Cars and other types of motor vehicles are becoming increasingly high-tech. Containing as much software and semiconductors as nuts and bolts, vehicles these days are like giant computers. From back-up cameras and self-parking features to GPS navigation and voice commands, our cars now operate in ways that were unthinkable just a few years ago. The new innovations has sparked a new conversation about auto stocks, their merits and their future.
We’re only now starting to see the potential in upcoming advancements, like self-driving cars. As Dr. Mark Lee Levine, Endowed Chair Holder at the University of Denver, wrote in an email to InvestorPlace, “Because we recognize that AI, such as the AI employed in driverless vehicles (DV), is effectively a combination of computer applications in a driving situation, with related activity, clearly it makes sense that with the changing world to DV, EV, shared vehicles and more computer applications, automakers are in fact moving more to technology and away from being ‘only an auto co.’”
Automakers around the world and their armies of engineers are leading the changes, operating more like innovative high-tech companies than traditional automakers that used to run extensive assembly lines and factory floors. Nowadays, automakers are opening design centers and hiring talent from start-ups in Silicon Valley. Executives at vehicle manufacturers are more likely to have a computer science background than a background as a mechanic.
Here are three auto stocks to buy as they transition to tech-stock status.
Auto Stocks to Buy: General Motors (GM)
General Motors is betting its entire future on electric vehicles and the infrastructure needed to power them. To aid the company’s stated goal of selling one million electric vehicles by 2025, the Detroit automaker just announced its new “Ultium Charge 360” service that will provide its customers with access to more than 60,000 public charging stations across the U.S. General Motors is also ramping up sales of home charging stations through a partnership with Qmerit.
To date, GM has allocated nearly $30 billion towards its manufacturing electric vehicles, including spending $71 million to develop a new campus and design center in Pasadena, California, the heart of Silicon Valley. General Motors says its “Advanced Design Center” is strategically located to take advantage of the top talent in high-tech given its proximity to some of the best design schools and top universities in the U.S.
Clinical Professor of Finance David Kass of the University of Maryland’s Robert H. Smith School of Business wrote in an email to InvestorPlace, “Legacy automobile companies such as Ford and General Motors can be valued more like technology companies when they are able to demonstrate that their forthcoming electric vehicles are perceived to be competitive technologically with industry leaders such as Tesla and Nio. Although Ford and General Motors do not have cult-like figures such as Elon Musk running their firms, there is still an opportunity to increase their valuations above current levels.”
Investors appear to like the direction the automaker is moving in. Year-to-date, GM stock is up 37% at $57 a share.
German automaker Volkswagen is leading the charge into electric vehicles throughout Europe in much the same way that General Motors is pushing the industry forward in America. The company has announced that it will invest $86.4 billion into “future technologies” between now and 2025 in an effort to advance the development and commercialization of electric and autonomous vehicles.
VW wants half its global sales to come from battery-electric vehicles by 2030. The ultimate goal is for the company to be carbon neutral by 2050.
Additionally, Volkswagen is moving into software and battery development. VW’s software company, called CARIAD, is creating one software platform that can be used across all Volkswagen Group cars by 2025 and offer features such as a unified infotainment system and the ability to hand steering control over to the vehicle. Up to 40 million vehicles could be using the software platform within the next decade, according to VW.
The company has also announced plans to establish a battery supply chain of its own, introducing one unified battery format and opening six production factories across Europe by 2030. Volkswagen’s first battery factory in Sweden is scheduled to begin production in 2023. VW stock has rallied this year and is up almost 60% YTD at $33.21 a share.
Auto Stocks to Buy: Ford (F)
The Ford Motor Co. is another major automaker that is venturing into realms of new technology. The venerable Detroit automaker is introducing a range of all-electric vehicles built around its classic brands such as the Mustang muscle car and F-150 pick-up truck. Like Volkswagen, Ford is also entering battery production. The company is opening a 270,000-square-foot battery factory in Romulus, Michigan that will be home to more than 200 engineers and researchers.
Ford is spending $185 million to develop and test electric vehicle batteries in its home state of Michigan. Its part of the company’s broader $30 billion investment in electric vehicles. Ford is also expanding its production line to include electric motors and electric transaxles for fully electric vehicles, and is also focused on self-driving car technology. In fact, Ford has partnered with Volkswagen on a joint venture called “Argo AI,” an autonomous vehicle start-up. Argo AI just announced that it will pilot a series of robotaxis in Miami, Florida and Austin, Texas.
Ford’s shares have been among the best performing of automakers this year. In the past seven months, F stock has risen 59% to $13.95.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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.