This “Automotive stocks: growth trend with diital technology” article was written by Huaiyi Jiang – Financial Analyst at I Know First.

Highlights

• The automotive industry’s recovery from the pandemic
• Growth trend of electric vehicles and self-driving vehicles in the automotive market
• The automotive industry’s development will face several pressures

Overview

One of the most important contributors to the global economy is the automotive industry. Overall, this industry is recovering from the effects of the pandemic in 2022. U.S. new vehicle sales of 1,185,280 units in the month of October represented an increase of 6% month over month and an increase of 11.5% year over year when supply chains were restricting production. Although demand looks positive across the industry, Electric vehicles are by the far the best-performing drivetrain type in terms of relative growth. In 2021, about 6.4 million plug-in electric vehicles were sold – an increase of over 100%. This represents a rise from 4.5% of all vehicles sold in 2020 to 9% in 2021.

Pandemic Promotes the Development of Digital Automobile Sales

The pandemic has pushed internet retail into hyperdrive even though it has already made substantial gains in the more developed car markets of North America and Western Europe. COVID-19 has had a noticeable impact on consumers’ plans to purchase their next vehicle. The desire to avoid public transportation has been a key consideration in some consumers’ decision-making processes. Figure 2 below shows the Impact of COVID-19 on the next vehicle purchase, more than 20% of consumers worldwide plan to buy their next vehicle because of the pandemic.

The pandemic has taught consumers how simple, convenient and easy it is to buy everything online, even big-ticket items like cars. The additional appeal is that online marketplaces will provide rates that are fiercely competitive since they are not unburdened by the cost overheads associated with physical showrooms.

Automakers in North America and Europe have started giving consumers the option to skip the visit to the car dealership and pick and purchase the vehicles they want online. Also, in China, automobile dealers use third-party e-commerce platforms to market cars, schedule visits, and book test drives.  With a computer or smartphone, buyers can shop at their convenience, explore and select the features they want on a vehicle and get the financing they need. Additionally, dealerships now provide online sales, allow online shoppers to use virtual walk-around technology, enable at-home test drives, and transport vehicles to customers’ homes.

Increased Sales of Electric Vehicles

With a new record of more than 200,000 electric vehicles sold in three months in the third quarter of 2022, EVs sales continued to exceed those of their gas-powered counterparts. EV pioneer Tesla remains the market leader, with 64% of the share, down from 66% in Q2 and 75% in Q1. The declining share was inevitable as legacy automakers look to catch Tesla’s success, racing to fill the growing demand for electric vehicles. Figure 3 shows the US electric vehicle share by model.

Many automobile companies are entering the EV market and plan to launch smart vehicles. In 2022, automotive OS, autonomous mobility as a service, and purpose-built vehicles are expected to be more popular. For instance, Foxconn and Baidu are two non-traditional automotive players that have joined the market by showcasing their software capabilities for autonomous, connected, and electrified vehicles through their product offerings.

There are many different types of EV stocks in the automobile market, including batteries, charging infrastructure, and vehicle manufacturers. EV stocks are worth to invest because of some government policies and social impact. Electric vehicles release 54% fewer CO2 emissions into the atmosphere than even the newest gas-powered vehicles. In addition, new government incentives, such as the EV tax credit provided in the Inflation Reduction Act, are expected to drive demand even higher in the next few years. The United States has now crossed 6% in total EV market share, working toward its goal of a 50% share by 2030.

Acceleration of Self-Driving Vehicles

Automakers continue to integrate more digital technology into their vehicles. Technology companies like Google and Tesla are also working on self-driving vehicles. Autonomous self-driving vehicles are here and will be more prevalent in 2023 and beyond. Research has shown autonomous vehicles are safer, reduce downtime, expand the last-mile delivery scope, reduce driver fatigue and negligence-related accidents, improve fuel efficiency by 10%, and reduce CO2 emissions by 42 million metric tons annually. Several trucking companies have installed self-driving technology and have tested it at locations nationwide, such as Plus AI, Peloton Technology, Embark, and Einride. The self-driving truck market globally is anticipated to be over $1,699 billion by 2025.

Government funding, supportive regulatory framework, and investment in digital infrastructure are pretended to positively drive the demand for autonomous cars during the forecast period. In addition, it provides independent mobility for the person suffering from a disability as well as for non-drivers. They offer a high level of flexibility and comfort to rest, read, or even work while traveling which improves their efficiency. On the other hand, government initiatives to support electric and hybrid vehicles are expected to propel the market for autonomous vehicles in the coming years.

The Automobile Industry Development Will Face Several Pressures

Despite the positive recovery trends in the global economy and vehicle sales, there are several industry risks that investors need to consider. From the perspective of the international situation, the Russo-Ukrainian conflict has disrupted the automotive supply chain, raising the cost of auto components and raw materials from sanctions on Russia. For instance, Ukraine supplies 25 to 35 percent of the world’s purified neon gas, and Russia supplies 25 to 30 percent of palladium, a rare metal used for semiconductors.

In addition, regarding the Government policy, NBC News reports that tariffs on aluminum and steel have already added $240 to the cost of producing a new vehicle. As a result, car prices are beginning to rise and exports are declining. This impact may decrease the consumer’s purchasing power for cars.

Another obstacle is the shortage of chips and batteries. Automotive production’s vulnerability to global supply chain turbulences is exacerbated because of the wide adoption of the just-In-time model and the specific dependencies for key inputs, such as chips and batteries. The new advancements in Electric Vehicles and connectivity require not only traditional parts suppliers but also rely on semiconductors. These chips have seen huge shortages that are still affecting the market.

Automotive Stocks: Investing in Automotive Industry with I Know First

I Know First provides predictions for Automotive stocks based on the AI algorithm for six horizons: 3-day, 7-day, 14-day, 1-month, 3-months, and 1-year. Below, we can observe the performance of the prediction of the Automotive stocks package which was sent to our clients (you can access our forecast packages here).

Package Name: Automotive Stock Forecast
Recommended Positions: Long
Forecast Length: 1 Month (10/28/22 – 11/29/22)
I Know First Average: 9.34%

I Know First’s State of Art Algorithm accurately forecasted 9 out of 10 trades in this Automotive Stock Forecast Package for the 1 Month time period. The top-performing prediction in this forecast was WNC, which registered a return of 27.35%. Further notable returns came from MOD and KWR at 22.18% and 20.74%, respectively. The Automotive Stock Forecast package had an overall average return of 9.34%, providing investors with a premium of 5.39% over the S&P 500’s return of 3.95%.

Automotive Stocks: Conclusion

In 2022, the Automotive industry has lots of opportunities with digital technology, such as the development of sales strategy, and acceleration of electric vehicles and self-driving vehicles. Investors should consider that although the pandemic impact is decreasing, there are several risks to investing in the Automotive industry. I Know First provides a forecast package for short-term and long-term periods to help our clients to find the most promising investment opportunities in the automotive stock market.  

To subscribe today click here.

Please note-for trading decisions use the most recent forecast.