It's time to throw some cold water on Detroit's transition to electric vehicles, according to Wells Fargo. Analyst Colin Langan double downgraded Ford and General Motors to underweight from overweight, saying in a pair of notes to clients on Wednesday afternoon that the shift toward electric vehicles would take a big bite out of the profits for legacy automakers even as they make their own next-generation cars. "BEV costs have massively risen & raw material supply is tight, yet tough US regulations are likely require more BEV sales. The raw material increase adds ~$4.8K and ~$8.5K in unplanned costs to the Ford Mach-E & Lightning, respectively," and more than $12,000 in additional costs for GM's electric Silverado, Langan wrote. Downgrading stocks two notches — in this case, to underweight from overweight — is a rare move by Wall Street analysts. Langan warned that 2022 could be "peak profits" for both companies, and pointed out that the internal combustion engine pickup trucks are huge earnings generators in a way that the electric versions may not be. "The market likely underestimates the permanency of recent raw material price increases & is not factoring in the impact of the recent aggressive US fuel economy regulations," Langan wrote. Both stocks have struggled mightily this year, with Ford falling 38% and GM dropping 36% Wells Fargo slashed its price targets for both stocks. For Ford, Wells Fargo cut its target to $12 per share from $24. That new target implies an additional downside of 6.5% for Ford. For GM, Wells Fargo dropped to a $33 target from $74. That represents an 11.5% downside from where GM closed Wednesday. — CNBC's Michael Bloom contributed to this report.
Ford F-150 Lightning pickup trucks sit on the production line at the Ford Rouge Electric Vehicle Center on April 26, 2022 in Dearborn, Michigan.
Bill Pugliano | Getty Images
It's time to throw some cold water on Detroit's transition to electric vehicles, according to Wells Fargo.