Before next week's financial report, Bank of America "cautiously bullish" on Ford (F.US) and General Motors (GM.US): Strong fundamentals are difficult to resist short-term risks.

Ford (F.US) and General Motors Company (GM.US) will both release their third-quarter financial reports next week. On this occasion, Bank of America Securities has given a "buy" rating to both companies, but also simultaneously lowered their target prices: General Motors has been slightly reduced from $62 to $61, while Ford has been lowered from $14 to $13.5. Bank of America stated that the retail sales and pricing performance of these two companies in the third quarter were indeed stronger than market expectations. However, starting in the fourth quarter, tariffs, supply chain disruptions, and a slowdown in electric vehicle demand will significantly impact profits, leading to the need to revise their overall profit models for 2026. Specifically, Bank of America pointed out that in the third quarter, Ford and General Motors saw a year-on-year increase in U.S. retail sales of 8.2% and 7.7% respectively, outperforming the industry's overall growth rate of 5.2%. At the same time, the average transaction price (ATP) for both companies also increased, with Ford increasing by 1.7% and General Motors by 4.8%. General Motors' incentive spending as a percentage of vehicle prices was only 6.1%, lower than the industry average, demonstrating stronger price control. Bank of America predicts that General Motors' adjusted EBIT in the third quarter will be $2.81 billion, exceeding market expectations by 3.5%; Ford's third-quarter EBIT will be $2.11 billion, also surpassing expectations by 3.9%. However, as they enter the fourth quarter, Bank of America holds a notably cautious attitude toward both companies. The main risks faced by General Motors are metal tariffs and tariffs on medium/heavy-duty trucks. If a 25% tax rate is implemented, Bank of America estimates that EBIT in 2025 will decrease by $650 million. Ford, on the other hand, is facing a situation where a critical aluminum supplier's factory caught fire at the end of September, leading to an estimated production cut of 120-150,000 units for the F-150/250 models in the fourth quarter. Bank of America estimates a gross profit loss of approximately $700 million, significantly lowering its fourth quarter EBIT forecast from $1.79 billion to $1.33 billion, with EPS dropping from $0.30 to $0.21, well below market expectations. Furthermore, Bank of America has also lowered the profit expectations for both companies in 2026. Regarding General Motors, due to an expected 3% decrease in North American sales, Bank of America has reduced its 2026 EBIT from $13.4 billion to $11.8 billion. For Ford, due to a slowdown in the profit margin of its Ford Pro business and continued losses in its Model e electric vehicle business until 2027, EBIT for 2026 has been lowered from $9.7 billion to $8 billion. The target prices are based on an expected EV/EBITDA valuation of about 3 times for 2026, which is at the lower end of the historical valuation range for the two automakers. In terms of cash flow, Bank of America expects General Motors' free cash flow to be $7.9 billion in 2025, enough to support ongoing buybacks and dividends; however, Ford's free cash flow is expected to decrease from $4 billion to $2.5 billion in 2026 due to the impact of the fire and tariffs, potentially limiting its future buyback capacity. Overall, Bank of America believes that the current valuation already reflects most of the negative expectations, with expected EV/EBITDA ratios of only 2.8 times for General Motors and 2.6 times for Ford in 2026, providing a certain safety margin. However, in the short term, the implementation of tariff policies, supply chain recovery, and the trend in the electric vehicle market will continue to be key variables determining stock price fluctuations.