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Investing in Car Stocks for 2021? Here are a Few Ideas.

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COVID-19, skyrocketing unemployment, a historic US election year, worldwide civil unrest––2020 was a wild year for the planet. Oddly enough, the stock market seems to have become increasingly divorced from reality: it tanked in March, but has since soared to bizarre heights as retail investor participation hit an all-time high during a year of being stuck at home. It’s a volatile market out there, but there’s money to be made for those willing to take a risk.

If you’re looking for investment ideas in 2021, the auto industry could prove potentially lucrative for conservative and speculative investors alike. A macro shift towards clean energy sources, a shift to a Democratic presidency, and new government policies on EVs, for instance, will be likely to fuel action in the electric vehicles (EV) space this year.

A few things to remember:

  • Our list below is just a start. Beyond car companies, consider looking into related areas like auto parts suppliers, tyre companies, battery makers, EV charging, commodities, rare metal mining (if you have the stomach for it), SPACs, and LIDAR tech.

  • Many of these stocks, particularly the newer, EV-related ones, soar and plunge based solely on hype. If you’re going for riskier short-term plays, remember to buy the rumour, sell the news, and set your stop losses accordingly.

  • The current bull market isn’t going to last forever. Approach with caution, stay patient, and don’t invest what you can’t afford to lose.

  • We’re not financial advisers, nor are we ever going to be. None of the following should be taken as absolute advice. It’s your money at the end of the day, so do your own due diligence and manage your own risk!

With all that in mind, here are some car stocks to put on your watchlist this year.

Toyota C-HR, by Toyota

Traditional auto stocks

Toyota Motor Corporation (TM): Who hasn’t heard of this Japanese blue-chip carmaker? Founded in 1937, it’s gone from strength to strength since, manufacturing some of the world’s best-selling cars, including some top-notch hybrids; it has its fingers in other pies too, including financing services and intelligent transportation systems. It was the world’s biggest auto company by revenue, pulling in $280.6 billion in 2019. Sales picked up in the last quarter of 2020, and like many traditional automakers, they’re investing in EV and related technologies: they recently launched an adorable two-seater EV called C+pod, and they’re looking to up their game on battery EV technology. It might not be a millionaire-making stock, but their 3.1% dividend is pretty respectable.

Cadillac Lyriq SUV by Cadillac, a division of GM

General Motors Co. (GM): This legacy US automaker sounds like a dull investment, but don’t underestimate the power of profitability. General Motors shares outperformed the S&P 500 in 2020, and pulled in $4 billion in net income in the third quarter alone, where most newer, flashier EV companies stay consistently in the red. Tasty margins on their traditional SUVs and trucks notwithstanding, GM is looking ahead to the future: they’re preparing to invest $27 billion in EVs by 2025, and also potentially produce new EVs with Honda. Majority-owned GM subsidiary self-driving car start-up Cruise recently deployed fully driverless cars in SF, which in COVID times might give Uber and Lyft a run for their money. Best of all, GM shares were up 51% in the last three months alone, and there’s still room left to grow. The 3.54% dividend yield doesn’t hurt, either.

Hyundai Kona Electric by Automobile Italia

Hyundai Motor Company (KRX:005380): If you’ve ever driven a Hyundai vehicle, you know their cars are reliable ol’ things. But Hyundai’s best days aren’t over yet––this South Korean automaker is just getting started. Like a number of other car manufacturers, they’re investing heavily in the EV space: they’re building an electric car manufacturing plant in Singapore, signing deals with EV startup Canoo, and were even rumoured to be in early talks with Apple on working together to develop an EV (that last one just sent its shares surging 20%). Buy and check back in a few years.

Tesla Model 3 © Automotive Rhythms

EV companies

2020 was a hot year for the EV space, and this sector is only going to keep growing. Most stocks in this space are high-risk, high-reward speculative investments––not for the faint of heart! It's a real bubble right now, and there's talk of it popping at some point. Either buy in and take profits where you can (which will require some active trading), or scoop some shares up when they dip and go on sale.

Tesla (TSLA): From the 5-for-1 stock split to joining the S&P 500 index, the world’s most (in)famous EV company has had an eventful year. Through it all, Tesla share prices continued to climb––it shot up around $200 in the last month alone––and remained seemingly impervious to bad news. Is it Tesla’s strong brand presence or Elon Musk’s public persona that allows investors to overlook its actual profitability of a mere 1%? Regardless, thanks to possible green energy legislation and plenty of consumer love, Wall Street Bets’ favourite meme stonk looks set for a few good (if volatile) years ahead. Proceed with caution, but if you have some cash to spare, a few shares purchased on a dip might not go amiss. Just try to get out before the bubble bursts.

NIO (NIO): This premium EV maker and Battery as a Service (BaaS) provider is a favourite with traders in the EV space. It wasn’t always so––2019 was a terrible year for NIO, and January 2020 saw its stock price at a mere $3.50. Since then, rising personal car ownership in China has given overall EV sales a real boost; NIO delivered 43,728 EVs in 2020, and its stock price surged more than 1400%. It’s backed by the Chinese government, just launched a new sedan model, and aims to deliver 150,000 units by end 2021. No wonder it’s currently trading at above $50 levels––way cheaper than buying Tesla stock! Buy some and check back in a few years. NIO’s likely to pay off down the line.

Nikola Motors (NKLA): They manufacture zero-emission, electric/hydrogen trucks––think of this company as the “Tesla of Trucks.” At this stage, it’s also a risky EV stock that burned many investors in 2020. First its stock price soared from $1.80 to $68.50 in a single day in June after a reverse merger, peaking at $93.99. A series of cancelled major deals with the likes of General Motors and Republic Services caused share prices to tumble over the second half of the year, and some think it has much further to fall. We agree: until it secures and follows through on some deals, buying in at its current price of $16–17+ would be unwise. This year might prove less tumultuous, but even so, you’d do well to wait for a lower buy-in point, and then keep a close watch on what happens.

XPeng Motors (XPEV): Chinese EV maker Xpeng benefited from the craze for EV stocks in 2020. Its shares are up more than 180% since its IPO at $15 in August. A recent announcement about their latest model sent their shares upwards: the rumour is that they plan to release a lidar-equipped vehicle this year. Essentially, lidar sensors use invisible laser beams to scan and form 3D images of its surroundings. It will probably be an assisted-driver system rather than a self-driving car, but it is pretty cool, and will probably give a boost to Lidar stocks like Velodyne Lidar (VLDR) and Luminar (LAZR). XPeng is barely profitable and its stock is way overvalued, but it still has potential for growth over the next year. Don’t rush in; this is one to buy on dips.

Canoo (GOEV): Founded by two former BMW execs, LA-based EV designer and manufacturer Canoo is looking to offer an auto-subscription centering around its ‘Canoo lifestyle minivan’ (which sounds like leasing to us, minus the middleman), but it’s their creative yet cost-efficient vehicle designs that have investors buzzing. They recently went public through a much-hyped SPAC merger, wherein their share price promptly dropped from $21 to around $12, and is currently on a slow climb back up. Since the vehicles haven’t even gone commercial yet––they expect to generate revenues of $1.43 billion in 2024––Canoo will be a leap of faith for some investors. But, it’s potentially a decent short-term play, and alongside a long-term position, Canoo could pay off handsomely a few years down the line.

Disclosure: The writer of this article holds positions in NIO, GOEV, and VLDR at the time of writing. The views in this article are that of the writer’s, and do not represent ST Auto as a whole. ST Auto has no business relationships with any of the companies whose stock is mentioned in this article. As a car dealership, ST Auto does not provide investment advice. Always do your own research and make your own investment decisions. This article is meant for educational and informational purposes only.

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