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Semiconductors and supply chain problems have dogged the auto industry all year. Things aren’t getting better and investors should expect another round of cuts to full-year sales and earnings guidance.
Exhibit A is auto parts and software provider
Aptiv
(ticker: APTV). The company cut its guidance on Monday.
Aptiv stock isn’t doing much in premarket trading Monday yet.
S&P 500
and
Dow Jones Industrial Average
futures were down about 0.7% and 0.4%, respectively.
Another 3 million cars won’t get built in the fourth quarter, according to Aptiv. Global vehicle production in the final three months of the year is now expected to be about 20 million units and not the 23 million Aptiv projected earlier in the year. Taken with the weaker-than-expected third quarter, about 38 million cars—6 million fewer than prior expectations—will make it off assembly lines in the second half of 2021. That is a cut of almost 14%.
Fewer cars means lower sales for Aptiv. The company now expects to generate about $15.3 billion in 2021 sales. Prior guidance was about $16.3 billion. Operating profit margins are now expected to be about 8%, down from prior guidance of about 10%. Lower volumes hurt profits—fewer cars get made but a company’s fixed costs stay the same. Supply chain problems such as higher shipping costs also will hurt profitability.
Aptiv won’t be the only automotive company to experience these problems. Investors should gird for a rocky third-quarter reporting season.
The company, however, was also careful to point out it is still growing about 10 percentage points faster than the overall auto market. Aptiv makes parts critical for vehicle electrification and systems that enable autonomous vehicles. EVs and AVs are growing faster than the overall automotive market.
Some of that extra growth is reflected in Aptiv stock. Coming into Monday, Aptiv shares were up about 27% year to date.
Aptiv will report third-quarter numbers on Nov. 4.
Write to Al Root at allen.root@dowjones.com