The Iran Conflict Could Capsize Auto Sales Globally. Which Stocks Are Safe?

While there's never really a good time for a conflict like the war in Iran, as far as the automotive industry goes, it's awful timing. Consider that four automakers alone, Honda (NYSE: HMC), Ford Motor Company (NYSE: F), General Motors (NYSE: GM), and Stellantis (NYSE: STLA) have combined for a restructuring bill that is nearing $70 billion. The restructuring was designed to pivot away from electric vehicle (EV) strategies until the market was ready. Now, however, the Iran conflict is bringing up many questions for investors. Let's dive into a few, including how this will impact EV sales.

Will demand be dented?

The simple answer is yes, but exactly how, why, and where get much more complicated. Automotive sales in Iran will obviously be directly impacted, and regionally, it will be extremely challenging to distribute inventory and regulate supply chains amid the turmoil. Automakers with a strong presence in the Middle East will be most impacted, which currently means investors should be concerned primarily if they own Chinese automakers, which are expanding internationally, including in the Middle East, at a rapid pace.

Domestic automakers in Detroit and elsewhere have a much smaller presence in the Middle East, if any, and are fairly protected from direct impacts. However, about one-fifth of the world's oil supply travels through the Strait of Hormuz, and Iranian officials have said they will not allow ships through the passage.

In the short term, this will mean higher gasoline prices, which will begin to push consumers to EVs and/or hybrids. Edmunds, an automotive research company, has already acknowledged that consumer research on its website for EVs and hybrids has picked up since March 2, days after strikes were launched on Iran. As gasoline prices only began rising sharply late last week, the impact is still in its early stages.

Image source: Getty Images.

Thankfully for auto investors, it would take a prolonged period of conflict-driven gasoline price increases to truly change overall vehicle volume and demand. If the past can offer any insight, investors might look to June 2022, when Russia's invasion of Ukraine sent gasoline prices to a national average of $5.01 per gallon. That year, sales of highly profitable full-size pickups and SUVs declined 7.3% for the year, according to Automotive News.

One reason demand and sales mix will be resistant to change is simply that new-vehicle prices have continued to rise to new heights. Buying a vehicle because of a current event like the conflict in Iran means making a $50,000 vehicle decision due to a $5 gas dilemma. In the short and medium terms, consumers are much more likely to change their habits rather than make big-ticket purchases.

What it all means

Some investors are quick to predict the EV market could be reinvigorated fast, due in part to the Iran conflict, but the chances of a significant change in the near term are small. In 2022, Cox Automotive completed a study that found prices at roughly $6 per gallon to be the magical number that began pushing shoppers to consider switching to a hybrid or EV. Sustained higher gasoline prices absolutely do have impact; however, the odds are that these circumstances will push consumers toward more EV research and education, rather than purchase decisions.

Daniel Miller has positions in Ford Motor Company and General Motors. The Motley Fool recommends General Motors and Stellantis. The Motley Fool has a disclosure policy.