Automotive Stocks to Watch in 2025: Key Picks Amid Industry Turbulence
The automotive industry continues to navigate a maze of challenges, from sluggish growth and capital-intensive operations to technological shifts like electric vehicles (EVs) and razor-thin profit margins. However, for savvy investors, this sector may still offer lucrative opportunities. Despite the hurdles, 2025 holds potential for those focusing on stocks with improving fundamentals and compelling growth stories.
Industry Overview: Persistent Challenges
For decades, the automotive industry has been plagued by recurring issues, including overcapacity, high inventory levels, and disruptive innovations. Recent examples like Stellantis’ (STLA) sharp profit decline, which led to a 44% stock drop and CEO Carlos Tavares stepping down, highlight the sector’s volatility.
Over the past five years, the largest 25 automotive stocks in the Russell 3000 index averaged a 5% annual decline, reflecting the industry’s struggles. With a collective price-to-earnings (P/E) ratio below 10, the sector appears undervalued on paper but still lacks consistent investor confidence.
Tesla: The Outlier
Tesla (TSLA) defies the traditional narrative. Over the past five years, the EV giant has achieved an extraordinary 64% average annual return, boasting a P/E ratio of 122 times its projected 2025 earnings. While traditional value investors may question Tesla’s valuation, its growth trajectory, innovative edge, and market dominance make it a standout in an otherwise slow-moving sector.
Current Market Sentiment: A Mixed Bag
The overall sentiment around the automotive industry remains tepid. Bernstein analyst Daniel Roeska highlights concerns about price pressures, weak EV profitability, and inventory management. While demand appears stable, Roeska’s buy ratings for Ford (F) and General Motors (GM) remain at 37%, well below the S&P 500 average of 55%.
Yet, completely ignoring the automotive sector might mean missing high-return opportunities. Tesla’s projected 2024 return stands at 63%, and GM is forecasted to deliver 50%. Investors aiming to “buy low, sell high” could find strong potential in undervalued stocks with improving fundamentals.
Top Automotive Stock Picks for 2025
As the sector braces for continued disruptions, the following stocks emerge as top contenders for 2025:
Tesla (TSLA): The Innovator
Tesla remains a pioneer in EV technology, with ambitious plans to launch a low-cost model and an autonomous taxi service in the coming years. These developments, combined with its unmatched brand equity and technological prowess, make it a cornerstone for growth-focused portfolios.
Ford (F): The Resilient Veteran
Despite industry-wide pressures, Ford continues to hold its ground. With strong demand for its EV lineup, including the F-150 Lightning, Ford is positioning itself for a robust recovery in 2025.
BorgWarner (BWA): The Value Play
BorgWarner is a standout for its low valuation and exceptional execution. Trading at $31.54 with a target price of $51, the stock represents a compelling value opportunity. The company’s expertise in electrification solutions adds to its growth potential in the evolving EV landscape.
Dana (DAN): The Turnaround Candidate
Dana’s strategic sale of its off-highway business has significantly improved investor sentiment. By streamlining operations and focusing on core competencies, the company is poised to deliver strong returns in 2025.
Strategizing for Success in the Auto Sector
Despite the challenges, the automotive industry offers unique opportunities for those who are selective and strategic. By targeting undervalued stocks with robust growth catalysts, investors can capitalize on the sector’s transformation. With Tesla, BorgWarner, Ford, and Dana leading the charge, 2025 may mark a turning point for automotive investments.
