Goldman Sachs Analyst Mark Delaney was cautious regarding the US Autos Sector ahead of Q1 earnings season.

Analysts expect a tough earnings season due to the expectation that most companies will report below Street consensus, given geopolitical and supply chain headwinds.

War in Ukraine has increased the cost of raw materials while the shortage of key components caused some facility closures.

Delaney wrote in a client note that “we believe auto tier-1 suppliers in coverage will be most adversely affected given their exposure at higher input costs and to lesser extent, lower revenue (remember that many suppliers within our coverage were generally conservative in global auto production volume assumptions 2022 so we see less revenue impact on average)”.

These headwinds and challenges are expected to make investors more cautious when it comes time for earnings.

Delaney favors General Motors (NYSE) over Ford (NYSE) when it comes OEMs. This is because the latter has less exposure to Europe than Ford, and GM saw less semis impact in 1Q (per IHS).

Goldman Sachs believes there is a danger to Ford’s Q1 and CY22 EBIT estimates. Delaney, on the other hand is optimistic about Tesla (NASDAQ) following in-line Q1 delivery reports last weekend.

We remain optimistic on Tesla’s full-year, driven by high EV demand and the company’s ability to navigate its supply chain (e.g. Tesla has been able find alternative suppliers faster in part because of its vertically integrated business model), as well as rising prices for its cars. “However, it’s still possible for its Shanghai factory to close due COVID protocols is an issue,” the analyst stated.

By Senad Karaahmetovic