- The stock prices of traditional automakers like Ford and GM have soared in the last year.
- The semiconductor shortage has boosted their prices and profits.
- And investors have responded well to their increasingly bold EV strategies.
- See more stories on Insider’s business page.
Tesla has been the automotive industry’s biggest stock-market success story over the past two years, but the old guard is making a comeback.
Investors haven’t traditionally fawned over car companies, which have tended to trade at low prices relative to the amount of money they make due to the industry’s fierce competition, steep demands for financial and physical resources, and low profit margins, CFRA automotive analyst Garrett Nelson told Insider.
That trend began to change with the meteoric ascent of Tesla, whose shares rose from $48 in the second half of 2019 to a peak of $900 in January 2021, after adjusting for a 2020 stock split. The shares of the EV startup Nio also soared during that period.
Initially, the stocks of established giants like General Motors, Ford, and Volkswagen lagged behind. Between July 1, 2019, and July 1, 2020, Volkswagen’s stock price fell by 6%, while GM’s and Ford’s fell by 34% and 41%, respectively.
Investors appeared to be betting that tech-oriented startups would one day overtake the auto industry’s giants. Justin Hance, a portfolio manager at Harris Associates, told Insider he thought traditional automotive companies were “exceptionally undervalued” by mid-2020.
Investors have changed their tune over the past year as traditional automakers have posted better-than-expected financial results in the midst of two crises — the pandemic and the semiconductor chip shortage — while making an emphatic case for why they’re prepared for a future without gas-powered cars.
Between the beginning of July 2020 and the end of June 2021, GM, Ford, and Volkswagen’s shares each rose more than 90%. And during the first half of this year, each outperformed Tesla — though their stock prices are still nowhere near as high as Tesla’s.
The pandemic and the semiconductor shortage have given automakers plenty to worry about, but their recent earnings haven’t suffered. Ford’s first-quarter profit was more than double the amount it earned during the same period in 2019, while GM’s quarterly profit grew 40% by the same measure.
The chip shortage has an added silver lining, too, Bank of America automotive analyst John Murphy told Insider. Lower production volumes have allowed automakers to raise prices, he said. Both GM and Ford said favorable pricing trends boosted their first-quarter earnings.
Automakers have paired their robust near-term performance with increasingly bold EV plans. GM said in January that it hopes to sell only electric models by 2035, and five months later, raised its planned investment in electric and self-driving vehicles for the first half of this decade by 75%. In May, Ford increased by more than 30% the amount of money it plans to spend on EVs by 2025. The release or unveiling of new electric models like the Ford Mustang Mach-E and the GMC Hummer EV has also generated excitement.
But translating that enthusiasm into consistent long-term results won’t be easy. Automakers will have to manage a delicate balance in the coming years: If they go all-in on EVs before enough consumers are willing to buy them (EVs made up just 2% of the US passenger-vehicle market last year), they could face months or years of low sales. But if they move too slowly, they could lose ground to more aggressive rivals.
Traditional automakers have assets that their younger rivals don’t, like decades of manufacturing experience and the ability to fund the development of new models with current profits, rather than by having to sell equity or debt. If they use those advantages wisely, they’ll be ready for the EV revolution.