Wells Fargo analyst Colin Langan downgraded both Ford (NYSE:) and General Motors (NYSE:) to Underweight from Overweight on “massive” rising BEV costs.

Even the analyst wonders if Detroit-based businesses made a mistake by going all in on BEV.

“The recent risk in nickel & lithium prices has increased the cost of batteries from the expected $105/kWh to $168/kWh… Unfortunately, before the price spike, the EPA announced aggressive fuel economy regulations that likely force BEV adoption. OEMs will face significant compliance cost hurdles in 2026. This limits their choices. The main alternative chemistry is LFP, which has also seen a price increase; it also has lower density & currently has no US capacity,” Langan said in a client note.

The price target on F stock is cut in half to $12.00 per share as the increase in input costs pushes Ford Mach-E and Lighting “unplanned costs” by ~$4.8K and ~$8.5K, respectively.

“We estimate Ford relies on the F-Series for >60% of its profits historically, making possible substitution away from the ICE F-Series to the Lightning a material risk. In addition, we see headwinds from price normalization, inflationary costs, & the 2023 UAW contract negotiations. Therefore, we are concerned 2022 could be the peak profits, as Ford will be increasingly forced to absorb BEV losses to meet high 2026 US regulatory hurdles,” the analyst further noted.

The GM stock target price has been slashed from $74.00 to $33.00 per shares. This is because the analyst anticipates an increase of $12.6K unplanned costs for the Silverado EV.

“We estimate GM relies on large pickups for >40% of its profits historically, making possible substitution away from the ICE Silverado to the EV version a material risk,”

Langan, as in Ford’s case, noted that GM faces the same challenges.

At the close today, shares in GM and F were both nearly 5% lower.

By Senad Karaahmetovic