Ford and GM are doing well. Here are two risks that could change that.

By Claudia Assis

Concerns about memory chips and rising commodity prices mount

Ford and GM have pivoted away from EVs, but risks for their gas-powered businesses remain.

Ford and General Motors downsized their electric-vehicle ambitions and are set to benefit from the trend of internal combustion engine vehicles being around for longer. There are some threats to that outlook, however.

That's from analysts at Morgan Stanley, who see potential for pressure on Ford (F) and GM (GM) production and profit margins this year due to shortages of memory chips and rising commodity prices.

Memory-chip availability is "rapidly changing," and the analysts have detected mounting commodity-cost inflation.

Memory shortages are a growing concern for the auto industry, which went through a semiconductor-chip shortage during the pandemic. Broadly, the shortages have helped companies such as Micron Technology (MU) rise to new heights recently.

The shortages are largely driven by a surge in artificial-intelligence demand and "leave less capacity for automotive-grade DRAM, which could yield in substantially higher prices and supply shortages, depending on inventory positions across the supply chain," the Morgan Stanley analysts said in a note Wednesday.

They estimated a cost headwind of between $300 and $400 per electric vehicle and between $100 and $200 per internal combustion engine vehicle. The bigger risk, however, is whether enough memory chips would be available for the carmakers. If not, it would "meaningfully" impact production output, the analysts said.

Commodity-price inflation could also pressure suppliers' and carmakers' margins, "although the most acute effects may be most visible" in makers of electric cars such as Tesla (TSLA) and Rivian (RIVN), as well as suppliers Aptiv (APTV) and Lear (LEA), all of which have "elevated copper and lithium exposure," the analysts said.

Lithium prices have doubled in one year, copper prices are up about 45% in the same period, steel prices are some 40% higher and aluminum prices are about 20% higher, they said.

The "ultimate" margin impact will depend on the supplier's or maker's contract structures and their hedging, but they could see dwindling margins if prices remain at those higher levels through 2026, the analysts said.

Conversely, they said they are less optimistic about EV makers, particular Rivian. Demand for EVs has cooled since the end of U.S. tax incentives, and Rivian's planned new EVs will face "materially weaker" demand this year and in 2027.

GM earlier this month warned investors it will record more than $7 billion in charges in the fourth quarter, mostly related to electric vehicles. Ford sounded a similar warning in October.

GM is scheduled to report fourth-quarter earnings Tuesday before the bell. Ford hasn't set a date yet but is expected to report in early February.

Ford's stock is up more than 30% in the past 12 months, its largest percent gain in that time span since the 12 months to 2022, when it was up nearly 80%. CEO Jim Farley took the reins in October 2020, intensifying Ford's EV push, which at the time seemed like the best way forward for the automaker.

GM shares are up about 50% in the last 12 months, their highest percent gain in that time period since the 12 months to January 2025, when they rose 52%.

-Claudia Assis

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01-21-26 1426ET