Want to invest in the Automotive Industry? Read This First!

Want to invest in the Automotive Industry? Read This First!

By Vineet

The automotive industry is one of the most exciting & profitable stock market sectors to invest in. Due to its history and superstar status, investing in automotive stock prices can be quite thrilling for any car enthusiast looking to build an excellent portfolio.


The most exciting thing about the automotive industry, which separates it from all other stock market sectors, is that every detail is easily accessible to the public. This is why investors, big or small, have a keen interest in investing in automotive stocks.


Everyone has heard about the biggest car companies and brands in the business, such as Ford, Volkswagen, Tesla, Fiat, and so many more. From their engine performance to the origin of the leather used in the interiors, all of the details necessary to evaluate the future trends of the automotive stock prices are readily available to the people.


Even then, this particular stock market never ceases to surprise investors, with exciting ups and scary downs. Due to various other factors that can affect automotive stock prices of popular brands. It is important for investors to always be on their toes.


The Covid-19 pandemic sent the automotive stock prices spiraling as the transportation sector almost halted entirely for the major part of the year. Sales figures dropped, and companies took a big hit. However, some companies prepared well to brace the storm and had a few tricks up their sleeves to get back on top, new products, and cash reserves.


Top Automotive Stock Prices:

The top-performing automotive stock prices in this stock market sector include some of the biggest car manufacturers that you have probably heard of:


- Ford Motor Company (NYSE: F)

- Ferrari NV (NYSE: RACE)

- Tesla (NASDAQ: TSLA)

- Fiat Chrysler Automobiles (NYSE: FCAU)

- Volkswagen (OTC: VWAGY)


Evaluating Automotive Stock Prices

Even with its superstar status, there are a few factors that investors should keep a close watch on to evaluate their investment decisions. These factors are related to the business functions of most automotive companies in the US and across the world.


Cyclical Sensitivity

The business cycle in the automotive industry is highly volatile. Investors can almost guarantee high returns on their investments when everything is going smoothly. But, there can be sudden changes and influences that can shift wind down south very fast.


Automotive Calendar

One of the essential aspects to consider before investing in auto stocks is the time of the year when the most crucial events and announcements are made. Automotive stock prices can be classified into three types, auto-parts suppliers, auto-manufacturers, and auto-dealers. It is imperative to understand the trends of each before making investments. Most manufacturers buy auto parts from the suppliers early on during the year and announce the launch of their products well into September. This gap creates a possibility of volatility in the market that can create fluctuations in demand and supply.


Borrowing Rates

Automotive industries have very high fixed costs, which the company has to pay irrespective of their sales figures. Costs such as labor salaries, cost of maintenance of machinery, spare parts, and running the assembly, and several other fixed costs can induce high liability. This is why a majority of car manufacturers choose to finance their auto parts. The automotive industry can have high borrowing rates, which can affect the stock prices of the company.


Market Competition

The automotive business is one of the most competitive stock market sectors. Most of the companies often go head to head in terms of profitability. This is why it is essential for investors to always gather up on recent developments and announcements from the companies regarding changes in their products. This can affect the performance and sales of the company and, in turn, affect the stock prices.


Electric vehicles

One of the most fascinating and rapidly increasing subsectors of the automotive industry is introducing new and improved electric vehicles. Electric automotive stock prices trend is rising, with recent entrants coming into the field every year. Electric vehicles present a huge market as the world becomes more attentive towards the environment and authorities shift their focus to sustainable alternatives. Many experts believe that electric vehicles are the way to go in the future, and automotive manufacturers should consider developing and introducing electric vehicles in their arsenal to survive the coming changes.

With a rise in technological advancements, efficient cars with futuristic features have become increasingly popular in the automotive industry. Tesla Inc. is currently the world leader in delivering high-performance electric vehicles that are at par with some flagship vehicles from its counterpart, the internal combustion engine category.


Future of Automotive Industry

2020 was undoubtedly an unfortunate year for automotive stock prices. Stocks plummeted as the world came to a halt. Factories, as well as dealerships around the world, got closed for a significant period. Even after everything opened up, because of the substantial drop in transportation and the quarantine situation, sales figure performance was relatively poor for most parts of the year. However, a few companies managed to curb the losses and improve their yearly performance through intelligent business decisions.


As the world opens up in 2021, with more and more people coming out of their homes accepting the post-pandemic scenarios, the automotive stock prices are looking to gain back their losses and make up for the previous year. One segment of the automotive stocks shows a great possibility of growth in 2021 with electric vehicles. As companies integrate new and exciting features and capabilities in their products, such as AI and machine learning, the future holds amazing capabilities to let the car drive itself. Many car manufacturers are looking to introduce new vehicles in the latter part of the year 2021. Investors should keep a close watch on the developments of the automotive industry and the pandemic situation to analyze factors related to business tractions and evaluate automotive stock prices.