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Car stocks offer investors the chance to back companies with international renown. But the global performance of this industry can be inconsistent and isn’t immune to market-impacting events.
Car stocks are stocks from companies involved in the production of automotive vehicles. This investment category includes major commercial automakers, like Ford, General Motors, Toyota, heavily traded but relative newcomer Tesla, and others. It also includes companies that produce emergency vehicle equipment, signaling devices, military vehicles and specialty trucks.
There are several ways you can start investing in car stocks. You can buy shares of individual car stocks or invest in an ETF or other fund that invests in a collection of these kinds of stocks.
Here’s how to get rolling:
Many car stocks trade on US exchanges. Some of these are headquartered in the US—like Ford, General Motors and Tesla—while others are based in other countries like Ferrari (Italy), Volkswagen (Germany), BMW (Germany) and Honda (Japan).
There aren’t many Canadian-based auto manufacturers. The ones that exist aren’t very well known or cater to specific niches like coaches/buses (Prevost) or luxury sports cars (Felino). If you’re looking to invest in car stocks while supporting the Canadian economy, look for publicly-traded car manufacturers that have assembly plants in Canada such as Ford, Toyota, Honda and Volvo.
These three major automotive ETFs offer different levels of exposure to domestic and international stocks, as well as traditional, hybrid and electric automakers.
Despite inconsistent demand and the negative impact of the global pandemic, analysts have begun to speculate that the global automobile market will recover, according to a report from S&P Global.
The report projects that China will be quickest to regain its momentum, potentially resuming its positive growth trends by the end of 2022. Other countries are also expected to recover but not within the next two years.
Pandemic aside, the industry is also in the middle of a historical transition from vehicles that rely on diesel and gasoline to electric and autonomous vehicles. Electric vehicle sales have been steadily climbing since 2013, averaging a sizable 25% growth rate year over year.
This transition offers an opportunity for investors to back an emerging market trend with significant growth potential.
An investment in car stocks is potentially lucrative but far from foolproof — considering US vehicle sales have a history of inconsistent demand and the coronavirus pandemic has tipped the industry’s manufacturing on its head.
Auto demand as a result of the COVID-19 pandemic is expected to drop in North America by 3.8 million vehicles, according to Statista. China is set for a 1.8 million drop and Europe is expected to sell 4.2 million fewer vehicles than it did in 2019. All told, global automobile sales are forecasted to fall below 62 million units in 2020 — a significant dip from 2017’s global sales of 80 million vehicles.
While the COVID-19 pandemic won’t last forever, it illustrates that this industry isn’t immune to market-impacting events.
To invest in car stocks, you’ll need a brokerage account. Explore your platform options by features and fees to find the account that best meets your needs.
The COVID-19 pandemic has had a negative impact on car stocks, but forecasts for the coming years are optimistic. And as the electric and hybrid vehicle market continues to grow, so too do stock options for investing in this industry.
Before you purchase car stocks, review your trading platform options to find the account that fits your budget and trading strategy.
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