3 Auto Stocks You Had Better Not Miss
Several factors are driving auto sales this year and if you’re looking to buy stocks in this market, you probably need a better idea of what they are:
Electric Vehicle (EV) Adoption: Everybody knows that EV sales are going to increase for several years now. Demand has been building over the last few years not only because of all the hype around Tesla and Elon Musk, but also because governments around the world have started incentivizing EV purchases and bringing stricter emission regulations.
Additionally, most car purchasers like the convenience but they really don’t want to destroy the environment if they can avoid doing it.
What’s different in 2023 is that you have many more choices this year than ever before, with traditional automakers like Ford and General Motors coming out with several new models.
As a result, global EV sales are expected to cross 14 million by year-end, a 40% increase from the 10 million sold in 2022. The acceleration in EV adoption is clear from the trend: in 2020, 5% of all cars sold were EVs; in 2021, this increased to 9%; in 2022 EV share of total car sales reached 14% with spending crossing $425 billion, according to the International Energy Association (IEA). This year is shaping up to be equally strong, with first quarter sales growing 25% from quarter one of last year. 60% of EVs sold last year were in China and 50% of EVs on the road today are also in China, making it the largest market. The EU, which is the second largest market, saw sales growth of 15% while the U.S., although third largest saw the strongest growth of 50% last year, according to the IEA.
Autonomous Vehicle (AV) Adoption: While AV technology is becoming mission critical in the defense segment, its adoption by the general public will help refine the technology.
AVs have the advantage of improving safety and protecting against crashes, but are susceptible to takeover by hackers. If hackers take gain access to your vehicle, they can steal your data, change your commands and sabotage or even destroy the vehicle. This is a deterrent to AV adoption. Most AV projections stretch a decade or so out, indicating that the technology is still in its infancy. However, Research and Markets estimates that AV sales will grow a pretty strong 12.4% this year. What’s more they’re expected to grow at a 12.1% CAGR between 2022 and 2027. Note that various degrees of automation are also being added as additional features to attract buyers looking for EVs.
Companies like Tesla, Waymo and Cruise are still at the forefront of developing autonomous vehicles in the U.S. It’s important to note that Chinese companies are growing stronger in this technology every day. Unlike the U.S. where there is a lot of competition between the leading tech companies and automakers, in China these two groups are collaborating. Pony.ai and Baidu Apollo, like Waymo for example, are some of these companies that are building AVs and using them to run a taxicab service in designated areas in Beijing and Shanghai today. Others are focused on the building block side, manufacturing the LiDAR RADAR sensors, cameras and computing chips that make AVs possible. Chinese startup Haomo has also developed driveGPT, a generative AI model that learns from human feedback to improve itself. Haomo has tied with Chinese automaker Great Wall Motor Co to create the biggest computing center for AV infrastructure.
Digitalization and Connectivity: The integration of advanced digital features and connectivity in vehicles is driving sales. Consumers are increasingly looking for vehicles equipped with smart infotainment systems, voice assistants and advanced driver assistance systems (ADAS). These features enhance the overall driving experience and safety.
Ride-Sharing and Mobility Services: The rise of ride-sharing platforms and mobility services is reshaping the automotive industry. Companies like Uber, Lyft and Didi are providing convenient alternatives to car ownership, particularly in urban areas. This shift towards shared mobility has implications for auto sales as consumers may opt for ride-sharing rather than purchasing a vehicle. In McKinsey’s The future of mobility report dated April 2023, the research firm states that “shared mobility (including ride-hailing) is on the rise, as consumers look for transportation options that are convenient, cost-effective, and sustainable. This segment could generate up to $1 trillion in revenues by 2030.” Intuitively, it appears that ride hailing will not shrink the car market but expand it because while a few car owners will opt for ride hailing, many more who couldn’t afford cars will now avail the shared transport. Car owners will be weighing the issues intrinsic to ride hailing, including the fact that it can be expensive in certain places and for those using it for long distances; it can be unreliable, especially during peak times; it isn’t great for privacy; and it can contribute to traffic congestion, as more cars are on the road to pick up and drop off passengers. Additionally, the pandemic has made people value their owned cars more. Therefore, shared mobility should expand the market rather than shrink it.
Here are a few stocks that can help you ride the growth wave in the auto market:
Subaru Corporation (FUJHY)
Subaru Corporation, formerly known as Fuji Heavy Industries Ltd., is a Japanese company based in Tokyo. In addition to manufacturing, selling and repairing passenger cars, aircraft and related components worldwide, it offers real estate management, vehicle shipping and logistics, vehicle leasing and rental services, financing, aircraft maintenance and IT system development. The company operates in three segments: Automotive, Aerospace and Others.
The Zacks Rank #1 (Strong Buy) stock has an A for Value, Growth and Momentum each.
Its estimate for 2024 (ending March) is up 14% in the last 60 days. The estimate for the following year is up 24%.
Analysts expect Subaru to grow 23% in the long term (3-5 years).
Nissan Motor Co., Ltd. (NSANY)
Nissan is a global automotive company based in Yokohama, Japan. It manufactures and sells vehicles and automotive parts under the Nissan and Infiniti brands worldwide. In addition to vehicle production, Nissan offers financial services, including auto credit, car leasing and insurance agency services. The company is involved in various activities such as exterior and interior design, engineering, research on new materials and devices, and real estate ventures. Nissan also imports and sells Renault cars, manages a professional soccer club and organizes sports events.
The Zacks Rank #1 stock has Value, Growth and Momentum Scores of A, B and A, respectively.
Estimates for the year ending March 2024 are up a penny. For 2025, they’re up 13% on average.
Nissan’s long-term growth estimate is 29%.
Honda Motor Co., Ltd. (HMC)
Headquartered in Tokyo, Japan, Honda Motor is a Japanese company that develops, manufactures and distributes motorcycles; off-road vehicles; passenger cars; light trucks; mini vehicles; power products like engines, generators and lawn mowers, as well as other goods globally. It also offers financial services like retail lending and leasing. It operates through four main segments: Motorcycle Business, Automobile Business, Financial Services Business, and Power Product and Other Businesses.
The Zacks Rank #2 (Buy) stock has a Value Score of A but Growth and Momentum Scores of C each.
The estimate for the current year is up 20% in the last 60 days while the next year’s estimate is up 17%.
In the long term, the company is expected to grow 16%.
One-Month Price Performance
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Honda Motor Co., Ltd. (HMC) : Free Stock Analysis Report
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