencement of production for numerous EVs based on the freshly conceptualized Ultium platform from 2023’s second half. Initiated in 2018, the Ultium EV platform is versatile enough to produce various vehicle sizes and types across segments. The wide range of the platform will help streamline production and improve its supply chain, helping push toward more profitable EVs.

However, GM has struggled to ramp up production of its EVs this year, citing problems with battery module availability. GM said it is resolving that issue, and EV production is expected to improve in the second half of 2023.

Analysts expect GM’s revenue and EPS in the fiscal year (ending December 2023) to be $171.71 billion and $7.73, registering 9.6% and 1.9% year-over-year growth, respectively. Moreover, the company surpassed the consensus EPS estimates in all the trailing four quarters.

Institutional investors have recently changed their holdings of GM stock. Institutions hold roughly 82% of GM shares. Of the 1,346 institutional holders, 575 have decreased their positions in the stock. Moreover, 110 institutions have taken new positions (6,710,244 shares), while 95 have sold positions in the stock (7,158,230 shares).

Warren Buffett’s Berkshire Hathaway recently announced a significant reduction in its stake in GM during the second quarter by 45%, from about 40 million to about 22 million. The decision could be related to the challenging contract negotiations.

Considering these developments, GM’s shares have been facing pressure. Over the past year, the stock declined 15.6% and 13% over the past month to close the last trading session at $33.12.


GM and F might face over 10% decline in their earnings, should a prolonged strike occur. However, STLA is less susceptible to this risk due to its primary business concentration in Europe, regions lacking a UAW union presence.

American Axle, for instance, gets an estimated 55% to 65% of its revenue from operations dependent on UAW workers, while Magna International gets 35% to 40%, and Lear gets 30% to 35%.

The repercussions of the UAW contract could resonate nationally, affecting the steel industry and smaller US manufacturers that supply parts to the Detroit Three automakers.

Furthermore, the replacement rates, indicating the percentage of product portfolio to be swapped with brand-new products in the next four years, carry significant implications. It impacts the age of products displayed in showrooms, the market share companies can capture, and their corresponding profitability.

John Murphy, the Lead U.S. Auto Analyst at Bank of America’s Equity Research, highlighted that companies with lower replacement rates indicate a less fresh product and are expected to lose more market share. Conversely, businesses with higher replacement rates tend to gain more market share.

According to the Car Wars study, the anticipated vehicle replacement rate between 2024 and 2027 is expected to align with the historical average of 15%. In this respect, F appears optimally positioned, while STLA lags. GM, on the other hand, “marginally” lags the industry’s average replacement rate.

GM's replacement rate is forecasted to land close to the industry average of 22.8%. F's forecasted replacement rate is the highest in the industry, at 24.8%, while STLA’s is at the bottom of the list with a forecasted replacement rate of 15.9%.

Bottom Line

The auto industry in the U.S. constitutes approximately 4% of the nation's Gross Domestic Product (GDP). Underpinning this, an upward trend in the industry is anticipated to generate a broader economic resurgence.

The strike is anticipated to impact the three big automakers, their shareholders, the associated industries, and the overall auto market. However, what looms on the horizon involves more than simply elevating individual living standards. A contemplative eye must be cast toward the imminent influence of technology on prospective employment within the sector.

As Peter Berg, Professor of Employment Relations at Michigan State University, posited, the gradual transition from combustion engines to battery-operated electric vehicles will inevitably reconfigure manufacturing, requiring a fewer workforce possessing divergent skill sets.

Notably, the potential strike could exert a greater impact on automakers' operations and financial outcomes than one that occurred four years ago. This amplified threat is primarily attributable to the ongoing recovery of the U.S. auto industry from supply chain disruptions caused by the pandemic and lower vehicle inventory levels. Such elements make it imperative for negotiators to swiftly broker a satisfactory compromise to mitigate costly fiscal repercussions for all stakeholders involved.