Morgan Stanley's Laguna Conference: Outlook for the Automotive Sector - Overall resilience in the North American automotive market. Consensus on the increase in efficiency from AI and automation.

Morgan Stanley recently released a research report on the North American automotive and shared mobility industry, based on discussions with businesses and investors at the 13th Laguna Conference. The report covers industry trends, updates on 9 key companies, and provides the latest insights on topics such as corporate profit warnings, tariff impacts, and the progress of automation technology. The report presents four core themes at the industry level. Firstly, the overall resilience of the automotive market remains strong, with no signs of deterioration apart from electric vehicles. Investors are debating whether the strong performance of the SAAR (Seasonally Adjusted Annual Rate) since 2025 is driven by tariffs and whether it is sustainable until 2026. Dealers are confident in consumer sentiment, with minimal transmission of new car tariffs costs to consumers and price increases within historical norms. Secondly, investors hold a pessimistic view on the electric vehicle sector for the fourth quarter of 2025 and the 2026 fiscal year. The key question is whether the R2 model can become a key bridge to profitability for electric vehicles. Traditional automakers are expected to reduce incentives for clearing electric vehicle inventory by September 30, benefiting profits. Companies like Rivian and Lucid are focusing on non-traditional vehicle models to adapt to the end of post-subsidy policies and exploring opportunities to introduce Chinese electric vehicles in Europe. Thirdly, competition between Carvana and Carmax is diverging. Carvana is optimistic, but faces potential obstacles such as market fluctuations and changing consumer demands. Carmax is focusing on validating its omni-channel model, improving operational leverage, and maintaining long-term competitiveness against Carvana. Market concerns include the bankruptcy of Triclor and its impact on secondary ABS. Lastly, AI and automation are industry consensus, with many companies emphasizing their role in enhancing production efficiency and creating value for customers. Key highlights include Lear using automation and AI technologies to enhance competitiveness in the Chinese market and Avis Budget Group applying AI in pricing algorithms, vehicle inspection, supply management, among other areas. On the business front, the 9 participating companies each have strategic focuses. Avis Budget Group is focused on exploring travel demand and autonomous driving, expanding autonomous car partnerships in cities, and improving financial conditions. Carmax is leveraging its omni-channel capabilities, adjusting inventory to address challenges in consumer purchasing power, and implementing a three-pillar capital allocation strategy. Ford's Pro division is driving growth through a diverse customer base, software enhancements in part-service attraction, improving post-sale profit contributions, and advancing the BlueCruise autonomous driving initiative. Other companies mentioned in the report include Group 1 Automotive, Lear, Lucid, Phinia, Quantumscape, and Rivian, each with their own strategic initiatives in diversification, performance, partnerships, and technological advancements in the automotive industry.