What happened
Shares of many auto-related stocks were trading down on Monday, as investors retreated from consumer stocks on concerns about the increasing likelihood of higher interest rates.
Here's where things stood for these major auto stocks as of 2:30 p.m. ET, relative to their closing prices on Friday.
- Ford Motor Company (F 0.66%) was down about 3.9%.
- General Motors (GM -0.17%) was down about 5.7%.
- Honda Motor (HMC -0.90%) was down about 2.2%.
- Stellantis (STLA 0.08%) was down about 1.9%.
- Tesla (TSLA -1.92%) was down about 5.6%.
- Toyota (TM -1.35%) was down about 3.1%.
Not all of the widely followed electric vehicle (EV) start-ups were affected, but some were. Among them:
- Canoo (GOEV -5.00%) was down about 3.7%.
- Fisker (FSRN -14.37%) was down about 3.5%.
- Nikola (NKLA -2.44%) was down about 2.6%.
So what
The concern is that rising consumer prices may lead the U.S. Federal Reserve to accelerate its plans to raise interest rates, and the decision could come as soon as Wednesday.
Data published by the Department of Labor last Friday showed that the consumer price index rose 6.8% in November from a year ago, the highest monthly rate of inflation since 1982. The Fed is holding a two-day policy meeting this week to decide how to respond. Analysts expect the central bank to move more quickly to wind down its bond-buying program and to signal that interest rate hikes will be forthcoming in 2022. The Fed will announce its decisions, if any, on Wednesday.
Demand for Ford's electric Mustang Mach-E has been so strong that the company is moving to triple its production by the end of 2022. But what will happen to that demand if interest rates jump? Image source: Ford Motor Company.
What's that got to do with autos? Automakers have recently been able to generate strong profit margins thanks to buyers' willingness to pay up for new models and profitable high-tech options. But many consumers and businesses finance their new vehicles: The concern is that if interest rates rise, consumers will have to pay more for that financing -- and won't be willing or able to pay as much for their next new rides.
That in turn will make it harder for automakers -- yes, including Tesla and the new EV makers -- to generate the hearty profit margins investors want to see. In some cases, it might also affect their ability to invest aggressively in new products and technologies. Those concerns are why the stocks are down today.
Now what
Auto investors should keep in mind that many of these companies (including Ford, GM, and Tesla) are executing very well at the moment. By themselves, higher interest rates aren't likely to change that significantly; if this sell-off continues, there may be good opportunities to add to positions in the stronger names.
