The market volatility that started in 2022 also took its toll on the automobile industry. The industry, which was in the spotlight for several years amid the EV boom, is expected to struggle as innovative EV companies that were hoping to follow an easy path to profitability are now facing new challenges amid inflation and slowing demand. Morgan Stanley’s Adam Jonas voiced similar concerns earlier this year. Jonas thinks 2023 would be a "hunker down" year for the sector. Jonas said in his note to investors that he continues to expect auto companies investing in electrification, but the pace of these investments will slow down as “the cyclical downturn forces incremental capital discipline."
In October 2022, RBC Capital Markets analyst Joseph Spak warned that 2023 estimates for car companies would be lower.
Another warning came from UBS Group AG analysts led by Patrick Hummel, who said that profits for US and European car companies were expected to drop by a whopping 50% in 2023 amid weakening demand. UBS analysts at that time decreased their ratings for major car stocks like Volkswagen AG, General Motors Company (NYSE:GM), Renault SA and Ford Motor Co (NYSE:F).
Recently, it was reported that major car companies in China, including Ford, BMW, Volkswagen and General Motors, have started offering discounts on their car prices amid declining sales. Car sales in China fell in January and February as consumers cut back on spending amid an uncertain economic situation. Analysts were expecting these sales declines to reverse after the country reopened its economy, but that optimism fell flat.
But amidst this turmoil, a silver lining for the car industry is that the supply-chain issues and semiconductor shortages that hammered the sector for a couple of years are finally beginning to resolve. The net effect of this development would be that car sales in the US are expected to remain better-than-expected, despite inflation and macroeconomic headwinds. The US auto industry is expected to grow by about 1 million vehicles in 2023 to about 15 million units, according to Bloomberg.
Another key growth driver for car stocks remains the EV boom, which continues to change the industry dynamics, to such an extent that data now suggests internal combustion engine vehicle sales might never recover to their pre-pandemic level of popularity. Bloomberg said in a report that its analysis shows that internal combustion vehicle sales peaked in 2017, at 86 million vehicles. During that year battery-electric and plug-in hybrid models accounted for a total of one million vehicles sold. Come 2022, the situation completely changed, with conventional engine vehicle sales coming in at 69 million during the year, while plug-in vehicle sales jumped to 10.4 million.
In this situation, almost all major car companies that used to produce conventional cars are heavily investing in electrification. As the car industry goes through a major transition, it's interesting to see which car stocks are on famous analysts' radar.
Photo by Lenny Kuhne on Unsplash
Our Methodology
For this article, we scoured the automobile industry and picked stocks that have a strong upside potential from their current levels based one-year average analyst price estimates. With each stock we have mentioned its one-year price target.
Texas-based Ayro, Inc. (NASDAQ:AYRO), Inc. makes EVs for closed campus mobility, urban and community transport, local on-demand and last-mile delivery, and government use. In January, Ayro, Inc. (NASDAQ:AYRO) announced the U.S. Patent Office approved its patent for AYRO Vanish. Vanish is a utility low-speed electric vehicle (LSEV) with a lightweight architecture.
3 hedge funds tracked by Insider Monkey have stakes in Ayro, Inc. (NASDAQ:AYRO) as of the end of the fourth quarter of 2022.
10. Polestar Automotive Holding UK PLC (NASDAQ:PSNY)
Number of Hedge Fund Holders: 12
One-year Average Price Estimate: $7.00
EV company Polestar Automotive Holding UK PLC (NASDAQ:PSNY) is a low-cost car stock in our list of the most promising car stocks according to analysts. Polestar Automotive Holding UK PLC (NASDAQ:PSNY) recently jumped after the company beat its 2022 target of deliveries. Polestar Automotive Holding UK PLC (NASDAQ:PSNY)’s global volume jumped about 80% in 2022 as it delivered 51,491 vehicles. In 2023, it expects its global volume to increase by 60% to reach 80,000 cars. Sales growth is expected to be driven by Polestar Automotive Holding UK PLC (NASDAQ:PSNY).
At the end of the last quarter of 2022, 12 hedge funds reported owning stakes in Polestar Automotive Holding UK PLC (NASDAQ:PSNY). The total value of these stakes was $26 million.
Fisker Inc. (NYSE:FSR) is trading at around $6 as of March 15, while its one-year average price target is $12. Fisker Inc. (NYSE:FSR) jumped recently after the company gave clarity on its sales trajectory. Fisker Inc. (NYSE:FSR) said that it is on track to start delivering its Ocean SUV this spring and to build more than 40,000 vehicles in 2023.
Fisker Inc. (NYSE:FSR) also said that so far it has built 56 Oceans at manufacturing partner Magna International’s contract-manufacturing facility in Austria.
Evercore analyst Chris McNally said in a note to investors that visibility on Fisker Inc. (NYSE:FSR)’s deliveries is “a major step in an expected long journey of necessary execution for Fisker.”
As of the end of the fourth quarter, 13 hedge funds reported having stakes in Fisker Inc. (NYSE:FSR).
As of March 15, NIO Inc. (NYSE:NIO) was trading at around $8.26. Its one-year average price estimate is $12.53.
NIO Inc. (NYSE:NIO) recently reported Q4 results that were lower than expectations. Non-GAAP EPADS came in at -$0.44, missing estimates by $0.21. Revenue in the period increased by 62% on a YoY basis to reach $2.33 billion but missed estimates by $230 million.
A total of 25 hedge funds tracked by Insider Monkey had stakes in NIO Inc. (NYSE:NIO) as of the end of the fourth quarter of 2022. The biggest hedge fund stakeholder of NIO Inc. (NYSE:NIO) was Jos Shaver’s Electron Capital Partners which has a $61 million stake in the company. Like Tesla, Inc. (NASDAQ:TSLA), General Motors Company (NYSE:GM) and Ford Motor Co (NYSE:F), NIO is a popular car stock among hedge funds and analysts.
Chinese EV company Li Auto Inc. (NASDAQ:LI) is one of the most promising car stocks according to analysts. As of March 15, Li Auto Inc. (NASDAQ:LI) was trading at around $21, while its one-year average price target is $34.39. This shows a decent upside potential from the current levels.
During February 2023, Li Auto Inc. (NASDAQ:LI) delivered 16,620 vehicles, which was a whopping 98% increase from the same month last year.
Hedge fund sentiment for this Chinese EV stock ticked up during the fourth quarter of 2022, as 25 hedge funds out of the 943 tracked by Insider Monkey ended the period with stakes in Li Auto Inc. (NASDAQ:LI), up from 20 hedge funds in the previous quarter. The biggest hedge fund stakeholder of Li Auto Inc. (NASDAQ:LI) is Andreas Halvorsen’s Viking Global which owns a $185 million stake in the company.
Automobile manufacturing company Stellantis N.V. (NYSE:STLA) ranks 6th in our list of the most promising car stocks according to analysts. Recently, RBC Capital upgraded Stellantis N.V. (NYSE:STLA) to Buy after meeting the company’s CFO.
After the meeting, RBC said Stellantis N.V. (NYSE:STLA) is now its “favorite mass-market OEM.”
RBC said Stellantis N.V. (NYSE:STLA) looks positioned to dominate the European market as both Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM) appear challenged. RBC also said Stellantis N.V. (NYSE:STLA) has fewer “corporate government obstacles” as compared to Volkswagen (OTCPK:VWAGY) and Renault (OTCPK:RNSDF).
RBC’s Tom Narayan assigned a €19 price target to Stellantis N.V. (NYSE:STLA).
A total of 28 hedge funds tracked by Insider Monkey reported owning stakes in Stellantis N.V. (NYSE:STLA) at the end of the fourth quarter of 2022. Like Tesla, Inc. (NASDAQ:TSLA), General Motors Company (NYSE:GM) and Ford Motor Co (NYSE:F), STLA is a popular car stock among hedge funds and analysts.
