Wells Fargo stepped to the sidelines on both Magna International ( NYSE: MGA ) and Lear Corp. ( NYSE: LEA ) on Wednesday as the bank lowered its light vehicle production forecasts.
The bank lowered its light vehicle production growth forecast to just 1.8% from a prior 7.1%, citing US sales recovery and inventory build as key factors in this shift. Additionally, sharp volume declines expected in both Europe and China add caution to forecasts.
“We expect lower volumes in China due to payback from 2022 incentive programs and COVID lockdown risks,” the bank’s analysts said. “We also see risks to European vehicle production in the form of a potential EU energy crisis; i.e., energy cost inflation coupled with possible supply disruptions.”
They added that persistent inflation and supply chain impacts are likely to impact the firms. Further, a looming 20% minimum wage increase in Mexico is overlooked by the market at present, in the analysts’ view.
As such, Magna International ( MGA ) and Lear Corp. ( LEA ) were cut to Neutral ratings from a prior Buy rating assigned to both. Price targets for Magna and Lear were set at $62 and $139, respectively.
BorgWarner ( BWA ), by contrast, is likely to remain resilient amid the aforementioned headwinds, according to the bank.
“BWA remains our top pick, as we believe its EV growth story is accelerated by its most recently announced spin transaction, though remains underappreciated by investors,” the bank concluded.
Read more on BorgWarner’s spinoff plan .
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Magna International, Lear downgraded on trimmed vehicle production projections