Piper Sandler upgrades ratings of Detroit's Big Three automakers: Easing regulations and easing competition with China as the main growth logic.

Analysts Alexander Potter and Ben Johnson from Piper Sandler predict that limited competition from Chinese car manufacturers and a more favorable regulatory environment may support the performance of American car makers this year, easing the decline in North American car sales - the bank predicts a 1.2% decline. Potter and Johnson wrote that the above conditions will prompt "profit expectations for American car manufacturers to be raised," most favorably for Ford (F.US) and General Motors Company (GM.US), both of whom have had their ratings upgraded from "neutral" to "buy." The team also upgraded the rating of Stellantis (STLA.US) to "buy," but noted that for this Netherlands-based car manufacturer, the current situation is "more chaotic" due to higher risks and lower profit margins in the Chinese market. Ford has decided to reduce investment in the European market and electric cars (and made a $19.5 billion impairment provision), allowing them to refocus on the most profitable business segments, while compliance expenses have also decreased due to more lenient carbon dioxide emission policies. Potter and Johnson's latest outlook for Ford in 2027 predicts that its earnings per share (EPS) will reach $1.95, higher than the market's general expectation of $1.77, and earnings before interest and taxes (EBIT) will reach $10.8 billion, matching the highest level since the post-financial crisis era. Potter and Johnson acknowledge that General Motors Company has always been one of the best-performing companies in their reports, but they also admit that "now raising the rating of General Motors Company makes us feel a bit foolish." This is because General Motors Company's total return (including dividends) has always outperformed the S&P 500 index, with its returns in the past 12 months, 3 years, and 5 years ranking second, third, and first respectively in Piper Sandler's ratings. Although revenues have been "relatively flat," the shift from electric cars to other models will increase General Motors Company's EBIT by $800 million in 2025. Additionally, with very low risks in the Chinese market and relaxed regulations from the EPA, General Motors Company's performance forecast now seems "likely to be achieved." Stellantis has recently experienced a sharp drop in stock price, frequent changes in management, and its below-average price-to-earnings ratio seems to confirm this. But as the parent company of Jeep, Stellantis is expected to benefit from the launch of new models and the "notable" joint venture with Leapmotor, which will help counter the impact of Chinese competitors in the European market. Potter and Johnson have now raised Stellantis' price-to-earnings ratio from 3 times to 4 times to 6 times, believing that "profits have bottomed out." The team also significantly upgraded the rating of Aptiv (APTV.US) to "buy," and downgraded BorgWarner (BWA.US) to "neutral," calling the former "attractively valued" and the latter having a balanced risk/reward ratio.