The automotive industry is huge and receives a lot of attention. Most people know about car brands, and most people have an opinion about the best new cars and trucks on the market.
Due to their high profile, auto stocks have attracted a lot of attention from investors for decades. Let’s take a closer look at car stocks and the best ways to invest in them.
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In the current economic climate, the automotive industry is rapidly changing, especially with the rise of electric vehicles. Stay up to date with our newsfeed at the end of this article.
Top Auto Stocks for 2024
Top Auto Stocks for 2024
Some of the most famous auto stocks include:
Car company |
about |
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Ford Motor Company (NYSE:F) |
Investors know the automaker as a long-time market leader in pickup trucks and commercial vehicles with operations around the world. Ford is now investing in electric and self-driving vehicles to maintain its lead. Ford’s F-Series pickups are the best-selling vehicles in the United States and are a significant profit driver for Ford. |
Ferrari NV (NYSE:RACE) |
This small Italian car manufacturer is known for its expensive sports cars and years of racing success. Ferrari’s strong brand and long waiting list give it significant pricing power and luxury-level profit margins. |
Tesla (NASDAQ:TSLA) |
The pioneering maker of “premium electric vehicles” has grown to become the world’s largest automaker by market capitalization, thanks to strong sales in the United States and expanding international presence. Investors clearly have high expectations for CEO Elon Musk and his team. |
Stellantis (NYSE:STLA) |
Founded in 2021 through the merger of Fiat Chrysler and Peugeot, the automaker boasts brands such as Jeep, Ram, Dodge, Opel, Vauxhall, and Peugeot. It also owns the Fiat, Alfa Romeo, and Maserati brands, and has strong operations not only in the United States but also in Europe and South America. |
Volkswagen (OTC:VWAGY) |
Volkswagen is one of the best-selling automakers outside the United States. Its brand portfolio includes VW, ŠKODA and SEAT, as well as the luxury brands Audi, Lamborghini, Porsche and Bentley. |
Toyota (NYSE:TM) |
Founded in 1937, the Japanese auto giant’s brand portfolio includes Toyota, Lexus, Daihatsu, and Hino. Due to its brand strength and global reach, Toyota is the world’s largest car brand by sales. |
General Motors (NYSE:GM) |
GM, which owns the GMC, Buick, Chevrolet, and Cadillac brands, is the largest automobile company in the United States by sales. |
automotive industry
automotive industry
The Automotive industry group includes the following types of stocks:
Auto stock valuation
How do you value auto stocks?
Auto stocks are part of the consumer durables sector. This sector includes companies that manufacture products intended to be used for more than several years, such as washing machines, dishwashers, furniture, and cars and trucks.
Before investing in auto stocks, learn how business cycles affect auto companies and how auto companies work to maximize profits and remain competitive in good times and bad. It is important to understand what is happening.
car sales cycle
Understanding the car sales cycle
Automakers and their suppliers are cyclical stocks, meaning their profits rise and fall depending on consumer confidence. The reason is simple. When businesses and consumers feel worried about the economy, they postpone buying a new car.
The cyclicality of auto sales is important to investors for the following reasons:
- Automakers have high fixed costs such as factories, tools, logistics networks, and labor contracts. These bills must be paid no matter how many cars are sold.
- Automakers and suppliers also need to invest in product development to ensure a steady supply of competitive new products.
- The auto industry tends to have low profit margins even in good economic times due to high costs and stable spending.
- When sales decline, such as due to a recession, car companies’ profits can be significantly reduced, putting future product spending and future competitiveness at risk.
One way to avoid cyclicality in this sector is to buy stocks that are exposed to exchange markets, such as auto parts retailers or auto parts manufacturers that primarily sell to exchange markets.
cash reserves
cash reserves
Most auto companies significantly reduced future product spending during the 2008-2009 recession. The few companies that weren’t, like Ford and Hyundai, were able to stock showrooms with fresh products and gain market share when the recovery began.
It was an important lesson for the industry. Today, most global automakers tend to hold large amounts of cash so that they can continue to invest in new product development even during economic downturns.
One interesting development during the COVID-19 recession is that many automakers have decided to forego investment in traditional internal combustion engines in favor of EVs.
Many car companies also pay dividends to their shareholders. Some automakers plan to use cash reserves to continue paying dividends even during the recession.During the COVID-19 pandemic, Ford and general motors (GM -2.88%) has suspended its dividend to save cash. Analysts expect both companies to resume paying dividends in the future.
understand financial statements
How do you understand a car company’s financial statements?
In most cases, deciphering a car company’s financial statements is not that difficult. There are three things he needs to know.
- To track a car company’s financial performance, auto investors look at operating income or EBIT (earnings before interest and taxes), operating profit margin or EBIT margin (calculated by dividing profit by total revenue), and cash flow. I tend to pay attention. These include the direct costs of manufacturing and shipping the vehicle, as well as research and development costs (which can be very high in the automotive industry), as well as interest rates that are not directly related to the company’s ongoing performance. and taxes are not included.
- Automakers often provide adjusted numbers that exclude one-time costs and earnings impacts such as depreciation and tax deferrals. This helps you understand the underlying performance of your business. (Note that one-time fees and profits may also be important.)
- Many automakers have financing company subsidiaries that provide loans and leases to customers and dealers. These can make auto financial statements confusing to investors. To help with this, most car manufacturers provide debt and cash flow figures specific to their core car manufacturing operations. These numbers are often referred to as “automotive” or “industrial” numbers. You can use these to understand a car company’s debt and make comparisons between car manufacturers.
Competition in the automotive industry
Competition in the automotive industry
Automakers with the latest products generally command the highest prices and the most profits. Automakers need to continually invest to ensure a steady stream of new products in the pipeline.
Virtually all automakers and many component suppliers are also investing heavily in future technologies such as EVs, additional safety features, and autonomous driving systems. Most experts believe automakers will need these technologies to remain competitive in the not-too-distant future.
Electric car
Electric car
The next few years will create several exciting opportunities for manufacturers of electric and hybrid electric vehicles. These are new and different, and most analysts expect them to largely replace internal combustion vehicles over time.
EV companies have the potential for high growth, which is also interesting for investors. However, it is important to remember that the processes involved in developing and manufacturing EVs are not that different from those used by manufacturers of traditional internal combustion engine vehicles. That means EV makers will face the same high costs as traditional automakers.
It’s also important to remember that all the traditional major car manufacturers are introducing their own electric vehicles, and competition in this part of the market will eventually be fierce.
New coronavirus infection and the automobile industry
New coronavirus infection and the automobile industry
Car companies were hit hard by the coronavirus pandemic in the first half of 2020. Most car factories around the world have been closed for weeks, leaving many dealers out of popular models. By the end of June 2020, most factories had reopened with new rules and equipment to protect workers from the virus, but sales in 2020 remained weak for most traditional automakers.
The recovery has been slow as automakers grapple with supply chain issues and a shortage of silicon chips. Supply chains are critical to the automotive industry, as the industry tends to use “just-in-time” production techniques and inventory is tight.
Supply chain issues persisted throughout much of 2021, particularly due to shortages of automotive semiconductors, and production was continually cut back throughout the year. The problem lasted until 2022, when the industry only suffered a slowdown in demand due to the rising interest rate environment. Light vehicle production is improving in 2023, but not as fast as industry commentators expected earlier this year.
Another way automakers have changed their behavior during the pandemic is by investing more in developing electric vehicles than in developing traditional internal combustion engine vehicles.
Hotbed of SPAC
The auto industry is a hotbed for SPACs.
There are more public automotive companies today than there were a few years ago, as EV startups and suppliers are going public through special acquisition companies (SPACs). Although many of these companies are young and many years away from profitability, many are attracting attention from investors, and some are trading at premiums to traditional automakers.
Electrification of the automotive industry is a revolution, and some of these startups have the potential to grow into major players. However, given the large number of companies out there, and the success that established companies such as Volkswagen and GM have had in establishing EV qualifications, investors should be cautious when considering these SPACs. You should be careful.
Are auto stocks right for you?
Are auto stocks right for you?
Auto stocks can make an important contribution to your investment portfolio. It also rises and falls depending on consumer confidence, so it can be a useful indicator of economic troubles or that a recovery may be on the horizon.
Additionally, acquiring an automaker means taking a positive view of the company’s long-term hybrid and electric vehicle strategy.
Frequently asked questions about auto stocks
Frequently asked questions about auto stocks
What are the best auto stocks to buy?
Investors are willing to pay a premium for car companies with strong electric car brands, such as Tesla, and discount traditional internal combustion engine manufacturers. Despite weak auto industry sales growth, the eventual winners will likely be those related to the transition to hybrid and electric vehicles.
Which are the fastest growing auto stocks in the world?
Workhorse Group, a maker of commercial zero-emission vehicles, will be the fastest-growing car company in 2023, with analysts expecting full-year sales to rise about 1,200%.
What car companies are listed on the stock market?
Major companies such as Toyota, General Motors, Ford, and Stellantis own multiple brands. Other well-known brands listed in the US include Tesla, Honda, Li Auto, Rivian, Vinfast, Nio, Lucid, and XPeng. Lesser-known car companies such as NWTN, Fisker, and Polestar are also listed on the U.S. market.
What car companies are included in the S&P 500?
Tesla, Ford, and General Motors all S&P500 index.
Lee Samaha has no position in any stocks mentioned. The Motley Fool has a position in and recommends Tesla and Volkswagen. The Motley Fool recommends General Motors and Stellantis and recommends the following options: Long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.