Wall Street sees profit recovery for car makers, but will it last?

Wall Street expects US car makers to report strong results for the third quarter as a recovery in sales after this year's initial coronavirus lockdowns tightens inventory for an industry watching cases in Europe and the US rise.

Starting with Tesla on Wednesday, investors will be most focussed on what executives have to say about the quarters ahead as signs grow that the Covid-19 pandemic, which halted work earlier in the year, is again worsening.

"It's going to be pretty strong earnings across the board,” said Deutsche Bank industry analyst Emmanuel Rosner, adding he expected all suppliers and car makers to beat current forecasts.

"Investors want to know what early 2021 is going to look like."

The pace of US car and light truck sales has increased each month since shutdowns were lifted, and plants are working at close to full speed to rebuild inventories for high-profit sport utility vehicles and pickup trucks.

In China, General Motors Co and Ford Motor Co are recovering and registering double-digit sales growth for the quarter.

For GM, 12% year-on-year growth in July-September marked the Detroit car maker’s first quarterly sales improvement in two years in the world's biggest market. For Ford, the 25% volume growth was its second consecutive quarterly sales increase in China after almost three years of decline.

Most analyst also see automakers firming up their cash flow positions and repaying debt. GM indicated in July it would generate enough cash to pay off a $16bn loan (roughly R263,363,200,000) by the end of the year. But only if the US economy continued recovering and there were no further significant production shutdowns.

Shares of GM, down 9% so far this year, have recovered since hitting a low of $16.8 in March. Ford shares have fallen about 19% and were as low as $4 in mid-March.