Shortage of chip causing disruptions in auto production

Well, General Motors have now announced a halt in production in several North American plants and Ford made an announcement of additional downtime at two plants, the latest disruptions of the auto supply chain because of the chip shortage.

Notably, the shares for the GM were down by around 1% on Thursday. Ford has now closed down nearly 2%. However, both the stocks have now risen by more than 40% for the year, in spite of the continuous production issues.

O’Hara is the chief market technician of MKM Partners who is identified as one way to get exposure to the auto stocks without the headwind risk.

O’Hara informed the new channels on Thursday, “Used car sales are through the roof so one play that I’m very interested in here is CarMax. They are a huge used car sales company, and the positivity from used car sales is being reflected in the chart.”

Including Ford and GM moving into electric vehicles, Sanchez noted that “the outlook for Ford is significantly better than GM, based on the idea that they’re really moving into the electric car space, but what’s interesting about that is that electric cars are going to require more chips, not less.”

She said in an interview, “Suppliers just did not stockpile enough chips because auto demand plummeted during Covid, and so now they’re just caught on the wrong foot, and it’s not so easy to just order up more chips. This is going to take probably several months to work through, and it’s going to dampen the recovery for the auto sector.”

However, for long-term investors, O’Hara mentioned GM and Ford can present a more stable opportunity over more volatile electric vehicle makers like Tesla.

O’Hara also said, “We have a chance to move into lower volatility names. GM and Ford, who are now looked at as EV plays. I think you will get a pullback and I think that pullback is buyable.”

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