In this article, we will discuss: 8 Most Promising Car Stocks According to Hedge Funds.
U.S. new-car sales in 2024 continued to grow from their pandemic lows, backed by replenished inventories, increased reductions, and surging demand for hybrid vehicles, as reported by Reuters. According to Wards Intelligence, new car sales in the United States reached 15.9 million in 2024, up by 2.2% from 2023, marking the highest number since 2019. Sales momentum is anticipated to continue into 2025, but demand could be disrupted by proposed policy changes, such as the possible elimination of EV tax benefits. Sales of conventional hybrid vehicles grew by 36.7% year over year, surpassing the growth of electric vehicles as buyers favored trucks, SUVs, and hybrids with gasoline engines over fully electric ones. While several competitors struggled to adjust to the slowing demand for electric vehicles and changing consumer preferences, the top-selling manufacturer of cars delivered 2.7 million vehicles last year, up by 4.3% YoY.
According to S&P Global’s report, US car sales ended 2024 strongly, with December sales anticipated at 1.45 million units, or 16.5 million (seasonally adjusted annual rate: SAAR), which was in line with November’s pace. This caused the average SAAR for Q4 to rise from 15.6 million for the previous three quarters to 16.4 million units, the highest since Q2 2021. Sales are projected to total 16.18 million units in 2025, up 1.2% from the previous year. Nonetheless, affordability, high prices, and persistent inflation continue to be major obstacles. Since June, the battery-electric vehicle share has risen above 8%, reaching 8.6% in September 2024. As purchasers rush to take advantage of the Federal EV subsidies that expire in early 2025, the December BEV share is forecast to surpass 9%.
Looking ahead, Chris Hopson, manager of North American light vehicle sales forecasting for S&P Global Mobility, commented:
“2025 brings with it mixed opportunities and uncertainty for the auto industry as a new administration and policy proposals take hold.” “Unfortunately, the new vehicle affordability issues that coalesced to constrain auto demand levels for much of 2024 will not be resolved quickly in 2025. Vehicle pricing levels are expected to decline but remain high; interest rates are expected to shift further downwards, but inflation levels are anticipated to remain sticky, and new vehicle inventory should also progress, but careful management is expected too. Combined with an uneasy consumer, we project this translates to mild growth prospects for US auto sales.”
Recently, on February 1, 2025, US President Trump announced three Executive Orders restructuring trade with Canada, Mexico, and China, imposing sweeping new tariffs that turned the existential danger to the stability of the North American automobile ecosystem into a reality. The United States imposed a 25% tax on Canadian and Mexican imports, including automobiles, with effect on March 4, 2025. Furthermore, a 10% tariff was imposed on Chinese goods, raising the overall tariff on certain Chinese imports to 20%. A 2.5% MFN tax, a 25% automobile tariff, and a 100% electric vehicle tariff are already applied to some Chinese products. Canadian energy (natural gas and oil) was the only exception, receiving a 10% tariff. In response, Canada imposed a 25% tax on US imports valued at CA$30 billion, with plans to raise the tariff to CA$125 billion after 21 days. Mexico is expected to shortly announce countermeasures in the wake of China’s severe import taxes on non-automotive US goods. The immediate interruption of more than 20,000 vehicles per day across North American production, which consists of 63,900 light vehicles per day (41,700 in the US, 17,600 in Mexico, and 4,600 in Canada), is put at risk by these taxes.
Three scenarios are projected by S&P Global Mobility. According to the firm, there is a 70% chance that the tariffs will be lifted in two weeks with little long-term harm. Secondly, a 20% probability that the disruption will last six to eight weeks, delaying product launches and reducing short-term production before rebounding within a year. Lastly, a 10% “Tariff Winter” scenario with extended tariffs will reduce US vehicle sales by 10%, Mexico by 8%, and Canada by 15% in addition to plant underutilization, sourcing changes, and labor shortages. Mexican production plans are already being reexamined by automakers such as Honda. President Trump used the International Emergency Economic Powers Act (IEEPA) to defend the tariffs, claiming that fentanyl smuggling and illegal immigration were national crises that permitted their implementation without the consent of Congress.
With that said, here are the 8 Most Promising Car Stocks According to Hedge Funds.
A modern car on a highway, its wheels reflecting the setting sun.
Methodology
We sifted through holdings of Car ETFs and online rankings to form an initial list of 20 car stocks. From the resultant dataset, we chose the top 8 stocks most favoured by hedge funds, using Insider Monkey’s database of 1009 hedge funds in Q4 2024 to gauge hedge fund sentiment for stocks. We have used the stock’s Revenue Growth Rate (year-over-year) as a tie-breaker in case two or more stocks have the same number of hedge funds invested.
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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
8. Rivian Automotive Inc. (NASDAQ:RIVN)
Number of Hedge Fund Investors: 40
One of the Most Promising Stocks, Rivian Automotive, Inc. (NASDAQ:RIVN) is an automaker that designs and manufactures electric vehicles as well as software and services. It launched its consumer car business with the R1 platform, which includes two vehicles: the R1T and the R1S. The company’s two reportable segments are the Software and Services segment and the Automotive segment, which generates the majority of its revenue. The manufacturing and sale of new EVs as well as the sale of regulatory credits produced by the production and sale of EVs provide the Automotive reportable segment with its revenue and cost of revenues. The Software and Services reportable segment’s revenues and costs are primarily derived from remarketing, vehicle repair and maintenance services, vehicle electrical architecture, and software development services.
The fourth quarter of 2024 saw a $170 million gross profit for Rivian Automotive, Inc. (NASDAQ:RIVN), due to increases in fixed expenses, revenue per delivered unit, and variable costs. The business believes that these improvements will help it in the long run and put it in a good position to make a small gross profit in 2025. In the fourth quarter of 2024, it announced record revenues, fueled by growth in software and services, sales of regulatory credit, and higher R1 average selling prices as the Tri-Motor offering became more accessible. Overall, Q4 2024 had a 33% YoY growth in revenue.
According to the company, it will offer a hands-free driving option later this year. Furthermore, Rivian Automotive, Inc. (NASDAQ:RIVN) reported that other automakers are considering purchasing technologies from its Volkswagen joint venture.
The financial results of Rivian Automotive, Inc.’s (NASDAQ:RIVN) joint venture with Volkswagen have been consolidated. The venture is expected to generate $2 billion in revenue over the next four years. The business raised a substantial amount of money as well, boosting its short-term investments and cash equivalents to $7.7 billion.
7. Ford Motor Company (NYSE:F)
Number of Hedge Fund Investors: 45
Revenue Growth Rate (year-over-year): 5.00%
Ford Motor Company (NYSE:F) is known to investors as a global leader in the pickup truck and commercial vehicle markets. The carmaker is currently making investments in automated and electrified cars to keep that advantage. The firm is concentrating on cutting costs and EV capacity to turn its EVs profitable, although comparatively high loan rates have slowed EV growth in recent years.
The business has been actively reorganizing its activities in an effort to increase productivity. The carmaker has reduced its presence in Europe and pulled out of weak areas like Brazil and India in an effort to lessen its worldwide footprint. Ford Motor Company (NYSE:F) is now able to concentrate more on growing its electric vehicle initiatives thanks to this strategic change. The company recorded $48.2 billion in revenue for the fourth quarter of 2024, a 5% increase over the same period the year before, making it one of the Most Promising Stocks.
Ford Motor Company (NYSE:F) manufactures, distributes, and sells automobiles. Significant losses in its electric car division, however, reduced the profits from sales of its conventional combustion engines, even though the company ended the 2024 fiscal year with outstanding overall performance. Further uncertainty has been brought about by the escalating trade tensions with Canada and Mexico, as possible tariffs on imported goods and supplies could present new dangers.
Ford Motor Company (NYSE:F) reported $15.4 billion in operational cash flow and $6.7 billion in free cash flow for 2024, demonstrating strong cash flow management. The company projects that adjusted free cash flow will be between $3.5 billion and $4.5 billion in 2025 and adjusted EBIT will be between $7.0 billion and $8.5 billion. Capital expenditures for the year are estimated to range between $8 billion and $9 billion.
6. Lithia Motors Inc. (NYSE:LAD)
Number of Hedge Fund Investors: 45
Revenue Growth Rate (year-over-year): 16.58%
Lithia Motors, Inc. (NYSE:LAD) is among the Most Promising Stocks on our list. Since it is the only sizable publicly traded dealer present in rural areas, its business strategy is solid. Larger public dealers find these markets unappealing since their management teams have no concern about small cities and their luxury brand mixes and imports are more suited to suburban markets. Many Lithia brand stores around the country have no rivals within 100 miles, which gives Lithia pricing power.
After a strong fourth quarter of 2024, Lithia Motors, Inc. (NYSE:LAD)’s adjusted diluted EPS for 2024 was $7.79, down 6.4% from the previous year but higher than the $7.24 LSEG consensus. While same-store revenue grew by 3.1% YoY, total revenue rose by 20.2% YoY. Only used vehicles, as well as finance and insurance, saw a decrease in same-store sales. Many buyers still struggle to afford used automobiles, as evidenced by its same-store average selling price dropping 1.6% to $28,478 and its same-store used unit volume declining 4.3% YoY while new vehicle volume climbed by 7.4% YoY.
However, the gross profit per unit of used cars only dropped by 0.9% YoY, and new-vehicle GPU fell by 21% YoY. According to management, new-vehicle GPU is getting close to the point at which the company anticipates long-term stabilization, which is above prepandemic levels. Morningstar analysts anticipate further drops in 2025 and 2026, as the fourth-quarter same-store new GPU was $3,082, and that projection is $2,300-$2,500. Prior to the pandemic, levels were around $2,000.
Madison Mid Cap Fund stated the following regarding Lithia Motors, Inc. (NYSE:LAD) in its Q4 2024 investor letter:
“The top five contributors for the quarter were Liberty Formula One, Arista Networks, Copart, Brookfield Asset Management, and Lithia Motors, Inc. (NYSE:LAD). Lithia Motors reported quarterly results that suggested that at least some of the COVID-induced elevated levels of profitability may be more sustainable than previously thought.”
5. Aptiv PLC (NYSE:APTV)
Number of Hedge Fund Investors: 52
Aptiv PLC (NYSE:APTV) designs, manufactures, and sells car components in North America, Europe, the Middle East, Africa, Asia Pacific, South America, and globally. The company supplies the automotive and commercial vehicle markets with electrical, electronic, and safety technology solutions. It operates in two segments: Signal and Power Solutions, and Advanced Safety and User Experience.
Looking at financial performance, Aptiv PLC (NYSE:APTV) reported $19.7 billion in revenue in 2024, with $4.9 billion achieved in Q4. Cost control and excellent execution resulted in record operating cash flow and robust earnings growth, with an operating margin expansion of 140 basis points year on year. Overall, the company’s financial performance showed growth and resilience. The stock scenario forecasts more optimistic trends for 2025 because the 11.19% year-to-date growth suggests a stock recovery. Hence, it is one of the Most Promising Stocks.
By March 31, 2026, Aptiv PLC (NYSE:APTV) hopes to have its Electrical Distribution Systems division fully spun off into a separate public company. The company forecasted $19.6-20.4 billion in revenue and $7.00-7.60 in adjusted earnings per share for 2025.
Ronald Jewsikow, a Guggenheim analyst, maintained his Buy recommendation on the firm and boosted its price objective from $73 to $75. Following Q4 results, the company is revising its auto supplier coverage assumptions, stating that the group’s 2025 guidance is “appropriately conservative.”
4. CarMax Inc. (NYSE:KMX)
Number of Hedge Fund Investors: 57
One of the Most Promising Stocks, CarMax, Inc. (NYSE:KMX) is a US-based retailer of used automobiles. It is divided into two parts. CarMax Sales Operations is the first; it handles auto retailing and service activities, such as buying and selling used cars and associated products and services. CarMax Auto Finance, the second division, specializes in financing clients who purchase vehicles from the business.
CarMax, Inc. (NYSE:KMX) revealed its third-quarter fiscal 2025 financial results on December 19. Gains throughout the company helped it achieve an earnings growth of more than 50%. Comparable store used unit sales were up 4.3% YoY during the quarter, while retail used unit sales climbed by 5.4% from the previous year. Sales of wholesale units rose by 6.3% YoY as well.
The total sales of $6.2 billion were 1.2% higher than the third quarter of the previous year. Strong unit margin performance and unit volumes contributed to the quarter’s $677.6 billion gross profit, which increased by 10.6%. Net earnings per diluted share were 81 cents, up 56% from a year before.
Needham maintained a Buy rating on the shares and raised the price objective on CarMax, Inc. (NYSE:KMX) from $98 to $101. The firm cites the continuation of second-half dynamics in the used auto market to begin FY25, with industry unit gains, particularly CarMax unit and share gains, driving fixed cost absorption as well as the continuation of improved auto loan performance, according to the analyst in a research note.
3. General Motors Company (NYSE:GM)
Number of Hedge Fund Holders: 68
General Motors Company (NYSE:GM) is the biggest automaker in the United States in terms of sales. It is the owner of the GMC, Buick, Chevrolet, and Cadillac brands. Following a report by Bloomberg that the Trump administration could temporarily exempt manufacturers from Mexican and Canadian tariffs, its shares surged by 5% on March 5, 2025. If the Trump administration’s tariffs are applied to the firm, which has large operations in Mexico, the automaker would probably have to drastically increase the cost of its cars.
A notable run of more than 17% over the past year has helped General Motors Company (NYSE:GM) win over investors recently. This is mostly due to the firm’s gradual but consistent advances, which resulted in 2.7 million cars sold in the United States in 2024, a 4% gain over 2023 and the company’s highest year-on-year sales growth since 2019.
The company has been smart about fleet modifications that have allowed it to stay in touch with customers, whether it is through high-margin best-sellers like its Cadillac Escalade SUV or Silverado pickup, or its more economical Trax crossover and emerging Bolt EV line. China is seeing a spike in vehicle deliveries, which reached over 1.8 million last year. General Motors Company (NYSE:GM)’s relatively high growth in 2024 compared to its peers suggests that it will continue to be important for some time in the future. It is still a leading brand in the lucrative North American market, including it in our list of the Most Promising Stocks.
General Motors Company (NYSE:GM) has shifted its focus to driver-assist technologies that offer more immediate potential for revenue rather than continuing to develop robotaxis, a venture that would require significant time and resources to expand in a more competitive industry. This change has given the business the opportunity to evaluate customer demand for these features, with promising outcomes. After their three-year trial term expired in 2024, about 20% of the almost 18,000 Super Cruise users decided to keep their subscription, according to CEO Mary Barra.
2. Carvana Co. (NYSE:CVNA)
Number of Hedge Fund Investors: 84
Carvana Co. (NYSE:CVNA) is an online marketplace for used car sales and purchases. The company generates revenue through used vehicle sales, wholesale vehicle sales, and other sales and revenues. It claims to have a solid balance sheet and that its distinct focus on online sales has helped it differentiate itself from its competitors and improve its top and bottom lines.
Carvana Co. (NYSE:CVNA) had a great year, reigniting revenue growth to over 20% and producing adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) margins of more than 11%—the highest in the industry. The firm is the most profitable and rapidly expanding used automobile retailer, making it a genuinely remarkable business. It only has a 1% market share despite these remarkable accomplishments. The market leader controls more than 10% of the market in the majority of other retail categories, underscoring the company’s significant expansion potential.
BofA maintained its Buy rating on Carvana Co. (NYSE:CVNA) shares and increased its price objective from $252 to $270. The analyst informs investors that although the company fell short of “high expectations” in the fourth quarter, growth is “still solid” and that management provided preliminary remarks on FY25 that indicated “significant growth in both retail units sold and Adj. EBITDA.” The analyst went on to say that CVNA “remains one of the best growth acceleration names in Internet.”
Recurve Capital stated the following regarding Carvana Co. (NYSE:CVNA) in its Q4 2024 investor letter:
“One year is too short a time frame to evaluate anything and we will never be perfect, but overall, nailing Carvana Co. (NYSE:CVNA) mattered much more than anything else.
We assess our portfolio management performance by looking at the breadth of participation across the portfolio and by comparing our actual results to two parallel scenarios: (1) our performance relative to an equal-weight portfolio of the same positions, and (2) our performance relative to the actual portfolio assuming no further trading over the evaluation period. Encouragingly, our actual performance has been better than both alternate scenarios across substantially all evaluation periods. The primary exception is at the end of 2022, when an equal-weight portfolio would have produced better forward returns by having significantly more exposure to Carvana at its record-low prices. These analyses give me comfort that we add value through our active management and optimization of the portfolio.
We care most about portfolio-level returns which largely depend on slugging percentages, but we also know that having a consistent batting average is important. As shown in the chart below, the median position in our portfolio returned +35% in 2024 on a total return basis (including dividends), below our actual performance but nicely above the returns for the major indices. Carvana’s excellent performance in 2024 pulled our actual performance well above the median, but that was our intention given our large position size. We had healthy contributions across the portfolio, but we also benefited from great slugging percentages in 2023 and 2024…” (Click here to read the full text)
1. Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Investors: 126
Tesla, Inc. (NASDAQ:TSLA) is still the world’s leading EV maker and the Most Promising Stock. The world’s most successful automaker, the pioneer of “premium electric vehicles,” now controls the majority of the U.S. EV market. It is obvious that investors have high expectations for CEO Elon Musk and his team, including continued EV sales, robotaxis, and full self-driving technology. It continues to be the top brand in numerous markets and delivered just under 1.8 million vehicles in 2024 because of its first-mover advantage in the electric vehicle market.
Furthermore, there are expectations that Tesla, Inc. (NASDAQ:TSLA) will continue to gain domestically and internationally following its great momentum on Election Day. Shares are up roughly 523% in the previous five years, which illustrates there is still plenty of growth potential ahead for this leader auto stock.
Following US President Donald Trump’s announcement of 25% vehicle import tariffs that will take effect in early April, Tesla, Inc. (NASDAQ:TSLA) shares were up about 3% at the time of writing. EVs manufactured in Tesla’s two sizable U.S. factories will not be subject to tariffs. In addition, Ontario, Canada, where the firm operates a battery equipment business, has levied 25% tariffs on all American-made EVs. Leading Canadian authorities are discussing levying a 100% tariff on Teslas.
Polen Focus Growth Strategy stated the following regarding Tesla, Inc. (NASDAQ:TSLA) in its Q4 2024 investor letter:
“The largest relative detractors in the quarter were Tesla, Inc. (NASDAQ:TSLA) (not owned), Thermo Fisher Scientific, and Broadcom (not owned). We’ve spoken at length about our rationale for not owning Tesla. The stock enjoyed a 54% return during the quarter, with effectively all of the share price performance strength coming in the post-election period, as the market expressed a positive view on Elon Musk’s prominent role in the incoming Trump administration and its potential implications for Tesla. While we agree this development should be a net positive for Tesla and recognize the company’s interesting future prospects for autonomous driving and humanoid robots, its current valuation demands that shareholders pay primarily for potential innovations that have yet to materialize, with uncertain risks and timelines, presenting a different type of risk profile than we are comfortable with. Today, Tesla is an automobile manufacturer limited to the higher-income segment and is increasingly challenged to sell vehicles when interest rates are not zero. As such, we continue to question the company’s long-term growth profile, its ability to scale a large robotaxi service (which seems to be the source of euphoria in Tesla shares), and its corporate governance.”
Overall, Tesla, Inc. (NASDAQ:TSLA) ranks first on our list of the 8 Most Promising Car Stocks According to Hedge Funds. While we acknowledge the potential for TSLA to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than TSLA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stock To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.
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