Piper Sandler analyst Alexander Potter downgraded Aptiv (NYSE:APTV) to Underweight from Neutral with a $90.00 per share price target (down from $117.00).
Instead, the analyst prefers vertically-integrated automakers like Tesla (NASDAQ:TSLA) and Rivian (NASDAQ:RIVN).
Potter argues that other auto companies will struggle to keep up if they do not replicate Tesla's strategy. In this context, Rivian is best-positioned to replicate Tesla's success.
“Vertical integration is costly, and there are no shortcuts. In its early days, Tesla dealt with delays, quality problems, and staggering cash burn. Rivian must endure this period, just as Tesla did. But we think the payoff will be worth it, because Rivian has a chance to consolidate three large segments of the auto market before Tesla releases competing products. And RIVN is insulated from many of the near-term headwinds mentioned above. Indeed, even TSLA (which remains among our favorite stocks) could suffer estimate revisions due to forced downtime in China,” Potter wrote in a memo to clients.
For Aptiv, another issue is that the company is exposed to troubled regions.
“In 2021, Europe and Asia (mostly China) represented 33% and 31% of Aptiv's revenue, respectively. We are cutting our car sales forecasts in these regions, due to intensifying production headwinds. The outlook is especially cloudy in China, where COVID could upend supply chains for weeks (if not months). Perhaps Aptiv will succeed in helping 20th-century brands maintain relevance vs. Tesla, thereby disproving our thesis, but regardless, cost overruns and FX pressure are likely in 2022.”
Aptiv stock price is down 3% in pre-open Monday.
By Senad Karaahmetovic