Investing in Car Stocks
The automobile industry is one of the largest in the world, with even the more moderate sources estimating more than $2.5 trillion revenue worldwide in 2023. The bulk of the market is still composed of petrol and diesel vehicles but, naturally, we are starting to see consumers pivot increasingly towards electric vehicles (EVs).
However, that doesn’t mean that legacy automotive stocks don’t have anything to offer during the energy transition and, indeed, afterwards. Keep reading to learn about investing in car companies and to see some examples of the best car stocks to watch in 2024.
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Why Invest in Car Stocks
The automotive industry is going through an important transition. As we move towards a lower-carbon world, EVs are starting to account for an increasing proportion of new vehicle purchases around the world.
With electric and hybrid vehicles gaining market share and various economies, including the UK and the EU, implementing legislation that will ban the sale of new petrol and diesel cars in little more than a decade, it might seem as if legacy automakers have little to offer investors over the long-term.
However, this is not necessarily true. Although there may be a closing window on new petrol and diesel cars, they will continue to be produced and sold before bans come into place. Furthermore, whilst they may have been slower to move into the EV market, legacy automakers are starting to make serious headway. Indeed, many are starting to produce and sell serious numbers of electric and hybrid vehicles.
Unlike smaller, start-up EV manufacturers, many of the large legacy automakers have lots of cash and plenty of other resources to throw at producing electric vehicles. Moreover, many of these companies, particularly producers of luxury vehicles, enjoy a certain degree of brand loyalty, which may also give them a leg up in the growing EV market.
Consequently, rather than being a reason to avoid legacy car stocks, the transition to EVs may represent an exciting opportunity for growth for these companies.
The Best Car Stocks to Watch
In the following sections, we will take a look at 4 top car stocks for those interested in investing in the automotive industry to watch in 2024. As well as taking a look at how the companies are performing, we will also take a look at their progress in transitioning to producing EVs.
As well as its namesake vehicles, the Volkswagen Group counts Audi, Bentley, Seat and Skoda amongst its brands. In terms of number of vehicles sold, Volkswagen is the second largest automobile company in the world. It’s also made considerable inroads into the EV market.
In fact, in 2022, VW was the third largest manufacturer of EVs (all-electric vehicles and plug-in hybrids) in the world, second only to Tesla and Chinese EV giant BYD. In the first nine months of 2023, deliveries of all-electric vehicles (BEVs) increased by 45% to 531,500 vehicles, which accounted for 7.9% of total deliveries. By 2030, VW is aiming for BEVs to account for 80% and 55% of its European and North American sales respectively.
Whilst sales revenue over this time period climbed 16% to €235.1 billion, higher costs caused operating profit to drop by 7% to €16.2 billion. VW also has a history of paying dividends, with a dividend yield of 7.4% at the time of writing.
Although there is a chance you may not be familiar with the next name on our list of car stocks, you’re likely to recognise many of its brands, which include Citroën, Fiat, Maserati, Peugeot and Vauxhall.
In terms of sales, Stellantis is the fourth largest automobile producer in the world, shipping 3.2 million vehicles in the first half of 2023. In terms of the transition to EVs, Stellantis finds itself behind VW, but with equally lofty ambitions. In 2022, the company sold 288,000 BEVs worldwide, but is aiming for this number to hit 5 million in 2030.
In the first half of 2023, total revenue rose 31% to €98.4 billion, with operating profit also rising 11.8% to €13.5 billion. At the time of writing, Stellantis has a dividend yield of 7.2%.
Having looked at two of the world’s biggest car stocks in terms of sales, we’ll now move onto two comparatively smaller companies in terms of sales, but larger in terms of market capitalisation, both of which would fall into the category of being luxury goods.
Porsche’s status as a luxury good affords it two potential benefits. Firstly, luxury goods are considered by many to be defensive in nature, as their demand is not as adversely affected by a weakening economy. Secondly, luxury brands typically have higher pricing power, meaning that their profit margins tends to be higher. We can see recent evidence of both of these benefits.
Until recently, Porsche was a fully owned subsidiary of VW. However, in 2022, Porsche went public on the Frankfurt Stock Exchange, with VW retaining 75% ownership. Whilst Porsche was still fully owned by Volkswagen, we can see an example of the robust demand its brand produced during a time of economic turmoil.
In 2020, the year the Covid-19 pandemic spread around the globe, sales for Volkswagen brands Skoda, VW and Seat toppled by 20%, 22.9% and 27.5% respectively. Although Porsche sales also dropped, it was by a far more modest 4.2% and, despite the drop in sales, revenue actually remained flat (an example of the brand’s pricing power).
Furthermore, in the first half of 2023, Porsche reported revenue of €20.4 billion, an increase of 14%, and operating profit of €3.9 billion, an increase of 11%. This equates to an operating margin of 19.1%. Compare this with Stellantis’ operating margin of 13.7% over the same time period and Volkswagen Group’s 7.1% in the first nine months of 2023.
Porsche has already begun producing, selling and delivering BEVs. Despite representing 11% of total deliveries in the first half of 2022, the number of deliveries of Porsche’s BEV model, the Taycan, fell 4.7% year on year. However, Porsche blamed this fall in deliveries on limited available parts rather than a lack of demand, something which was evident from its 8.8% increase in sales. At the time of writing Porsche has a dividend yield of 1.2%.
The second of our two luxury automotive stocks is another company which needs little introduction, Ferrari.
In the first nine months of 2023, revenue was reported at €4.4 billion and operating income at €1.2 billion, increases of 19% and 34% respectively. These numbers gave Ferrari an operating margin of 28.0% over the time period, which is one of the highest operating margins amongst car stocks.
Ferrari is yet to actually produce a BEV, but plans to do so by 2025. It further plans for 40% of all sales to be BEVs by 2030. At the time of writing, Ferrari has a dividend yield of 0.5% and has been enjoying a particularly good spell in the stock market.
How to Invest in Automotive Stocks
With an investing account from Admirals, you can buy shares in all of the automotive stocks examined in this article. In order to get started, follow these steps:
- Open an Invest.MT5 account.
- Log in to the Dashboard.
- Open the MetaTrader WebTrader.
- Search for the car stock and click its symbol to open a price chart.
- Press ‘Create New Order’, enter the number of automobile shares and hit ‘Buy’!
Investing with Admirals
With an Invest.MT5 account from Admirals, you can buy shares in more than 4,500 companies and over 200 Exchange-Traded Funds (ETFs). Click the banner below to open an account today:
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