The end of the tunnel is not near for Magna International (TSX: MG). Just when things start looking bright for light vehicle production, either the trend changes, the supply chain faces an issue, or the government policies change. The automotive components supplier has been through each and every crisis and survived thanks to its robust balance sheet and strong financials.
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The world has come to a standstill for Magna
This year, things are tougher for Magna. The company has 343 manufacturing operations and 107 product development, engineering, and sales centers across 28 countries. 19 out of these 28 countries held or have elections. The change in leadership brought with it policy changes. For instance, the U.S. and the E.U. have imposed significant tariffs on Chinese electric vehicle (EV) imports. China has retaliated with duties on luxury internal combustion engine vehicle imports from these regions. U.S. president Donald Trump has cancelled EV subsidies, putting the EV demand in the doldrums.
On one hand, central banks worldwide are reducing interest rates, which could help people buy more cars through loans. However, Trump tariff uncertainty raises the risk of inflation, reduced economic growth, and a stock market decline.
The outlook for Magna
All these factors have blurred Magna’s outlook. At present, the situation is to go with the flow and preserve cash to sustain amid prolonged demand weakness. Even Magna’s management has given an outlook that will be updated depending on the developments in the industry that are beyond Magna’s control.
Magna’s press release stated, “We typically provide Outlooks for the current year and two years hence. Recently, several industry challenges, including light vehicle production volatility, uncertain electric vehicle take-rates, [original equipment manufacturers] OEM program recalibration actions, market share shifts, and uncertain government policies have made forward forecasting more difficult.”
For now, Magna has guided a 6-10% dip in revenue for 2025 as light vehicle production takes a hit. However, these numbers could increase if tariffs are imposed.
In light of the current situation, Wall Street analysts have reduced their price target for Magna stock. On one side, analysts at Raymond James, Scotiabank, and BMO Capital Markets identify the company’s sound financial health as a factor for a sector performance or outperform rating. On the other side, Goldman Sachs has downgraded Magna stock citing its significant exposure to European automakers. Moreover, low growth in content per vehicle is a cause of concern since that is a major growth driver for Magna.
Is Magna a buy, sell, or hold for 2025
The management is transparent that 2025 will be a tough year for Magna. The decline in revenue will affect the profits. This shows that more correction is likely in Magna’s stock price.
If you already own the stock and you are in negative, continue holding it, as the dividends will keep coming. The company has the relevant cash flow to pay dividends.
Magna stock has already halved from January 2022 and more dip is likely. So, if you are considering buying the stock, you can wait and watch how the situation develops in the automotive space. For now, add it to your watchlist.
If you are considering selling the stock at a loss, thinking that you can cut your losses, hold on. The company is fundamentally strong, with a US$1.1 billion cash reserve and positive earnings per share, despite major shifts. It even absorbed Fisker’s bankruptcy. Magna caters to almost all major automakers worldwide, and it can see a recovery when the sector revives. Instead of selling at a loss, you can hold the stock and keep earning dividends, waiting for the next growth cycle.
Investor takeaway
These are difficult times for auto stocks and Magna is well-positioned to handle the headwinds. The best approach is to wait and watch and consider buying it when demand for light vehicles starts improving.
