Morgan Stanley Sees Two Auto Companies Likely to Feel Pressure as the Chip Shortage Ends

Morgan Stanley analyst, Adam Jonas has been working on handicapping the timing and collateral impact of China's lockdown coming to an end and consensus among the Asia Semis team (led by Charlie Chan) indicates that the long-lasting global auto chip shortage is edging closer to resolution, and, although headlines still suggest auto production is being held up by semiconductor shortages, the Asia team "is not so sure". They have found TSMC (who accounts for ~50% of global auto MCU production) has seen significant improvements through 1Q with wafer foundry auto semi output up approximately 60% YoY.

The analyst believes that this will cause the transfer of value from those who have enjoyed pricing power, down-stream to those who have had to face rising input costs and lower production upstream. He stated "Our Greater China semis team is highly confident that current semiconductor supply is sufficient to bring up auto production." This should result in lower used vehicle prices since "Used vehicle prices are still up over 60% vs. 2 years ago
and only 6% off of all time high. Recovering new car supply/inventory can be a release valve for unprecedented new and used car price inflation, potentially pressuring residual values, loan losses/severity and financial
institution willingness to lend. Lower used prices to encourage a mean-reversion of residual values impacting car rental firms (Hertz Global (NASDAQ: HTZ)/Avis Budget Group (NASDAQ: CAR)), dealers and captive finance companies at the OEMs.

For an analyst ratings summary and ratings history on click here. For more ratings news on click here.

Shares of closed at $88.10 yesterday.

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