Goldman cuts auto production forecast on supply chain snags but still sees some stock winners

Published Mon, Sep 27 20218:09 AM EDTUpdated Mon, Sep 27 20213:47 PM EDT

Supply chain issues will hurt auto production in the near term, Goldman Sachs said — but the firm still sees some stock winners. Goldman cut its calendar year 2021 and 2022 global auto production forecast to 75 million and 85 million, respectively. Previously, the firm projected production of 83 million in 2021 and 90 million in 2022. The firm is "reflecting company commentary that supply/demand will likely be very tight for at least a few more quarters, and the fact that even one missing part can stop production," Goldman's Mark Delaney said in a note Sunday. Goldman attributes the supply problems to Covid impacting semiconductor operations, as well as other material procurement challenges and logistics and shipping bottlenecks. Despite these headwinds in the auto industry, Goldman still sees some winning stocks. "Several of our Buy rated stocks strike a good balance in our opinion of having strong financial models (e.g., attractive margins and/or [free cash flow]) that we think can provide resiliency in a difficult supply chain environment," Delaney said. Goldman says buy Tesla and GM, sell Lordstown Goldman highlighted Tesla as "an industry leader that is well positioned for growth." The firm has a buy rating on the electric vehicle stock and a price target of $875 on Tesla, implying 13% upside from the stock's Friday closing price. The firm also sees General Motors as buy. Goldman categorized GM as one of the "more cyclical stocks that should benefit from an industry recovery in production/sales but still have opportunities to benefit from EVs and/or [advanced driver-assistance systems]." The bank has a $59 price target on the stock, 13% higher than GM's share price at Friday's close. However, Goldman believes supply chain issues could hit its sell-rated stocks particularly hard. The firm downgraded shares of electric vehicle maker Lordstown Motors to a sell from neutral. The firm maintained its $5 price target on the stock, implying about 34% downside from Friday's close. "Our price target reflects what we believe will be a competitive albeit growing market for EVs ... as well as the operational challenges that Lordstown Motors is facing. However, the current incremental supply chain issues that we believe the auto industry broadly is experiencing (e.g., rising material costs and limited parts supply) could impact the company's ramp cadence/magnitude over the next year," Delaney said. Shares of Lordstown Motors are down 62.26% in 2021. —CNBC's Michael Bloom contributed reporting.

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Supply chain issues will hurt auto production in the near term, Goldman Sachs said — but the firm still sees some stock winners.