4 Car Stocks That Have the Pros Revved Up
Supply-chain challenges and a global chip shortage have hampered the auto industry, but analysts think these car stocks have room to run.
The adoption of electric vehicles (EVs) in comparison to internal combustion engine (ICE) vehicles has increased exponentially, fueled by government incentives and a friendly regulatory environment. This has resulted in even legacy car stocks going electric in a big way.
This transition from fossil-fueled cars to going electric got a big boost in 2021 when President Joe Biden signed an executive order targeting 50% of all new passenger cars and light trucks sold in the U.S. should be electric by 2030.
But the industry has more recently been hampered by familiar pandemic woes, including supply-chain constraints impacting production and rising inflation being a key concern even as demand continues to be strong for these vehicles.
If this was not enough, the Chinese government imposed strict lockdowns across major Chinese cities like Shanghai to contain a wave of COVID-19. This has led to production halts at many key plants for EV manufacturers, which is only compounding a pre-existing automobile chip shortage.
Despite these short-term hurdles, the long-term implications for these car stocks is evident. EV sales hit 6.75 million units in 2021 – more than double what they did in 2020, according to electric vehicle data site EV-volumes.com. While the impressive growth rate was due in part to easy year-over-year comparisons, expectations are for nearly 41% more EVs to be sold this year compared to last.
But which car stocks are poised to capture this growth? To answer that question, we used the TipRanks database, which allows investors to evaluate stocks using a variety of criteria, including analyst ratings and price targets.
Here, we'll look at four popular car stocks and see what the pros are saying about each one. Each of the names featured here boasts mostly Buy or better ratings from analysts and each offers significant upside potential to current levels based on their consensus price targets.
Data is as of April 17.
Rivian Automotive
- Market value: $35.9 billion
- TipRanks consensus price target: $73.31 (80.6% upside potential)
- TipRanks consensus rating: Moderate buy
In early April, Rivian Automotive (RIVN, $40.59) announced first-quarter production data. For the first three months of 2022, the company produced 2,553 vehicles and delivered 1,227 vehicles – meeting its expectations.
The California-based EV maker added that it was "well positioned to deliver on the 25,000 annual production guidance" that it gave on its fourth-quarter earnings call in mid-March.
Mizuho Securities analyst Vijay Rakesh is upbeat about the company as he considers it a "strong early mover" in the EV market as it is focused on "higher-growth" sport utility vehicles (SUVs) with its R1S model and the light truck market with its R1T. The analyst also approves of RIVN's deal with Amazon.com (AMZN) for commercial electric vehicles.
Rakesh is referring to a partnership between the two companies in which Amazon owns around 18% of Rivian in exchange for the supply of 100,000 electric delivery vans.
And while the analyst admits that near-term challenges remain – supply chain and logistics issues, for instance – he estimates that RIVN will deliver around 86,000 vehicles in 2023 with revenues of around $7 billion.
Plus, RIVN is further "poised to benefit from improving costs with scale and a well-laid-out path towards further vertical integration giving more control to production and delivery of vehicles," the analyst adds.
As far as car stocks go, Rakesh calls RIVN a Buy and sees shares hitting $95 over the next 12 months, representing implied upside of 134% to current levels. Here's what other analysts have to say about RIVN shares.
XPeng
- Market value: $23.9 billion
- TipRanks consensus price target: $45.16 (67.8% upside potential)
- TipRanks consensus rating: Strong Buy
XPeng (XPEV, $26.93) is one of two U.S.-listed Chinese car stocks on this list.
Shares of the EV maker have had a rough start to 2022, down 46.5% for the year-to-date. In addition to ongoing regulatory concerns facing Chinese stocks, COVID-related shutdowns across the mainland are sparking worries over more headwinds for an already strained supply chain.
Still, XPEV's fundamentals look solid, with the company selling more EVs than its other Chinese rivals Li Auto (LI) and Nio (NIO) in March 2022.
XPeng targets the mid- to high-end market segment in China with its G3 SUV and its P7 smart sports sedan. In March, Xpeng delivered 15,414 units, up 202% year-over-year and 148% month-over-month. And deliveries of the company's P7 smart sports sedan crossed 9,000 for the first time, reaching 9,183 in March.
Plus, while Xpeng's gross profit margin (GPM) declined 2.4 basis points (a basis point is one-one hundredth of a percentage point) sequentially in its most recently reported quarter, China Renaissance analyst Yiming Wang believes that price hikes should help stabilize this metric in the short term.
The analyst – who is upbeat about the green energy stock with a Buy rating and $55.60 price target – also believes the automaker's product mix will improve with the third-quarter launch of its G9 SUV.
However, UBS Global Research analyst Paul Gong is sidelined on the stock with a Hold. Among electric car stocks, XPEV "remains most vulnerable on raw materials price hike and rising competition," Gong wrote in a note, while lowering his price target to $34 from $48 (though this is still 26.3% higher than the stock's current price).
By Gong's estimate, battery cost makes up 30% of XPEV's cars, much higher than competitors Nio (20%) and Li Auto (12%). "We think passing on cost inflation to price-sensitive customers may have adverse consequences for new orders," the analyst adds.
Still, most of the pros following XPeng are in the bull camp, according to TipRanks. Of the 10 analysts who have sounded off on XPEV stock over the past three months, nine say it's a Buy. TipRanks offers up a full analyst rundown of XPEV shares.
General Motors
- Market value: $58.3 billion
- TipRanks consensus price target: $71.13 (77.3% upside potential)
- TipRanks consensus rating: Strong Buy
Investors in General Motors (GM, $40.13) have a reason to be worried. Currently, the stock is trading near its 52-week lows, pressured by worries that higher commodity costs and supply-chain constraints could heavily impact GM and its fellow car stocks.
But are these concerns toward the stock justified?
Wells Fargo analyst Colin Langan believes that "GM should be a stand out in Q1 given better-than-expected production" as well as a strong product mix. However, the analyst thinks the automaker could lower 2022 guidance to reflect commodity headwinds in the second half of the year (though he believes this may already be priced in).
The analyst adds that solid production growth and a "positive mix" will likely drive a first-quarter beat for GM, production at Ford Motor (F) is "about flat and [its[ mix is much worse than expected," which could drive a miss.
As a result, Langan is optimistic about GM with an Overweight (Buy) and a price target of $72 on the stock.
Even Goldman Sachs analyst Mark Delaney sees a "difficult [Q1] earnings season" ahead for the U.S. automobile sector. This is due to Russia's war on Ukraine and higher commodity costs resulting in production downtime.
The analyst prefers General Motors over Ford because it "has no material exposure to Europe." Delaney adds that GM had less units impacted in the first quarter by semiconductors than Ford, according to IHS Markit.
Out of 17 analysts covering GM in the past three months, 14 are bullish on the stock. Check out Wall Street's average, highest and lowest price targets for GM on TipRanks.
Nio
- Market value: $35.9 billion
- TipRanks consensus price target: $43.01 (118.9% upside potential)
- TipRanks consensus rating: Strong Buy
Nio (NIO, $19.65) is the second of the Chinese car stocks featured here. Shares are down 38% for the year-to-date for many of the same reasons Xpeng is lower. A recent Bloomberg report detailed how the EV maker halted production of its cars and delayed deliveries as several of its suppliers have gone offline amid the widespread COVID-related shutdowns, including those in Jilin and Shanghai.
Moreover, bowing down to inflationary pressures, the company recently said it will raise prices on all of its SUVs, including the ES6, ES8 and EC6s, by 10,000 yuan, effective May 10. However, Nio does not expect to raise the prices of its sedans – the ET7 launched back in March, as well as the ET5, which is expected to be available in September.
Nio, which was founded in 2014, targets the Chinese premium EV market with its vehicles. While the company has already made a foray into Europe, it is expected that it will also begin selling its EVs in the U.S. at some point down the road.
Mizuho Securities analyst Vijay Rakesh is upbeat about NIO's global expansion and views it as a "a meaningful contributor to future growth." Plus, the analyst believes that the lockdowns in China are unlikely to impact the demand for cars.
As a result, Rakesh continues to be bullish on the stock with a Buy rating and a price target of $60. He sees "NIO's value leadership in the premium EV segment with solid battery technology and ADAS [advanced driver assistance systems] roadmaps as drivers of growth."
The analyst also thinks that NIO is at an advantage in China due to "regulatory support and market familiarity."
Wall Street is plenty bullish in general, with 15 of the 17 covering analysts issuing Buy ratings on NIO over the past three months. See which other analysts are in the NIO Buy camp on TipRanks.
