Cathie Woodthe founder of ARK Investment Managementis skeptical about the car loan market and explains how a fall in the residual value of gas-powered cars could lead to heavy losses.
What happened: Wood tweeted, “With the accelerating shift in consumer preferences toward electric vehicles, used car prices and the residual value of all gas-powered cars are likely to fall, causing serious losses in the $1 trillion auto debt market.”
With the accelerating shift in consumer preference towards electric vehicles, used car prices and the residual value of all gas-powered cars are likely to collapse, leading to serious losses in the $1 trillion auto debt market. https://t.co/cyLLGl1gWI
— Cathie Wood (@CathieDWood) October 10, 2022
See also: How to invest in Tesla shares
Given the current global macroeconomic environment and volatility, auto company shares posted negative returns in line with the broader market.
Ford Motor Company f and General Motor Company GM Year-to-date, shares are down over 40%.
Interesting, Elon Musk responded to Wood’s tweet and indicated that he totally agreed with the idea. musk Tesla Inc TSLA is the top holding in ARK’s flagship ARK Innovation ETF ARKK.
Index decline: Wood quoted the Manheim used car value index, which showed that wholesale prices for used vehicles fell 3% in September compared to August. The index fell to 204.5, according to a company statement, and is now down 0.1% from a year earlier.
The report went on to explain that the average daily sales conversion rate fell slightly to 49.2%, which is below normal for the time of year.
“For example, in September 2019, the average sales conversion rate was 52.1%. The lower conversion rate indicated the month had shoppers with more bargaining power for the season,” it said.
It also pointed out that only three out of eight major market segments saw annual increases in seasonally adjusted prices in September.
“Small cars had the largest increase with 5.9%,…
