Topline
Ford’s rally to 2024 highs led Friday’s resurgence among American automaker stocks, as several friendly factors boosted the legacy automakers and newer electric vehicle players like Tesla alike.
Friday was a good day for American car stocks.
Key Facts
Ford stock rose 4.2% to $14.03, closing at its highest share price since July 20, 2023, while General Motors gained 2.3% to $49.01, closing at its top level since Feb. 16, 2022.
The Michigan-based stalwarts’ stock market gains were part of a broader rally in the wake of Thursday’s promising inflation data which accelerated hopes for lower interest rates, as the S&P 500 rose 0.6% to near an all-time high.
Shares of Tesla, which is by far the largest car company by market capitalization at $780 billion, also rose 3% Friday, closing about 5% of its 9-month high share price set Wednesday.
Much smaller EV makers Rivian (shares up 8% to a 6-month high) and Lucid (up 25% to 7-month high) staged even steeper rallies, perhaps owing to their more volatile nature, with Rivian benefitting from Mizuho analysts’ price target increase, while Lucid got a continued boost from a modest quarterly car delivery beat and its chief executive’s touting of its backing from Saudi Arabia’s deep-pocketed sovereign wealth fund.
Several notable automakers abroad rose in earlier Friday trading, including Toyota (up 2.2%), Tesla rival BYD (up 3.8%) and Volkswagen (up 1.3%).
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Why Do Car Stocks Benefit From Rate Cuts?
The outsized gains for automaker stocks trace back to the notion that car companies typically reap the rewards of rate cuts more directly than other industries. The lower Federal Reserve-determined interest rates should in turn bring lower auto loan rates, likely stimulating demand for new cars, considering auto loans are among the U.S.’ most common consumer loans. Ford and General Motors also benefit as they pay out dividends to shareholders, disbursements which grow more attractive to investors as interest rates come down as they chase different forms of regular income as government bond yields decline. Ford is among the most notable dividend stocks, with its 4.5% annual dividend yield more than three times that of the S&P’s aggregate yield.
Key Background
All three American car giants have struggled since the Fed kicked off this rate hiking cycle in March 2022, with Ford returning 1%, General Motors 15% and Tesla -11%, all much worse than the S&P’s 33% return during that stretch. Both Lucid and Rivian went public during 2021’s initial public offering gold rush, with their valuations a fraction of what they were that year as neither company made much progress toward profitability. Tesla is valued at about 15 times the next biggest American car company by market cap, Ford, which has a $56 billion valuation.
