3 Foreign Auto Stocks to Remain Resilient Amid Economic Uncertainty

Lavina Shahu

Thu, May 15, 2025, 7:54 AM 7 min read

The Zacks Automotive – Foreign industry is expected to remain resilient on the solid growth momentum of Chinese auto players. Japan’s growing economy opens new doors of opportunity for local auto manufacturers, while a difficult and uncertain global economic environment in Europe is likely to clip the margins of European automakers. Amid the current economic backdrop, Toyota Motor Corporation TM, Honda Motor Co., Ltd. (HMC) and NIO Inc. (NIO) are expected to live up to the investors’ expectations.

Industry Overview

Companies in the Zacks Automotive – Foreign industry are involved in designing, manufacturing and selling vehicles, components, as well as production systems. The foreign automotive industry is highly dependent on business cycles and economic conditions. China, Japan, Germany and India are some of the key foreign automotive manufacturing countries. The widespread usage of technology is resulting in the fundamental restructuring of the market. Stricter emission and fuel-economy targets and ramp-up of charging infrastructure, as well as supportive government policies, are boosting sales of green vehicles. With almost all firms intensifying their electrification game, competition is getting tougher with each passing day. Foreign automakers are now actively engaged in the R&D of electric and autonomous vehicles, fuel efficiency and low-emission technologies.

Key Themes Shaping the Industry

Solid Growth Momentum in China: In April 2025, sales of passenger vehicles in China reached 1.755 million units, up 14.5% compared to the same month last year, with BYD leading the market, according to the China Passenger Car Association. From January to April 2025, total vehicle sales in China exceeded 10 million units, up 10.8% year over year. New energy vehicle (NEV) sales surged to 4.3 million units during this period, reflecting a 46.2% increase and making up 42.7% of all new car sales. This strong performance was largely driven by government incentives, such as nationwide trade-in programs and tax breaks for NEVs. Chinese brands with a penetration rate of 72.8% in April remain dominant in the NEV segment. Looking forward, China is expected to retain its position as a global automotive leader. In 2025, vehicle sales in China are projected to reach around 32 million units, up 3% year over year.

Japan’s Economic Growth to Fuel Sales: In the first three months of 2025, vehicle sales rose 14% to 1.101 million units, per the Japan Automobile Manufacturers Association. Japan’s new vehicle market grew more than 10% year over year to 342,876 units in April 2025, maintaining an upward trend in Japan's auto market. The country’s economy is forecast to grow by 1.2% in 2025, driven by domestic demand rather than exports. Growth in the economy is expected to sustain vehicle demand.

Declining Sales & Profitability Concerns Engulf European Automakers: New car sales in Europe dipped 0.4% in the first quarter of 2025. Per the European Automobile Manufacturers’ Association, EU new car registrations fell by 1.9% year over year in the first quarter of 2025. March 2025 saw a modest 0.2% decline compared to the same month in 2024, as automakers continue to face a difficult and uncertain global economic environment. Per UBS, European automakers are likely to face a significant hit to their earnings this year as U.S. auto tariffs and the resulting global economic slowdown are projected to reduce profits by 20% to 30%.

Zacks Industry Rank Indicates Dim Prospects

The Zacks Automotive – Foreign industry within the broader Zacks Auto-Tires-Trucks sector currently carries a Zacks Industry Rank #224, which places it in the bottom 9% of around 250 Zacks industries.

The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates dim near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Over the past year, the industry’s earnings estimates for 2025 and 2026 have moved down 28.5% & 20%, respectively.

Before we present a couple of stocks that are worth adding to your watchlist, let’s look at the industry’s recent stock market performance and current valuation.

Industry Lags Sector and S&P 500

The Zacks Automotive – Foreign industry has underperformed the Auto, Tires and Truck sector and the Zacks S&P 500 composite over the past year. The industry has lost 15.1% against the S&P 500 and the sector’s growth of 10.9% and 13%, respectively.