Inflation, supply issues threaten 2022 profits

General Motors’ world headquarters is located in Detroit’s Renaissance Center.

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DETROIT — There is growing concern among Wall Street analysts that higher costs and supply chain disruptions will pressure earnings at General Motors and Ford Motor in 2022 — even more than originally expected.

Ahead of Detroit automakers’ first-quarter earnings reports this week, several analysts cited such issues, including inflation and parts disruptions, caused by the coronavirus pandemic and the war in Ukraine as concerns for the companies and the broader auto industry .

JPMorgan analyst Ryan Brinkman on Monday cut first-quarter estimates for both GM and Ford for the second time.

“Commodity prices have since stabilized but remain high and volatile, and suppliers are certainly demanding higher prices from both GM and Ford to offset an increasing array of non-commodity supply chain costs,” he said.

JPMorgan now expects GM’s first-quarter earnings per share to be $1.52, down $1.58 and below the $1.68 median of Refinitiv’s forecasts. It lowered its guidance for Ford to 41 cents a share from 52 cents a share, but slightly higher than Refinitiv’s expected 38 cents a share.

GM reports first-quarter results after the market close on Tuesday, followed by Ford on Wednesday.

Evercore ISI said in a note to investors last week that it expects Ford to trim its 2022 outlook due to the growing number of issues the company is facing. It cited, among other things, the company’s war-related supply chain problems in Europe and the increased cost of aluminum used in its best-selling F-Series pickups.

Earlier in March, Ford reiterated its guidance for pretax profit of between $11.5 billion and $12.5 billion for the year. But supply chain issues have only gotten more complex since then, analysts said.

GM previously forecast 2022 pre-tax income of $13 billion to $15 billion, but Evercore ISI said it was “not entirely clear” whether the company would suffer “a small potential cut” to its top-end guidance. GM has far less exposure to Europe than Ford and other automakers, but it continues to face supply chain issues in China and North America.

BofA Securities analyst John Murphy said that in general, many auto companies’ initial projections are “now overly optimistic” given the litany of problems the auto industry is facing.

“With ongoing global semiconductor shortages, rising Covid-19 outbreaks and subsequent shutdowns in Asia, heightened geopolitical tensions due to the invasion of Ukraine, and a plethora of other supply chain disruptions, the overall sentiment across the industry (corporations, investors, etc.) remains very cautious,” he wrote in an investor note last week.

Europe-based BofA analyst Horst Schneider downgraded Stellantis to neutral from buy on Tuesday due to the company’s exposure to Europe and supply chain issues.

Stellantis, which was formed in January 2021 from the merger of Fiat Chrysler and France-based Groupe PSA, is expected to release its first-quarter shipments and earnings on May 5.

– CNBC’s Michael Bloom contributed to this report. Inflation, supply issues threaten 2022 profits

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