The Future of the Automobile Sector Hangs in the Balance of the 2024 U.S. Presidential Election

The 2024 U.S. presidential election is not an event that can be ignored if you are an investor in the automobile sector. A shift in the White House, Senate, or House all have the potential to impact environmental policy, the regulatory environment, and trade negotiations. One of the biggest areas to watch is potential disruption with the federal tax and incentive support for the electric vehicle transition. “That could have massive downstream repercussions on the entire automotive supply chain, by triggering changes in capital allocation and timing for planned and future automaker and supplier investments,” noted S&P Global Mobility Director Stephanie Brinley.

The Historical Context

Democratic-led legislation passed under President Joe Biden has had significant impact on the development of the electric vehicle industry. The Inflation Reduction Act and the Bipartisan Infrastructure Law both provided support for ongoing EV projects and contributed to the EV adoption rate in the U.S. increasing, although at a slower rate than some forecasts. S&P Global Mobility thinks that if the 2024 U.S. presidential election results in a Republican-led White House and/or Congress, the new administration may look to curb the existing laws and change or eliminate the federal funding. A reversal or reduction of federal subsidies could cause OEMs, suppliers, and battery companies to rethink their product and investment strategy, particularly as it relates to North American sourcing. While former President Donald Trump and other Republican leaders have criticized EVs for being too expensive, the issue is complicated by the fact that more than half of new clean energy projects announced since the passage of the EV-friendly legislation have been located in GOP-led districts, which may make some of them hard to pull back on. The other factor up for debate is whether or not a harsher stance on trade from a shift in government could lead to another tariff battle, which risks cutting into near-term profitability again for certain U.S. manufacturers and suppliers.

The Road Ahead

S&P thinks the election also has potential to impact greenhouse gas emissions and fuel economy regulations. If the election results in a shift to a Republican administration, regulations could be pulled back and California’s clear air and climate waiver could once again be revoked. However, S&P reminded that NHTSA is required by U.S. law to set standards at least 18 months before a model year. That means if a new president takes office in January 2025, a regulatory change would have to be passed nearly immediately to impact the 2027 model year. S&P thinks that realistically the earliest model year to be affected by a new change would be the 2028 model year. The baseline S&P Global Mobility forecast assumes that current emissions and fuel economy regulation proposals are finalized and the IRA law remains in place and unchallenged. However, if there is election disruption, the ratings agency sees the potential for automaker reactions in several general categories.

The Key Players

Automakers seen as potentially being in the position to modulate production and vehicle offerings throughout a murky situation include Hyundai Motor Group (OTCPK:HYMTF), and to a lesser extent, Ford Motor Company (NYSE:F). Hyundai Motor Group (OTCPK:HYMTF) was noted by S&P to have dedicated BEV platforms and plans to grow the offerings, but most of existing Hyundai and Kia products currently offer ICE, hybrid and PHEV solutions, with some also offering BEV on the same platform. If there is a loosening of regulations, Hyundai stands ready with hybrids and PHEV solutions available. Ford (F) also has more hybrid and PHEV solutions available to extend vehicle programs if needed. The Detroit automaker’s plans to offer fewer models on its EV platforms and focus on higher volume for a more limited range of products is seen as a potential benefit as well, as delaying planned EV capacity means delaying fewer vehicle programs. While General Motors (GM) is expected to revise its EV product plan and eliminate some products, a challenge may be that it has more brands to adjust than Ford (F). Meanwhile, Nissan (OTCPK:NSANY), Honda (HMC) and Mazda (OTCPK:MZDAY) have all indicated plans for increasing electrification and BEVs, but none of them have been moving rapid-fire to address needs for the U.S. market. As for the all-electric players, Rivian Automotive (NASDAQ:RIVN), Fisker (FSR), and Lucid Group are all expected to push forward with their production plans whichever party wins the election, but could each face new challenges if EV tax and manufacturing incentives are pulled back. EV juggernaut Tesla (NASDAQ:TSLA) could also step into a minefield if the Austin-based company’s plans to build a large EV plant in Mexico becomes a political issue. Meanwhile, European automakers Stellantis (STLA), BMW (OTCPK:BMWYY), Volkswagen (OTCPK:VLKAF), and Mercedes-Benz (OTCPK:MBGAF) could change their key model and manufacturing plant decisions based on the EV climate in the U.S. Some analysts have pointed out that a less supportive backdrop for electric vehicles in the U.S. could end up being a tailwind for Chinese automakers NIO (NIO), XPeng (XPEV), and Li Auto (LI) as they eye expansion in other markets. VinFast Auto (VFS) is another Asian automaker that has designed on growing EV market share globally.

Auto suppliers also face the election wildcard as many of their key customers could be cautious for the first three quarters of the year if the results look unclear. The sector has already had a rough start to the year, with double-digit YTD declines on the books for Mobileye Global (MBLY), Luminar Technologies (LAZR), Hyzon Motors (HYZN), Innoviz Technologies (INVZ), SES AI corporation (SES), American Axle & Manufacturing (AXL), Cooper-Standard Holdings (CPS), Stoneridge (SRI), Aptiv (APTV), Westport Fuel Systems (WPRT), and Dana (DAN).

The automobile sector has also attracted plenty of short bets in 2024. Auto-related names with a short interest position higher than 10% of the total float include Fisker (FSR), Lucid Group (LCID), Faraday Future Intelligent Electric (FFIE), VinFast Auto (VFS), Workhorse Group (WKHS), Rivian Automotive (RIVN), Luminar Technologies (LAZR), Canoo (GOEV), Polestar Automotive (PSNY), Mobileye Global (MBLY), QuantumScape (QS), and LCI Industries (LCII). The volatility may just be beginning for some of those names.