In this article, we will be taking a look at the seven best car stocks to invest in now.
Robotaxis: A Market Not To Be Ignored
A lot of the conversations in the automotive space right now, specifically with respect to electric vehicles, is the impending arrival of robotaxis – autonomously driven taxis for ride-hailing – in the US market and beyond. There are several major players in this market at present, including notable Chinese EV makers and, perhaps most importantly, Elon Musk’s well-known autonomous vehicle manufacturing company. With this new product set to be unveiled in less than a month now, many investors are wondering about how the automotive sector will develop as the world gradually shifts to electric vehicles.
A lot of the talk surrounding EVs has been discouraging these past few quarters, primarily because sales for EVs are down in light of higher price tags. The robotaxi business model is something that is thus generating a lot of excitement because this is a fresh new take on the EV space – and one that allows for the rise of EVs in a more cost-effective manner. According to ARK Invest’s Director of Investment Analysis, Tasha Keeney, robotaxis demonstrating a strong hold over the automotive sector and generating growth is something that investors can expect to see over the next five years. She thus believes that ignoring robotaxis is a huge mistake for those following Musk’s EV maker’s progress and the general EV space.
How Will Robotaxis Expand the Ride-Hailing Opportunity?
Keeney believes that Musk’s robotaxis will be able to take over a significant share of the ride-hailing market because it offers a cheaper option to ride-hailers – especially younger ones. Taking the example of China, where robotaxis are currently being utilized for rides that cost as little as under a dollar, Keeney noted that Musk’s company can undercut the ride-hailing market in the US in much the same way. These days, a typical ride from the most used ride-hailing platform in the US costs about $2 on average. With Musk’s robotaxis, ride-hailers can expect to fully reap the benefits of lower operating costs because of the EV platform.
By adding the autonomous driving factor on top of this, Keeney expects robotaxis to really leverage the cost structure and lower ride-hailing costs overall. Through this, the possibility of more people being brought into the ride-hailing market seems to look less like a distant possibility and more like an inevitable development. This is especially the case for younger individuals, who would see the benefit of foregoing buying new vehicles and instead opting to catch an autonomous ride that will likely cost them much less than a traditional ride-hailing service and definitely less than driving their own personal cars.
Despite all this, Musk is expected to face immense competition from other markets, particularly China, where EVs and robotaxis are being developed at speeds at least as impressive, if not more, than those seen in the US. Despite this situation of having to share market share with other players, investors can expect companies working in the EV space to see greater growth in the next few years. Considering the immense opportunity present in the automotive space based on this analysis, we have compiled a list of the best car stocks to invest in now.
An overhead view of a factory floor, teeming with robotic arms assembling cars.
Our Methodology
We screened for the top automotive manufacturing, parts, repair, and dealership stocks based on the number of hedge funds holding stakes in them during the second quarter. We then ranked the shortlisted stocks based on this metric in ascending order.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
7 Best Car Stocks To Invest In Now
7. AutoNation, Inc. (NYSE:AN)
Number of Hedge Fund Holders: 38
AutoNation, Inc. (NYSE:AN) is an automotive retailer based in Fort Lauderdale, Florida. It offers new and used vehicles alongside automotive parts and repair services.
This company has an expansive presence in the US as it operates around 350 dealer franchises across the country. In the second quarter, it opened four new AN USA stores to meet the rising demand for used cars in the US as well. Because of this reach, AutoNation, Inc. (NYSE:AN) is able to generate more revenue than its competitor dealerships – though another reason for that is its higher price and margins.
AutoNation, Inc. (NYSE:AN) has also recently become more popular among investors because of its crisis management capabilities. During the recent CDK outage, the company managed to manually process about 60,000 repair orders while other dealerships struggled to cope and suffered huge losses. AutoNation, Inc. (NYSE:AN) has also been utilizing other means to improve financial performance, such as stock buybacks, which enabled the company to improve its EPS in the second quarter since it had authorized a share buyback of $1 billion in the first quarter.
There were 38 hedge funds long AutoNation, Inc. (NYSE:AN) in the second quarter, with a total stake value of $616.3 million. Brave Warrior Capital was the largest shareholder, holding 979,235 shares.
Alluvium Asset Management mentioned AutoNation, Inc. (NYSE:AN) in its second quarter 2024 investor letter:
“AutoNation, Inc. (NYSE:AN) (down 3.7%) operates around 350 dealer franchises across the US, as well as collision centres and used vehicle stores. When compared to Group 1, it sells more units at a slightly higher price and margin, and derives around 50% more revenue. But its strategy is different, with nationwide branding and centralised operations. Although we prefer the Group 1 model, the economics of Autonation look attractive to us. And by introducing this into the portfolio we could thereby invest more than 5% of assets in this sector without necessitating the sale of other attractive large positions. And so after selling a little Group 1 and buying Autonation we ended the quarter with 4.1% and 1.9% positions respectively.”
6. Lear Corporation (NYSE:LEA)
Number of Hedge Fund Holders: 40
Lear Corporation (NYSE:LEA) is an automotive parts and equipment company based in Southfield, Michigan. It provides car seating and electrical distribution systems for original equipment manufacturers (OEMs).
In the second quarter, Lear Corporation (NYSE:LEA) generated revenue of $6 billion and operating and free cash flow of $291 million and $170 million, respectively – both up 8% year-over-year. The primary reason for this growth is the company’s incorporation of artificial intelligence and robotics in its product offerings. Since the market is currently still seeing an AI boom, such a development is likely to propel Lear Corporation (NYSE:LEA) to even greater heights in the following quarters.
The acquisition of WIP Industrial Automation by Lear Corporation (NYSE:LEA) is a concrete step the company has taken in the area of AI and robotics integration. Through this, Lear Corporation (NYSE:LEA) has gained the capability to design AI and robotics-enabled turnkey solutions for industrial problems.
Lear Corporation (NYSE:LEA) is also gaining traction because of its innovative solutions in thermal comfort. Since the company introduced the ComfortFlex and ComfortMax seats, it has managed to bring in more partnerships with Chinese automotive brands, showcasing its entry into a large automotive market that is also heavily lucrative for all players in it.
Lear Corporation (NYSE:LEA) was spotted in the 13F holdings of 40 hedge funds in the second quarter, with a total stake value of $1.4 billion. Pzena Investment Management was the most prominent shareholder, holding 7,187,890 shares.
5. BorgWarner Inc. (NYSE:BWA)
Number of Hedge Fund Holders: 41
BorgWarner Inc. (NYSE:BWA) is a provider of solutions for combustion, hybrid, and electric vehicles. It offers turbochargers, eBoosters, eTurbos, timing systems, emissions systems, and more.
Considering the fact that BorgWarner Inc. (NYSE:BWA) has a tech-focused portfolio of products, it has managed to perform well in the second quarter. Its gross margin came in at 10.4%, up 30 basis points year-over-year, and it has also raised its full-year margin outlook to 9.6%-9.8% from 9.2%-9.6% previously, based on its year-to-date performance.
Many investors are following BorgWarner Inc. (NYSE:BWA) because of its recent expansion of its EV and hybrid product offerings under the company’s “Charging Forward” initiative. Through this, BorgWarner Inc. (NYSE:BWA) is attempting to capture a sizable portion of the rapidly growing EV market, with company management targeting $10 billion in annual Product sales by 2027.
BorgWarner Inc. (NYSE:BWA) has also recently made some acquisitions, namely of Eldor and Hubei Surpass Sun Electric Charging, as part of its ambitious efforts to gain a larger market share of the EV space. Through these acquisitions, the company is expected to enhance its capabilities in power electronics and charging infrastructure.
We saw 41 hedge funds long BorgWarner Inc. (NYSE:BWA) in the second quarter, with a total stake value of $725.5 million. Harris Associates was the largest shareholder, holding 10,623,235 shares.
4. Ford Motor Company (NYSE:F)
Number of Hedge Fund Holders: 47
Ford Motor Company (NYSE:F) is a reputable automobile manufacturer. It is based in Dearborn, Michigan.
While Ford Motor Company (NYSE:F) has been struggling in light of high warranty costs being incurred on older models from 2016-2021, those who are following the company expect this situation to improve in the second half of 2024. This is because the company has recently jumped 14 spots to rank ninth in J.D. Power’s 2024 US Initial Quality Study.
Another factor that has raised investors’ hopes when it comes to Ford Motor Company (NYSE:F) is the Ford Pro division, which is incredibly important for the automaker’s profitability. In the first half of the year, Ford Pro increased revenue by 21% year-over-year to $5.6 billion. Subscriptions for the Ford Pro software also went up 35% in the second quarter.
In light of these positive factors, many investors expect Ford Motor Company (NYSE:F) to improve performance substantially as the year goes on, making this a worthwhile investment for long-term investors.
Ford Motor Company (NYSE:F) had 47 hedge funds long its stock in the second quarter, with a total stake value of $1.5 billion.
3. Carvana Co. (NYSE:CVNA)
Number of Hedge Fund Holders: 61
Carvana Co. (NYSE:CVNA) operates an e-commerce platform for the sale and purchase of used cars in the US. It is based in Tempe, Arizona.
Carvana Co. (NYSE:CVNA) has been known to be a volatile investment; however, recent performance and developments highlight the fact that the company is continuing its growth trajectory. Between 2014 and 2024, Carvana Co. (NYSE:CVNA) has managed to grow its Gross Profit per Unit from $388 to over $7,000. Part of the reason for this may be the company’s recent focus on increasing profitable sales while pulling back on retail sales growth.
Another reason for Carvana Co.’s (NYSE:CVNA) growth and positive performance is that the company is actively working on cutting costs. In 2024, the company managed to cut over $1.1 billion of its annualized Selling, General, and Administrative expenses, and it also successfully restructured its debt to save about $430 million in annual interest expense. Through this, Carvana Co. (NYSE:CVNA) has managed to improve its liquidity, and with net income for the second quarter coming in at $49 million, investors feel more reassured about buying the stock right now.
A total of 61 hedge funds were long Carvana Co. (NYSE:CVNA) in the second quarter, with a total stake value of $5.1 billion.
2. General Motors Company (NYSE:GM)
Number of Hedge Fund Holders: 72
General Motors Company (NYSE:GM) is a well-known automobile manufacturing company. It is based in Detroit, Michigan.
This stock has consistently been ranked as one of the cheapest automotive stocks in the market right now since it is trading at a P/E of 5.1 relative to the sector median of 14.9 – a huge gap. General Motors Company (NYSE:GM) has been buying back its stock for quite some time as well. It bought back $2.5 billion worth of stock in 2022, $11 billion worth of stock in 2023, and has bought back over $1 billion worth of stock in the first half of 2024. Through these buybacks, General Motors Company (NYSE:GM) has managed to boost EPS by decreasing its share count by 18% in the past year.
This move seems to be a vote of confidence from company management in terms of General Motors Company’s (NYSE:GM) intrinsic value and has definitely improved the stock’s valuation over the past few months. One reason for this vote of confidence may be the company’s EVs, such as the Chevy Silverado and the Cadillac Lyric SUV. In the second quarter, General Motors Company (NYSE:GM) delivered 22,000 EVs, representing a growth of 40% year-over-year and increasing the company’s market share in the EV space by 2.2%.
Considering the company’s execution of its EV strategy, investors expect it to generate greater profitability through its optimized portfolio and EV transition. As a result, General Motors Company (NYSE:GM) is looking like a good automotive stock to buy right now.
General Motors Company (NYSE:GM) was seen in the portfolios of 72 hedge funds in the second quarter, with a total stake value of $4.1 billion.
1. Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holders: 85
Tesla, Inc. (NASDAQ:TSLA) is Elon Musk’s famed EV manufacturer based in Austin, Texas.
These days, the hype around Tesla, Inc. (NASDAQ:TSLA) is mostly concerning its robotaxi business, which many investors like Cathie Wood expect to be a game changer for the EV company. Wood expects the robotaxi business to be incredibly successful for Tesla, Inc. (NASDAQ:TSLA), which is instilling a greater sense of confidence in other investors, especially since another robotaxi business, Waymo, has already had some success and is operating quite well with 700 autonomous vehicles already being on the roads.
Tesla, Inc. (NASDAQ:TSLA) also has a strong history of growth. Over the past five years, the company has increased revenue by 30.8%. Analysts are also bullish on the stock, with Deutsche Bank’s Edison Yu placing a $295 price target on Tesla, Inc. (NASDAQ:TSLA) on September 10 – one of the highest valuations on Wall Street right now. The primary reason for this high valuation is the fact that Tesla, Inc. (NASDAQ:TSLA) has other business segments that are complementary to its EV business, such as its network of EV chargers and energy storage and robotics businesses.
In total, 85 hedge funds were long Tesla, Inc. (NASDAQ:TSLA) in the second quarter, with a total stake value of $4.9 billion.
While TSLA is an exceptional investment, we believe that AI stocks hold promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than the ones mentioned in our list but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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