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Daimler AG Signals Supply Chain Risks with Shift to EVs

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Daimler AG (DDAIF - Free Report) has rung the warning bell that its shifting focus to electric vehicles (EVs) could compel it to support its supply chain, per a Reuters report. In fact, many automakers, including Daimler, have scaled up production of EVs and are also updating the engine management software to keep a lid on pollution level.

In fact, due to a shift in customer demand, from diesel to gasoline engines and planned electrification of new model series, there will be a huge change in the supply components, particularly for the Mercedes-Benz Cars segment.

The new demand pattern may lead to underutilization of production capacities for some supplies, whereas overutilization of production capacities for some other. In the changed scenario, some suppliers may have to opt for expansion of production capacities at its plants. If the supplier is not able to cover fixed-costs, there is a high chance that the suppliers could ask for a compensation payment.

Daimler projects that its profit in 2018 would be affected as the company is investing a lot in electric and autonomous vehicles. Moreover, the political doldrums could result in supply bottlenecks for some raw materials. However, due to the intense competition, the ability of the company to pass on the higher expenses of commodities and other materials to the price of end vehicle is limited.

Over the past year, shares of this company have outperformed the industry it belongs to. The stock has grown 21.5%, against the industry’s rise of 20.5%.

Currently, Daimler carries a Zacks Rank # 2 (Buy).

Some other better-ranked stocks in the auto space are PACCAR Inc. (PCAR - Free Report) , Genuine Parts Co. (GPC - Free Report) and Lear Corp. (LEA - Free Report) , each of which carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

PACCAR has an expected long-term growth rate of 10%. In the last six months, shares of the company have gained 4.5%.

Genuine Parts has an expected long-term growth rate of 7.2%. Shares of the company have rallied 15.5% in the last six months.

Lear Corp. has an expected long-term growth rate of 7.1%. In the last six months, shares of the company have jumped 29.4%.

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