What does a potential Biden election win mean for US automakers?
I'm sure the US election win has been haunting Americans for the past 48 hours, but I want to take a look at what the result means for carmakers.
For literal fear of my life, even being almost 4,000km away, I'm not here to call the US election. I did make a good couple of hundred dollars earlier in the day when my bookmaker paid out Biden early and I took a bet on him winning the election yesterday at $4 odds. Needless to say America I will be having beers tonight on your tab. What I am here to do today is tell you what it's going to mean for the great and mighty carmakers of Ford, General Motors and Fiat Chrysler (and of course all the little US manufacturers in-between).
The answer, when dumbed right down, is a lot. But it might not be in the way you think and it might not have the end game you might presume. You see carmakers yesterday would not have been looking at the presidential race result at all. In fact, they wouldn't have given two stuffs about whether Biden or Trump won the US election. What they did care about was the race for the Senate. And to be honest it was a race I cared about as well.
Why did the Senate race mean so much? Basically, the Senate is the vessel for instantaneous and big law changes in US federal funding and law. And the race for the senate at this stage is looking like a majority will go to neither of the major parties, and this is good, this is really good. Why is it good you ask? Because as of today it's looking like Biden will get elected president. With Biden in the white house and the senate basically being a hung vote change will be slow and non-major. Basically, the status quo is preserved.
As a result of this status quo, and in part because Biden takes a softer approach to Chinese money, the US markets rallied last night. In fact the only sector that wasn't generally up last night was oil, which comes as absolutely no surprise at all. Basically growth stocks are up, value stocks were in a hole. Automakers were all but steady on a no-result/Biden swing last night. But that doesn't mean they won't benefit long term from having Joe Biden in the whitehouse.
A couple of things to consider here. The first is that Joe Biden has already committed to re-signing the Paris Agreement, an agreement that Trump pulled out of when he became president in 2016. That's important because it reinforces Biden's commitment to combatting climate change. It also means that it's highly likely you'll see stimulus in the coming 12 months in both energy companies who are engaging in renewables and automakers who are hard at work developing fuel cell and electrified vehicles. By my count that's every US manufacturer currently in the market.
Second thing to consider is that by the Senate having an all but hung result you won't see fuel based vehicles disappear instantly. There won't be any regulation around electric only vehicles like you see occuring in California currently. It's likely that a Biden administration without a majority senate will take a far more softly softly approach with automakers and renewables. That means you're more likely to see policies encouraging renewable energy sources and less likely to see policies banning non-renewables.
Next is COVID19 and the stimulus slated to come with that. While it's unlikely and in some cases illegal for the Biden administration to put the country in lockdown. What you'll likely see is an encouragement of states both financially and in physical support to get on top of COVID19. In the trouble areas of the US that may mean lockdowns.
Biden and the Democrats have already outlined a stimulus plan to help the economy pull away from the challenges presented by COVID19 with a $2.2T stimulus package. Because international travel is unlikely to return until late 2021 if at all by that stage (we're more than likely to see a succesful roll out of a vaccine before that is even discussed), consumers cannot spend their thousands of dollars in stimulus cheques or the money that they've saved by staying at home on travel.
So what will the majority of those consumers spend that money on? Housing and automotive are polled to be the two biggest planned purchases on the way out of COVID19. That's huge for automakers. While the longer the pandemic drags on, the longer automakers deal with supply and lockdown based issues, they also have the added benefit of gaining more sales and disposable income on the other side.
So what does this mean for automakers? Basically it's all good news. And to back that theory up further Ferrari (RACE) reported their Q3 earnings earlier in the week. Ferrari was a stock I actually touted almost a month ago now to buy on a downer. Yesterday Ferrari reported an earnings surprise of 17% after having a negative 33% earnings surprise in August. The result is last night we saw a ridiculous peak rise to $203USD from the October lows of $177USD. And yes that is an upside of 15% and counting.
Ford (F) was slightly down last night to $7.6USD but if Biden wins you want to be in that stock. As we've discovered over the past month Ford doesn't really sink below the $7USD mark but the upside on the stock is big. I was able to sell last month at over $9USD and still get back in this week. With Ford's investment in Rivian, I can't imagine that stock is going to do anything but pop on a Biden result.
And don't worry I'm not leaving General Motors out of this as well. They have potential for a massive upside on the back end of the new Hummer EV pre-orders and their announcements regarding software for their EV products in the future. The stock is already up 33% over the past 3 months and today even with their attachment to the log of a company that is Nikola, I'm happily confident that General Motors still has a bit of growth in it.
So what happens if Trump wins the election? The truth is I'm not going to answer that question because I have absolutely no idea. The certainty in that scenario is that oil will pop but that aside and thanks to Donald's tendency to be totally erratic with all decisions made in the white house (and his lack of majority once again in the senate), god knows what will happen to US automakers. What we do know is that those makers (Tesla aside) have suffered under Trump over the past 4 years. So if we're going off history, the news ain't good. It might sound like blissful ignorance, but let's focus on the positives and the outcomes that we can predict for the moment. And that is that a Biden election win is good for automakers.