EV Demand Faces Hurdles as Traditional Vehicles Flourish
The automotive sector had high hopes for electric vehicles (EVs) in 2024, driven by consumer enthusiasm. Yet, rising interest rates and limited charging infrastructure led to excess inventory, prompting companies to cut EV production and sales forecasts. After significant investments in EV technologies, the industry was caught off guard by the unexpected dip in demand.
On a positive note, the Federal Reserve lowered its benchmark interest rates three times in the latter half of the year and forecasts two more cuts in 2025. Lower interest rates could ease financing costs, suggesting a potential boost for future EV demand.
Despite challenges for EVs, demand remains strong for traditional internal combustion engines and hybrid vehicles. Major automakers reported a significant year-over-year increase in hybrid sales. Additionally, effective cost management strategies have allowed companies to maintain strong profit margins.
According to S&P Global Mobility, global sales of new light vehicles are expected to reach 89.6 million units in 2025, representing a 1.7% increase from the previous year. We’ve highlighted five auto stocks with Zacks Rank #1 (Strong Buy) or #2 (Buy) that have seen gains of over 20% this year and boast a market capitalization exceeding $1 billion. These stocks are well-positioned for continued growth, backed by an optimistic industry outlook, innovative technologies, and cost management efforts.
Year-to-Date Price Performance Overview
Image Source: Zacks Investment Research
Top Five Auto Stocks with a Promising Future
Tesla, Inc. TSLA has seen growth in its Energy Generation and Storage business, largely due to strong demand for its Megapack and Powerwall products. This segment has the highest profit margins and has experienced a remarkable compound annual growth rate (CAGR) of 120.7% over the past three years. Tesla is increasing production capacity at its Megapack factory to meet rising demand, expecting vehicle sales to grow by 20-30% in 2025, driven by the success of its Model 3/Y and other vehicles.
TSLA holds a Zacks Rank #1. The projected sales and earnings per share for 2025 are $117.58 billion and $3.26, respectively. The EPS estimate for 2025 has risen by six cents in the last month. This stock has surged 69.45% year-to-date, although it has beaten earnings expectations in only one of the last four quarters, with an average earnings surprise of 0.13%.
General Motors Company GM remains the leading automaker in the U.S., driven by strong demand for its trucks and SUVs. With popular brands like Chevrolet, Buick, GMC, and Cadillac, GM is on track for growth in deliveries. Its North American division, which contributes significantly to profits, continues to perform well.
GM has a Zacks Rank #2. The consensus estimates for 2025 sales and earnings per share stand at $176.1 billion and $10.62, respectively, with the EPS estimate increasing by nine cents in the past week. The stock is up 44.24% this year and has consistently beaten earnings estimates over the last four quarters, averaging a surprise of 17.54%.
Dorman Products, Inc. DORM specializes in providing replacement parts to the automotive aftermarket. In the light-duty segment, the company has achieved significant margin growth in 2024, driven by automation and efficiency improvements. Its focus on essential repair parts has strengthened its position.
DORM holds a Zacks Rank #1, with sales and earnings per share estimates for 2025 of $2.09 billion and $7.54, respectively. The EPS estimate has seen an 88 cent increase in the last two months. The stock has appreciated 57.49% year-to-date, surpassing earnings estimates in each of the last four quarters with an impressive average surprise of 34.68%.
OPENLANE Inc. KAR offers technology-driven solutions in the wholesale used vehicle market. Its comprehensive platform facilitates financing, logistics, and related services, aiming to enhance the buying and selling process. By integrating advanced technology, the company is improving customer experiences and outcomes.
KAR has a Zacks Rank #2, with sales and EPS estimates for 2025 at $1.80 billion and 95 cents, respectively. The EPS estimate has risen by a penny in the last two months. The stock has increased 37% this year, managing to beat estimates in two of the last four quarters, with an average surprise of 8.09%.
Blue Bird Corporation BLBD specializes in manufacturing school buses and related components. The company is also focused on alternative fuel options with propane-powered and compressed natural gas-powered school buses. In fiscal 2024, Blue Bird exceeded expectations and is enhancing productivity and order volumes, particularly in the alternative fuels segment.
BLBD has a Zacks Rank #1, with a 2025 EPS estimate of $4.53. The stock has gained 46% year-to-date and has beaten estimates in three of the last four quarters, showing an average surprise of 85.12%.
Expert Highlights a Potential High-Growth Stock
Among thousands of stocks, five Zacks experts have selected their top pick to potentially double in value in the coming months. One standout choice comes from Director of Research Sheraz Mian, who highlights a company targeting millennial and Gen Z consumers, boasting nearly $1 billion in revenue last quarter. A recent decline in stock price presents a favorable buying opportunity. Although not all selected stocks succeed, this one has the potential to greatly exceed previous winners like Nano-X Imaging, which rose by 129.6% in less than nine months.
Want to see our top stock plus four additional selections? Download the free report on 5 Stocks Set to Double.
General Motors Company (GM): Free Stock Analysis Report
Tesla, Inc. (TSLA): Free Stock Analysis Report
OPENLANE, Inc. (KAR): Free Stock Analysis Report
Dorman Products, Inc. (DORM): Free Stock Analysis Report
Blue Bird Corporation (BLBD): Free Stock Analysis Report
To access the full article on Zacks.com, click here.
Zacks Investment Research
The views expressed here are those of the author and do not necessarily reflect those of Nasdaq, Inc.
