GM and Ford shares tumble after UBS downgrades on expectations for weakening demand

DETROIT – UBS on Monday downgraded shares of General Motors and Ford Motor on expectations for weakening demand amid inflationary pressures, sending the stocks tumbling to begin the week.

UBS downgraded Ford to “sell” from “neutral” and GM to “neutral” from “buy.” Ford’s stock was down by roughly 8% during trading Monday morning, while GM shares were off by about 7%.

Analyst Patrick Hummel expects the U.S. automotive industry to be challenging for the foreseeable future following record profits amid low supplies and high demand during the coronavirus pandemic.

Hummel, in notes to investors Monday, predicted “it will take three-to-six months for the auto industry to end up in oversupply, which will put an abrupt end to a 3-year phase of unprecedented” pricing power and profit margins for the automakers.

He wrote that his outlook for the overall sector in 2023 “is deteriorating fast so that demand destruction seems inevitable at a time when supply is improving.”

UBS continues to prefer GM over Ford due to its momentum with electric vehicles and less problems with production during the third quarter. Hummel said UBS expects a “solid quarter” for GM, which is scheduled to report third-quarter results on Oct. 25.

Ford last month said parts shortages have affected roughly 40,000 to 45,000 vehicles, primarily high-margin trucks and SUVs, that haven’t been able to reach dealers. Ford also said at the time that it expects to book an extra $1 billion in unexpected supplier costs during the third quarter.

Ford is scheduled to report third-quarter results on Oct. 26.

— CNBC’s Michael Bloom contributed to this report.