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The auto industry is made up of companies that manufacture and distribute vehicles and vehicle parts. The automobile sector has been undergoing significant change since the advent of electric and hybrid technologies, especially in the retail vehicles segment. Major automakers such as General Motors Co., Toyota Motor Corp., and Daimler AG continue to have considerable market share globally and in local markets, but newer electric vehicle entrants are growing rapidly and reshaping the sector.
The automobile sector outperformed the broader market over the past year. As of Sept. 29, 2022, the S&P 1500 Automobiles Industry Index posted -2.8% in one-year trailing return compared with the Russell 1000’s return of -17.0%.
Here are the top three car stocks with the best value, the fastest growth, and the best performance. All numbers below are as of Sept. 29, 2022
These are the car stocks with the lowest 12-month trailing price-to-earnings (P/E) ratio. Because profits can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows that you’re paying less for each dollar of profit generated.
Source: YCharts
- Stellantis NV: Stellantis, formerly Fiat Chrysler Automobiles, is a Netherlands-based automotive company. It designs, builds, and sells vehicles, components, and related systems under brands including Chrysler, Fiat, Jeep, Ram, Alfa Romeo, and Peugeot. On Sept. 13, Stellantis and a General Motors Co. subsidiary implemented a share repurchase agreement (SRA) amounting to 2.2% of Stellantis’ share capital. GM has the legal right to receive the share capital upon the exercise of equity warrants issued by Peugeot S.A. to GM in 2017. GM largely withdraw from the European auto market by selling its Opel and Vauxhaul brands to Peugeot for an estimated $2.1 billion in 2017.
- Mercedes-Benz Group AG: Mercedes-Benz Group is a Germany-based vehicle manufacturer. It develops, produces, and distributes cars and vans under the Mercedes-Benz brand. The company also provides financing, leasing, rental, and other related services. On July 27, Mercedes-Benz reported Q2 earnings results for 2022. Net profit declined 13.7% from the prior-year quarter in a 6.8% increase in revenue.
- Bayerische Motoren Werke AG.: Bayerische Motoren is a German-based developer and manufacturer of premium automobiles and motorcycles with brands such as BMW, Rolls Royce, and MINI. In addition, the company operates a financial service segment that provides vehicle leasing and retail financing.
These are the top car stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly YOY percentage revenue growth and their most recent quarterly YOY earnings per share (EPS) growth. Both sales and earnings are critical factors in the success of a company. Therefore, ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax law or restructuring costs) that may make one figure or the other unrepresentative of the business in general. Companies with quarterly EPS or revenue growth of more than 2,500% were excluded as outliers.
| Fastest Growing Car Stocks | ||||
|---|---|---|---|---|
| Price ($) | Market Cap ($B) | EPS Growth (%) | Revenue Growth (%) | |
| Tesla Inc. (TSLA) | 268.21 | 840.4 | 91.2 | 41.6 |
| Ford Motor Co. (F) | 11.47 | 46.1 | 14.3 | 50.2 |
| Ferrari NV (RACE) | 186.42 | 34.1 | 22.5 | 24.7 |
Source: YCharts, Ferrari NV. Note: the Ferrari earnings and revenue numbers in the above table come from the company’s financial report for the period ended June 30, 2022.
- Tesla Inc.: Tesla, the world’s largest automaker by market value, designs, manufactures, and sells electric vehicles, including sedans, SUVs, and trucks. It is also produces and sells energy generation and storage products for residential and commercial use. Tesla announced on Aug. 5 a three-for-one stock split. The shares began trading on a split-adjusted basis on Aug. 25.
- Ford Motor Co.: Ford designs, produces and markets trucks, SUVs, passenger cars, electric vehicles, and luxury cars under the Lincoln brand. Ford operates parts servicing through its dealers and distributors. The company also has a major financial service division offering leasing and financing. On Aug. 10, Ford announced that utility DTE Energy will sharply expand its solar energy production by 650 megawatts for Ford in Michigan. The expansion will enable Ford to produce every vehicle assembled in the state with the equivalent of 100% carbon-free electricity. The plan is expected to sharply reduce Ford’s carbon dioxide emissions.
- Ferrari NV.: Ferrari NV’s primary activity is designing, producing, and selling new and used sports cars. It operates under the Ferrari name. Its current models include the Purosangue, the the first four-door, four-seater car in Ferrari’s history; the 812 GTS V12 Spider convertible; the 296 GTB two-seater sports car; and SF90 Spider open-air sports car.
These are the car stocks that had the highest total return or least decline over the last 12 months.
| Car Stocks with the Best Performance | |||
|---|---|---|---|
| Price ($) | Market Cap ($B) | 12-Month Trailing Total Return (%) | |
| Tata Motors Ltd. (TTM) | 23.73 | 18.2 | 6.3 |
| Tesla Inc. (TSLA) | 268.21 | 840.4 | 3.0 |
| Li Auto Inc. (LI) | 23.37 | 22.8 | -9.2 |
| Russell 1000 | N/A | N/A | -17.0 |
| S&P 1500 Automobiles Industry Index | N/A | N/A | -2.8 |
Source: YCharts
- Tata Motors Ltd.: Tata Motors is an Indian-based automobile manufacturing company. It produces SUVs, passenger cars, commercial, defense, and electric vehicles. It offers brands such as Land Rover, Fiat, Tata, Daewoo, and Jaguar. The company operates in India, the United States, China, and Europe.
- Tesla Inc.: See company description above.
- Li Auto Inc.: Li Auto is a China-based company that designs, manufactures, and sells electric vehicles. Li Auto announced a vehicle delivery update on Sept. 30. The company delivered more than 11,500 vehicles in September 2022, an increase of 62.5% year-over-year (YOY). In its first whole month of delivery, the flagship smart six-seater SUV Li 9 made up almost 90% of deliveries.
Advantages of Car Stocks
Low Historical Valuations: Car stocks have low valuations by historical standards. General Motors Company (GM) trades at 6.29 times forward earnings, below its five-year average multiple of 7.44 times. Similarly, Ford Motor Company’s (F) forward price-to-earnings (forward P/E) ratio sits at 6.98, 14% below its five-year average multiple of 8.14 times. Although Tesla’s forward P/E of 51.55 is high compared to stocks in other sectors, it sits significantly below the electric vehicle (EV) maker’s historical multiple of 130.32 times. The sector’s discounted historical valuations may help it attract bargain hunters in the upcoming quarters.
History of Government Bailouts: While there are no guarantees of the government stepping in to save industries amid an economic downturn, the auto sector has a history of federal bailouts. For example, General Motors and Chrysler—now part of Stellantis—received $85 billion in financial assistance from the government during the global financial crisis to avoid closing. Thirty years earlier, the government provided Chrysler with $1.5 billion in loans when the automaker faced financial failure. With talk of a looming recession in 2023, investors may bid up stocks deemed “too big to fail.”
Risks of Car Stocks
Car Sales Rebound Hitting Skids: Auto stocks remain vulnerable to a slowdown in U.S. car sales. Total sales increased from below 3 million cars per month in the early stages of the COVID-19 pandemic to around 4 million in mid-2021. However, sales fell back below 3 million cars per month between June and August 2022 amid growing inflationary pressures and persistent supply chain snarls. Moreover, in July, Amsterdam banking giant ING Groep N.V. (ING) downgraded its 2022 global light vehicle sales growth to -0.5% from 4.6%, citing production disruption issues.
Chip Shortage: Car stocks remain at risk from a global semiconductor shortage. Automakers use chips in cars to support things like electrification, digital connectivity, and autonomous driving. Although analysts expect that more semiconductors will become available in the second half of 2022, competition from other industries, the ongoing war in Ukraine, and supply chain disruption continue to cloud the outlook. Indeed, industry forecasting and planning firm AutoForecast Solutions projects the chip shortage to halt the production of over 3 million vehicles in 2022.
The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.
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