The auto industry is going through a profound transformation. The shift to electric vehicles and integration of self-driving technology is taking the automotive sector to places people could barely imagine a few years ago. As governments around the world ban the sale of gasoline-powered vehicles by 2030, vehicle manufacturers large and small are scrambling to launch entirely new line-ups of electric vehicles. Amid this transformation, investors should keep their eyes on the best car stocks.
Statista forecasts that that the global automotive industry’s revenue will be worth just under $9 trillion by 2030, with new vehicle sales accounting for 38% of that value. One in five new car sales globally are forecast to be electric vehicles within 10 years, while millions of completely autonomous cars are expected to be operating on roads worldwide by 2030. And China is positioned to surpass the U.S. as the world’s biggest automotive market.
It all adds up to disruptive change for one of the biggest and most important economic sectors in the world. As is always the case in periods of disruption, opportunities and risks abound for investors. In this article we look at the seven best car stocks to buy right now:
- Tesla (NASDAQ:TSLA)
- Ford (NYSE:F)
- General Motors (NYSE:GM)
- Ferrari (NYSE:RACE)
- Nio (NYSE:NIO)
- Toyota (NYSE:TM)
- Honda (NYSE:HMC)
Best Car Stocks: Tesla (TSLA)
Is anyone willing to bet against Tesla at this point? TSLA stock has defied the short-sellers all year and recorded one of the most impressive runs on Wall Street. The stock has risen 848% from its March low and now trades at around $665 a share. And that is after the company implemented a five-for-one stock split in late August.
With Tesla’s stock about to be added to the S&P 500 index on Dec. 21, the share price is likely to rise even further as the stock gets added to a multitude of index funds and pensions that track the S&P 500. How far TSLA stock can rise from its current level is anyone’s guess. The company remains the market leader in electric-vehicle sales, and it is the only pure play electric-vehicle manufacturer that is currently turning a profit.
Tesla, run by controversial Chief Executive Officer Elon Musk, is in the midst of expanding its line-up of vehicles, introducing a futuristic Cybertruck, an all-electric industrial semi-truck and a Roadster racing car. The company is also refining its battery technology, finalizing software that will turn all Tesla vehicles into autonomous self-driving vehicles and hinting that it is developing an app store that will enable developers to release apps and games for Tesla cars, trucks and sport utility vehicles (SUVs).
And, if all that weren’t enough, Tesla has also recently been granted approval from the Chinese government to sell its Model Y SUV in the country of 1.4 billion people. Tesla is taking no prisoners in the battle to bring electric vehicles to market.
After years of stagnating and trading in penny-stock territory, F stock is finally on the move. Shares of the Ford Motor Company have more than doubled since March, up 127% to their current price around $9 each. That is welcome news to long-suffering shareholders who have had to watch as the pioneering company of Henry Ford enacted one failed turnaround effort after another.
Now, it seems as though Ford is finally on the right footing and moving in the right direction. There was a lot of buzz created recently when Ford unveiled its new Mach-E, an all-electric Mustang muscle car. Early reviews of the Mach-E have been enthusiastic.
Other positive steps Ford has taken to position it for the future include bringing back the company’s iconic Bronco SUV, reconfiguring its U.S. assembly plants so they are better equipped to manufacture electric vehicles, revamping its bestselling line-up of pick-up trucks and shaking up its senior executive ranks, including with the appointment of new Chief Executive Officer Jim Farley.
All of these moves and changes are positively impacting Ford’s financial results. The company that generated $156 billion in revenue in 2019 reported $2.4 billion in net income for its most recent third quarter. Bank of America (NYSE:BAC) analysts have a buy rating on Ford stock.
General Motors (GM)
It hasn’t exactly been smooth sailing for U.S. automaker General Motors this past year. The company’s planned partnership with electric-vehicle startup Nikola turned into a debacle after Nikola’s management was accused of perpetrating fraud, and General Motors was forced to dramatically scale back the deal.
The Nikola deal grabbed all the attention and obscured the fact that General Motors remains committed to electric vehicles. The Detroit automaker has announced plans to invest up to $27 billion in electric and autonomous vehicles by 2025, including the launch of 30 new electric-vehicle models. Analysts seem to agree that GM has the resources and team in place to successfully execute on its ambitious electric vehicle strategy.
And despite the Covid-19 pandemic this year, General Motors remains extremely profitable. The company reported third-quarter net income of $4 billion. That profitability stands out even more compared with other EV technology leaders who are struggling to consistently generate positive net income. Consider that most electric-vehicle manufacturers are currently generating no income, and General Motors looks like an attractive investment by comparison.
Since bottoming out in March, GM stock has risen 190% to $41.44 a share. Analysts have a median price target on the stock of $50 a share, suggesting potential upside of 21% from its current level.
Investors looking to add some excitement to their portfolio should consider Ferrari. Granted, the Italian luxury sports-car manufacturer is a specialty automaker. It’s not a company that mass produces vehicles for a global population. Nevertheless, Ferrari, whose “RACE” ticker symbol is one of the best of all time, has been performing strongly in 2020, outperforming the S&P 500 index with a 37% year-to-date gain. RACE stock is currently trading at $225.70 a share, just shy of its all-time high.
Driving the growth of RACE stock has been strong pricing power, as the average selling price for one of Ferrari’s luxury sports cars was $324,000 in 2019, as well as a wealthy clientele that has proven to be immune to the global recession caused by the Covid-19 pandemic. Ferrari is also exceptionally good about limiting supply of its cars in order to keep demand sky-high.
China’s answer to Tesla, electric-vehicle maker Nio has been on an absolute tear in 2020. NIO stock is up nearly 1,050% year-to-date at $46.35 a share. Solid financial results have been underpinning the stock’s performance. The company’s total revenue increased 146.4% year-over-year in its third quarter ended Sept. 30. Vehicle sales grew 146.1% from the same period of 2019. And gross profit turned positive from a negative year-ago value.
And it looks like Nio may just be getting started. The company delivered 5,055 vehicles in October this year, up 100% from October 2019. The Chinese government has made it clear that they stand firmly behind Nio.
And analysts are bullish on NIO stock too. Bank of America forecasts that Nio will turn profitable in 2023 and raised its 2021 through 2023 sales volume forecast above consensus estimates. Nio is now looking to branch out beyond the domestic Chinese market and expand into Europe.
Toyota remains the world’s biggest automotive company by revenue. The Japanese automaker generated $280.6 billion in revenue in 2019, compared to $24.6 billion for rival Tesla. And TM stock has been a strong performer in 2020, up 43% from its March doldrums. And, like most companies featured in this article, Toyota is going all in on battery-powered electric vehicles and related technology.
The company is planning to introduce in 2021 a solid state battery that can fully recharge in just 10 minutes — a move that’s being called “revolutionary” within the auto industry. Solid state batteries are seen as the holy grail of the automotive sector and a technology that can lead to the widespread adoption of electric vehicles.
Toyota is also planning to launch an electric SUV in Europe in the New Year before rolling it out in the U.S. While some analysts criticize Toyota for being late to the electric-vehicle market, the company is clearly trying to make up ground.
Last, but certainly not least on our list of best car stocks, we come to another Japanese automaker: Honda. An extremely well run company, Honda has survived in a difficult operating environment this past year because of its robust balance sheet and attractive valuation. Honda’s shares trade at just nine times forward earnings and present considerable value to investors. The company also has a market-leading position in motorcycles and manufactures some of the most iconic brands in the world, from the Accord sedan to the Odyssey minivan.
Heading into 2021, Honda executives have said their priorities for the year ahead are to lower costs, increase electric-vehicle sales and raise its shareholder dividend. Those priorities should be music to the ears of investors.
Furthermore, HMC stock has risen nearly 50% since March and now trades at $29.67 a share. Given its strength and stability, investors should consider taking a position in Honda before its share price breaks out above $30 a share.
On the date of publication, Joel Baglole held a long position in TSLA.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.