The automotive industry is huge and very visible. Almost everyone is familiar with automotive brands, and most people have an opinion about the best new cars and trucks on the market. Because of this visibility, automotive stocks have gotten lots of interest from investors for decades. We'll take a closer look at automotive stocks and explore the best ways to invest in them.
Some of the best-known automotive stocks are:
You'll find the following types of stocks within the automotive industry group:
Automotive stocks are part of the consumer durables sector. This sector includes companies that manufacture products intended to last for more than a few years, such as washing machines, dishwashers, furniture — and vehicles.
Before investing in automotive stocks, it's essential to understand how economic cycles affect automotive companies and how these companies work to maximize profits and stay competitive during good and bad economic times.
Automakers and their suppliers are cyclical stocks, meaning their profits rise and fall with consumer confidence. It's easy to see why: When businesses and consumers are worried about the economy, they postpone buying new vehicles. Auto sales' cyclicality matters to investors because:
One way to avoid the cyclicality of the sector is to buy stocks exposed to the replacement market, such as auto parts retailers or manufacturers that sell primarily to the secondary market.
For the most part, automotive companies' financial statements aren't too hard to decipher. Here are three things to know:
Generally speaking, the automaker with the newest products will get the highest prices and the biggest profits. Automakers must continually invest to be sure they have a steady flow of new products in the pipeline.
Virtually all automakers and many parts suppliers are also making significant investments in future technologies such as EVs, extra safety features, and autonomous driving systems. Most experts believe that these technologies will be necessary for automakers to remain competitive in the not-too-distant future.
Some exciting opportunities in the next few years will involve manufacturers of electric and hybrid electric vehicles. These are new and different, and most analysts expect them to eventually displace internal-combustion cars.
EV companies might see high growth, which is also exciting for investors. But it's important to remember that the processes involved in developing and manufacturing EVs aren't all that different from those used by traditional internal-combustion vehicle manufacturers. That means EV manufacturers face high costs, just like traditional automakers.
It's also important to remember that all the major traditional automakers are introducing their own electric vehicles. The competition in this segment of the market is fierce.
That competition has intensified as relatively high interest rates have slowed demand growth at a time when many carmakers have released new EV and hybrid models. As such, the primary focus over the last year or so has been on cutting costs and reducing capacity where necessary.
The future of the industry lies in EV and autonomous vehicles, with an increasing part of the value in the car coming from its software component. In addition, many believe ride sharing, notably via robotaxis, is where the industry is headed.
Many of the major automakers have invested heavily in EVs, autonomous vehicles, and robotaxis, but the undisputed leader in terms of commercializing these opportunities is Tesla.
Its robotaxi rollout and its aim of having unsupervised full self-driving (FSD) available (so Tesla drivers can transform their vehicles into robotaxis, and Tesla can launch its dedicated robotaxi, the Cybercab) are not risk-free events. Still, if Tesla can get it right, the upside potential for the stock is significant.
Electric vehicles are big business. Here's what you need to know about consumer sentiment and industry plans.
Self-driving car ETFs provide the ability to invest in a rapidly growing industry without the risk of investing in a single stock.
The Trump administration's tariff plans have thrust automobile supply chains into the spotlight. Here's the latest trade data.
With the auto world switching to EVs, these exchange-traded funds can drive value.
Automotive stocks can be important contributors to your investment portfolio. And because they rise and fall with consumer confidence, they can be useful indicators that economic trouble — or a recovery — may be on the way.
In addition, investing in an automotive manufacturer means taking a positive view of the company's long-term hybrid and electric vehicle strategy. That's become harder to judge as relatively high interest rates have slowed the growth rate of EV unit sales, dropped pricing, and intensified competition.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
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