We recently published a list of 10 Best Automotive Stocks To Buy Now. In this article, we are going to take a look at where Tesla, Inc. (NASDAQ:TSLA) stands against the other automotive stocks.
Headwinds in the Automotive Industry
The automotive industry is heavily commoditized relative to other industries considering the fact that consumers typically have numerous options in terms of the car they want to purchase, resulting in the need for automotive companies to compete with each other predominantly on pricing. As a result, many automotive companies, especially those offering pricier vehicles, have been seeing a decline in revenue growth and profit margins over the past couple of years. This decline is primarily a consequence of rising inflation which has significantly cut down your average consumer’s spending power.
According to Daryl Kenningham in his interview on CNBC’s “Squawk Box,” the President and CEO of Group 1 Automotive, the wider macroeconomic trends surrounding the automotive industry and the support of Original Equipment Manufacturers (OEMs) in the market have resulted in prices for vehicles, both used and new, beginning to fall in 2024 – though this price decline is being seen more evidently in the case of new cars, seeing as there has been a prolonged shortage of pre-owned cars in the market. Despite the decline, though, the average transaction costs for purchasing any car are still pretty high, which has been acting as an impediment barring consumers from getting into cars.
Rising Industry Trends
Considering the current market conditions, many consumers are thus looking for lower-priced vehicles. This spells trouble for electric vehicle (EV) producers since EVs are notorious for their hefty price tags and pricey battery replacements, and lays the foundation for the newest hot trend in the automotive space: hybrid cars. Ford’s former CEO, Mark Fields, in his interview on CNBC’s “Squawk Box” on August 30, noted that because of the greater convenience offered by hybrid cars, automakers dabbling within the EV space should expand their hybrid offerings. Simultaneously, the vision of producing pure EVs shouldn’t be entirely abandoned either – instead, time and resources must be dedicated to producing lower-priced EVs that automakers can actually make money on.
Fields further added that another impediment to the growth of EV makers today is the prolonged waiting time for charging an EV. For this, the only viable solution on the horizon is the development of solid-state batteries that can significantly reduce charge time to about 5-10 minutes – around the same time you spend at a typical gas station. However, the mass production of solid-state batteries and their incorporation in EVs is still something that we won’t see happening in the near future. This is why we believe that investors interested in automotive stocks should look at not only EV manufacturers but also traditional vehicle producers or, even better, companies that offer both types of vehicles to their consumers. The list we have compiled below reflects this position.
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).
25 Most In Demand Cars Heading into 2024
Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holders: 85
Tesla, Inc. (NASDAQ:TSLA) is the pioneer in electric vehicle manufacturing and is based in Austin, Texas.
Some investors may be skeptical about Tesla, Inc. (NASDAQ:TSLA), considering the fact that EV sales have been slowing, primarily because of the high cost associated with battery replacements. However, a big incentive to invest in Tesla, Inc. (NASDAQ:TSLA) right now is the fact that it is diversifying its business. A major chunk of this diversification is coming from the robotaxi business that the company is developing. Longtime investor in Tesla, Inc. (NASDAQ:TSLA), Cathie Wood, has actually based much of her thesis for owning this stock on the potential of the robotaxi business. Wood believes that this business may comprise 86% of Tesla, Inc.’s (NASDAQ:TSLA) earnings in 2029.
Another reason for investing in Tesla, Inc. (NASDAQ:TSLA), often cited by enthusiastic investors, is Musk’s vision for the company’s future. Whether it’s robotaxis or the Optimus robot, these proposals seem to attract many investors who believe in the strength of their growth potential. Overall, Tesla, Inc. (NASDAQ:TSLA) has seen revenue growth of 30.8% over the past five years and 31.6% over the past three years, so there is enough justification for believing that the company will only continue to see more growth in the future.
We saw 85 hedge funds long Tesla, Inc. (NASDAQ:TSLA) in the second quarter, with a total stake value of $4.9 billion.
Overall TSLA ranks 1st on our list of the best automotive stocks to buy. While we acknowledge the potential of TSLA as an 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 TSLA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
