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3 Foreign Auto Stocks to Remain Resilient Amid Economic Uncertainty
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The Zacks Automotive – Foreign industry is expected to remain resilient on the solid growth momentum of Chinese auto players. Japan’s growing economy opens new doors of opportunity for local auto manufacturers, while a difficult and uncertain global economic environment in Europe is likely to clip the margins of European automakers. Amid the current economic backdrop, Toyota Motor Corporation (TM - Free Report) , Honda Motor Co., Ltd. ((HMC - Free Report) and NIO Inc. (NIO - Free Report) are expected to live up to the investors’ expectations.
Industry Overview
Companies in the Zacks Automotive – Foreign industry are involved in designing, manufacturing and selling vehicles, components, as well as production systems. The foreign automotive industry is highly dependent on business cycles and economic conditions. China, Japan, Germany and India are some of the key foreign automotive manufacturing countries. The widespread usage of technology is resulting in the fundamental restructuring of the market. Stricter emission and fuel-economy targets and ramp-up of charging infrastructure, as well as supportive government policies, are boosting sales of green vehicles. With almost all firms intensifying their electrification game, competition is getting tougher with each passing day. Foreign automakers are now actively engaged in the R&D of electric and autonomous vehicles, fuel efficiency and low-emission technologies.
Key Themes Shaping the Industry
Solid Growth Momentum in China: In April 2025, sales of passenger vehicles in China reached 1.755 million units, up 14.5% compared to the same month last year, with BYD leading the market, according to the China Passenger Car Association. From January to April 2025, total vehicle sales in China exceeded 10 million units, up 10.8% year over year. New energy vehicle (NEV) sales surged to 4.3 million units during this period, reflecting a 46.2% increase and making up 42.7% of all new car sales. This strong performance was largely driven by government incentives, such as nationwide trade-in programs and tax breaks for NEVs. Chinese brands with a penetration rate of 72.8% in April remain dominant in the NEV segment. Looking forward, China is expected to retain its position as a global automotive leader. In 2025, vehicle sales in China are projected to reach around 32 million units, up 3% year over year.
Japan’s Economic Growth to Fuel Sales: In the first three months of 2025, vehicle sales rose 14% to 1.101 million units, per the Japan Automobile Manufacturers Association. Japan’s new vehicle market grew more than 10% year over year to 342,876 units in April 2025, maintaining an upward trend in Japan's auto market. The country’s economy is forecast to grow by 1.2% in 2025, driven by domestic demand rather than exports. Growth in the economy is expected to sustain vehicle demand.
Declining Sales & Profitability Concerns Engulf European Automakers: New car sales in Europe dipped 0.4% in the first quarter of 2025. Per the European Automobile Manufacturers’ Association, EU new car registrations fell by 1.9% year over year in the first quarter of 2025. March 2025 saw a modest 0.2% decline compared to the same month in 2024, as automakers continue to face a difficult and uncertain global economic environment. Per UBS, European automakers are likely to face a significant hit to their earnings this year as U.S. auto tariffs and the resulting global economic slowdown are projected to reduce profits by 20% to 30%.
Zacks Industry Rank Indicates Dim Prospects
The Zacks Automotive – Foreign industry within the broader Zacks Auto-Tires-Trucks sector currently carries a Zacks Industry Rank #224, which places it in the bottom 9% of around 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates dim near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Over the past year, the industry’s earnings estimates for 2025 and 2026 have moved down 28.5% & 20%, respectively.
Before we present a couple of stocks that are worth adding to your watchlist, let’s look at the industry’s recent stock market performance and current valuation.
Industry Lags Sector and S&P 500
The Zacks Automotive – Foreign industry has underperformed the Auto, Tires and Truck sector and the Zacks S&P 500 composite over the past year. The industry has lost 15.1% against the S&P 500 and the sector’s growth of 10.9% and 13%, respectively.
One-Year Price Performance
Image Source: Zacks Investment Research
Industry's Current Valuation
Since automotive companies are debt-laden, it makes sense to value them based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio.
Based on the trailing 12-month enterprise value to EBITDA (EV/EBITDA), the industry is currently trading at 7.43X compared with the S&P 500’s 16.56X and the sector’s 18.38X.
Over the past five years, the industry has traded as high as 12.59X, as low as 6.4X and at a median of 8.95X, as the chart below shows.
EV/EBITDA Ratio (Past Five Years)
Image Source: Zacks Investment Research
Image Source: Zacks Investment Research
3 Stocks to Watch
Toyota: It is one of the leading automakers in the world in terms of sales and production. Its product portfolio comprises a full range of models from passenger cars and minivans to trucks, as well as related parts and accessories. It is implementing several strategies to drive growth and strengthen earnings. The company is working to restore production to normal levels. By optimizing inventory levels, Toyota aims to control sales incentives, ensuring vehicles are sold at competitive yet profitable prices. Additionally, it is enhancing its value chain by standardizing specifications and reducing parts complexity. Shortened lead times enable agile investment decisions, while in-house battery development strengthens its technological edge.
Toyota currently carries a Zacks Rank #3 (Hold) and has a Value Score of A. The Zacks Consensus Estimate for TM’s fiscal 2026 sales implies year-over-year growth of 5.41%. The Zacks Consensus Estimate for TM’s fiscal 2027 sales and earnings implies year-over-year growth of 5.75% and 9.34%, respectively.
Honda: It is a leading manufacturer of automobiles and the largest producer of motorcycles in the world. Honda aims for EVs and FCEVs to constitute 100% of its global vehicle sales by 2040. To achieve this, Honda plans to establish a comprehensive, vertically-integrated EV supply chain, focusing on reducing battery costs by more than 20% in North America by 2030. It aims to lower overall production costs by 35% and secure batteries for the production of two million EVs annually by the decade’s end. Honda's strategy includes partnerships for lithium-ion batteries and joint ventures, including that with LG Energy to produce 40 GWh of battery capacity annually.
Honda currently carries a Zacks Rank #3. The Zacks Consensus Estimate for HMC’s fiscal 2026 sales and earnings implies year-over-year growth of 0.13% and 24.08%, respectively. The Zacks Consensus Estimate for HMC’s fiscal 2027 sales and earnings implies year-over-year growth of 2.1% and 10.84%, respectively.
Price & Consensus: HMC
Image Source: Zacks Investment Research
NIO: It is a pioneer in China’s EV market and is often touted as the Tesla of China. NIO appears poised for a robust growth phase, fueled by an expanding vehicle portfolio and strategic initiatives. NIO's strong vehicle lineup, including ES6, ET5T, ES8, EC6, ES7, ET5, ET7, EP9, EVE, ET9 and EC7 models, are aiding the company’s deliveries growth. In December 2024, the company launched a flagship smart executive sedan, the NIO ET9. The limited first edition of NIO ET9 sold out within hours and there is a strong demand for its signature version. NIO's efforts to expand beyond its luxury lineup with the launch of a more affordable ONVO brand and a high-end and small car brand, Firefly, bode well.
NIO currently carries a Zacks Rank #3. The Zacks Consensus Estimate for NIO’s 2025 sales and earnings implies year-over-year growth of 50.4% and 25.2%, respectively. The Zacks Consensus Estimate for NIO’s 2026 sales and earnings implies year-over-year growth of 30.9% and 58.1%, respectively.
Price & Consensus: NIO
Image Source: Zacks Investment Research
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3 Foreign Auto Stocks to Remain Resilient Amid Economic Uncertainty
The Zacks Automotive – Foreign industry is expected to remain resilient on the solid growth momentum of Chinese auto players. Japan’s growing economy opens new doors of opportunity for local auto manufacturers, while a difficult and uncertain global economic environment in Europe is likely to clip the margins of European automakers. Amid the current economic backdrop, Toyota Motor Corporation (TM - Free Report) , Honda Motor Co., Ltd. ((HMC - Free Report) and NIO Inc. (NIO - Free Report) are expected to live up to the investors’ expectations.
Industry Overview
Companies in the Zacks Automotive – Foreign industry are involved in designing, manufacturing and selling vehicles, components, as well as production systems. The foreign automotive industry is highly dependent on business cycles and economic conditions. China, Japan, Germany and India are some of the key foreign automotive manufacturing countries. The widespread usage of technology is resulting in the fundamental restructuring of the market. Stricter emission and fuel-economy targets and ramp-up of charging infrastructure, as well as supportive government policies, are boosting sales of green vehicles. With almost all firms intensifying their electrification game, competition is getting tougher with each passing day. Foreign automakers are now actively engaged in the R&D of electric and autonomous vehicles, fuel efficiency and low-emission technologies.
Key Themes Shaping the Industry
Solid Growth Momentum in China: In April 2025, sales of passenger vehicles in China reached 1.755 million units, up 14.5% compared to the same month last year, with BYD leading the market, according to the China Passenger Car Association. From January to April 2025, total vehicle sales in China exceeded 10 million units, up 10.8% year over year. New energy vehicle (NEV) sales surged to 4.3 million units during this period, reflecting a 46.2% increase and making up 42.7% of all new car sales. This strong performance was largely driven by government incentives, such as nationwide trade-in programs and tax breaks for NEVs. Chinese brands with a penetration rate of 72.8% in April remain dominant in the NEV segment. Looking forward, China is expected to retain its position as a global automotive leader. In 2025, vehicle sales in China are projected to reach around 32 million units, up 3% year over year.
Japan’s Economic Growth to Fuel Sales: In the first three months of 2025, vehicle sales rose 14% to 1.101 million units, per the Japan Automobile Manufacturers Association. Japan’s new vehicle market grew more than 10% year over year to 342,876 units in April 2025, maintaining an upward trend in Japan's auto market. The country’s economy is forecast to grow by 1.2% in 2025, driven by domestic demand rather than exports. Growth in the economy is expected to sustain vehicle demand.
Declining Sales & Profitability Concerns Engulf European Automakers: New car sales in Europe dipped 0.4% in the first quarter of 2025. Per the European Automobile Manufacturers’ Association, EU new car registrations fell by 1.9% year over year in the first quarter of 2025. March 2025 saw a modest 0.2% decline compared to the same month in 2024, as automakers continue to face a difficult and uncertain global economic environment. Per UBS, European automakers are likely to face a significant hit to their earnings this year as U.S. auto tariffs and the resulting global economic slowdown are projected to reduce profits by 20% to 30%.
Zacks Industry Rank Indicates Dim Prospects
The Zacks Automotive – Foreign industry within the broader Zacks Auto-Tires-Trucks sector currently carries a Zacks Industry Rank #224, which places it in the bottom 9% of around 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates dim near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Over the past year, the industry’s earnings estimates for 2025 and 2026 have moved down 28.5% & 20%, respectively.
Before we present a couple of stocks that are worth adding to your watchlist, let’s look at the industry’s recent stock market performance and current valuation.
Industry Lags Sector and S&P 500
The Zacks Automotive – Foreign industry has underperformed the Auto, Tires and Truck sector and the Zacks S&P 500 composite over the past year. The industry has lost 15.1% against the S&P 500 and the sector’s growth of 10.9% and 13%, respectively.
One-Year Price Performance
Image Source: Zacks Investment Research
Industry's Current Valuation
Since automotive companies are debt-laden, it makes sense to value them based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio.
Based on the trailing 12-month enterprise value to EBITDA (EV/EBITDA), the industry is currently trading at 7.43X compared with the S&P 500’s 16.56X and the sector’s 18.38X.
Over the past five years, the industry has traded as high as 12.59X, as low as 6.4X and at a median of 8.95X, as the chart below shows.
EV/EBITDA Ratio (Past Five Years)
Image Source: Zacks Investment Research
Image Source: Zacks Investment Research
3 Stocks to Watch
Toyota: It is one of the leading automakers in the world in terms of sales and production. Its product portfolio comprises a full range of models from passenger cars and minivans to trucks, as well as related parts and accessories. It is implementing several strategies to drive growth and strengthen earnings. The company is working to restore production to normal levels. By optimizing inventory levels, Toyota aims to control sales incentives, ensuring vehicles are sold at competitive yet profitable prices. Additionally, it is enhancing its value chain by standardizing specifications and reducing parts complexity. Shortened lead times enable agile investment decisions, while in-house battery development strengthens its technological edge.
Toyota currently carries a Zacks Rank #3 (Hold) and has a Value Score of A. The Zacks Consensus Estimate for TM’s fiscal 2026 sales implies year-over-year growth of 5.41%. The Zacks Consensus Estimate for TM’s fiscal 2027 sales and earnings implies year-over-year growth of 5.75% and 9.34%, respectively.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price & Consensus: TM
Image Source: Zacks Investment Research
Honda: It is a leading manufacturer of automobiles and the largest producer of motorcycles in the world. Honda aims for EVs and FCEVs to constitute 100% of its global vehicle sales by 2040. To achieve this, Honda plans to establish a comprehensive, vertically-integrated EV supply chain, focusing on reducing battery costs by more than 20% in North America by 2030. It aims to lower overall production costs by 35% and secure batteries for the production of two million EVs annually by the decade’s end. Honda's strategy includes partnerships for lithium-ion batteries and joint ventures, including that with LG Energy to produce 40 GWh of battery capacity annually.
Honda currently carries a Zacks Rank #3. The Zacks Consensus Estimate for HMC’s fiscal 2026 sales and earnings implies year-over-year growth of 0.13% and 24.08%, respectively. The Zacks Consensus Estimate for HMC’s fiscal 2027 sales and earnings implies year-over-year growth of 2.1% and 10.84%, respectively.
Price & Consensus: HMC
Image Source: Zacks Investment Research
NIO: It is a pioneer in China’s EV market and is often touted as the Tesla of China. NIO appears poised for a robust growth phase, fueled by an expanding vehicle portfolio and strategic initiatives. NIO's strong vehicle lineup, including ES6, ET5T, ES8, EC6, ES7, ET5, ET7, EP9, EVE, ET9 and EC7 models, are aiding the company’s deliveries growth. In December 2024, the company launched a flagship smart executive sedan, the NIO ET9. The limited first edition of NIO ET9 sold out within hours and there is a strong demand for its signature version. NIO's efforts to expand beyond its luxury lineup with the launch of a more affordable ONVO brand and a high-end and small car brand, Firefly, bode well.
NIO currently carries a Zacks Rank #3. The Zacks Consensus Estimate for NIO’s 2025 sales and earnings implies year-over-year growth of 50.4% and 25.2%, respectively. The Zacks Consensus Estimate for NIO’s 2026 sales and earnings implies year-over-year growth of 30.9% and 58.1%, respectively.
Price & Consensus: NIO
Image Source: Zacks Investment Research