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2 Domestic Auto Players to Buy Even as the Industry Struggles
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The Zacks Domestic Auto industry faces a tough road ahead as tariffs on imported vehicles and key auto parts are expected to disrupt supply chains and dampen consumer demand. New-vehicle sales slowed in May. Several auto biggies have withdrawn guidance amid tariff woes. At the same time, affordability issues and rising incentives are squeezing profit margins, while inflation and tariffs are complicating pricing strategies.
The electric vehicle (EV) segment is growing, though at a more measured pace amid policy and demand shifts. That said, two stocks — Rivian Automotive (RIVN - Free Report) and Lucid Group (LCID - Free Report) — are relatively better positioned. They are leaning on new model launches, improved cost structure, supply chain localization and strong financial backing to stay competitive.
Industry Overview
The Zacks Domestic Auto industry includes companies that are engaged in designing, manufacturing and retailing vehicles across the globe. These include passenger cars, crossover vehicles, sport utility vehicles, trucks, vans, motorcycles and electric vehicles. The industry — which is highly consumer cyclic and provides employment to a large number of people — is at the forefront of innovation, courtesy of its nature and the transformation that it is going through. The widespread usage of technology and rapid digitization are resulting in a fundamental restructuring of the automotive market. Several companies in the industry have engine and transmission plants and conduct research and development, and testing of electric and autonomous vehicles.
Factors Shaping the Industry's Prospects
Tariff Troubles: The United States has imposed 25% tariffs on imported cars and key auto parts like engines and transmissions. These tariffs are expected to disrupt supply chains and weigh on consumer demand. The new-vehicle sales pace slowed in May, falling to 15.6 million from 17.3 million in April. Major automakers are pulling back on their outlooks. Ford has withdrawn its full-year guidance and expects a significant hit to adjusted EBIT. Tesla hasn’t reaffirmed its previous delivery forecast and plans to reassess during the second quarter update. General Motors has also lowered its guidance due to tariff-related pressures. Tariff concerns are forcing automakers to remain cautious and pose a challenging outlook for the industry.
Shifting EV Dynamics: U.S. EV sales continue to grow, with nearly 300,000 units sold in the first quarter of 2025 — up more than 11% year over year. EVs made up 7.5% of all new vehicle sales, slightly higher than 7% a year ago. Automakers like Ford and General Motors posted strong year-over-year gains in EV volumes, though Tesla saw a 9% drop, even as it maintained market leadership. Despite political headwinds and rising uncertainty—especially with President Trump’s unfriendly stance on EVs—the long-term transition to electrification remains underway. However, the pace may stay uneven through 2025, driven by shifting consumer preferences, policy risks, and intensifying competition across the EV landscape.
Pricing Pressure and Margin Squeeze: According to Kelley Blue Book, the average transaction price (ATP) for new vehicles in May remained high at $48,799. Incentives also edged up slightly, averaging 6.8% of ATP, or about $3,297 per vehicle. While discounts help support sales, they are putting pressure on automaker and dealer profit margins. Compounding the issue, costs are rising due to inflation and tariffs, but raising prices further in the current market is difficult. As the full impact of tariffs sets in, vehicle prices may climb, squeezing margins even more. The result is a challenging environment where manufacturers must balance volume, pricing and profitability with increasing precision.
Zacks Industry Rank Not Encouraging
The Zacks Automotive – Domestic industry is part of the broader Zacks Auto-Tires-Trucks sector. The industry currently carries a Zacks Industry Rank #209, which places it in the bottom 14% of roughly 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dull 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. Looking at the aggregate earnings estimate revisions, it appears that analysts are getting pessimistic about this group’s earnings growth potential. Over the past year, industry’s earnings estimates for 2025 have declined 63.6%.
Despite the industry’s weakness, we will present a few stocks that you might consider adding to your watchlist. Before that, let us discuss the industry’s recent stock market performance and valuation picture.
Industry Tops Sector & S&P 500
The Domestic Auto industry has outperformed the Zacks S&P 500 composite and sector over the past year. The industry has gained 18% compared with the sector and the S&P 500’s growth of 7.4% and 8.8%, respectively.
One-Year Price Performance
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. On the basis of the trailing 12-month enterprise value to EBITDA (EV/EBITDA), the industry is currently trading at 35.25X compared with the S&P 500’s 16.81X and the sector’s 20.9X. Over the past five years, the industry has traded as high as 62.42X, as low as 10.08X and at a median of 28.06X, as the chart below shows.
EV/EBITDA Ratio (Past Five Years)
2 Stocks to Buy
Rivian: This California-based EV startup manufactures R1T pickup, R1S SUV, and EDV delivery vans. Rivian is focused on its long-term plans, with the upcoming R2 SUV being a major milestone. The R2 will be a more affordable EV, priced around $45,000, much cheaper than Rivian’s current premium models. It is expected to be launched in 2026. The R2 platform should also lower production costs and improve efficiency, speeding up Rivian’s path to profitability.
There are early signs of progress. Rivian posted a 17% gross margin in the last reported quarter. This was the second time it has done so. This improvement was partly due to its new partnership with Volkswagen, which will help develop next-generation software and electronics for the R2. On the operations front, things are improving. Better engineering, supply chain fixes, and lower costs helped Rivian cut its 2024 EBITDA loss by 29% to $2.7 billion. For 2025, it expects losses to shrink further to $1.7-$1.9 billion.
The Zacks Consensus Estimate for Rivian’s 2025 sales implies year-over-year growth of 6% and 47%, respectively. For 2026, the estimates for the bottom line suggest an increase of 38% and 21%, respectively. The stock currently carries a Zacks Rank #2 (Buy).
Lucid: California-based EV maker Lucid has moved beyond its luxury Air sedan with the Gravity SUV, targeting the broader premium SUV market. CEO Peter Rawlinson highlights that Gravity’s addressable market is six times larger than that of Air, making it a potential game-changer for Lucid. Designed to attract families and high-end buyers, Gravity could drive a major boost in vehicle volumes once production scales. Lucid is also working to secure its supply chain. A new multi-year deal with Graphite One ensures access to U.S.-sourced natural graphite, supporting its strategy of building a localized and resilient EV materials network.
Backed by the Public Investment Fund (PIF) of Saudi Arabia, which has invested around $9 billion since 2018, Lucid continues to benefit from strong financial support. The company aims to sell 20,000 vehicles in 2025, doubling from last year. In the first quarter of 2025, it also cut its net loss to $366.7 million, reflecting tighter cost controls and improved operations.
The Zacks Consensus Estimate for Lucid’s 2025 sales implies year-over-year growth of 67% and 107%, respectively. For 2026, the estimates for the bottom line suggest an increase of 27% and 30%, respectively. The stock currently carries a Zacks Rank #2.
Price & Consensus: LCID
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2 Domestic Auto Players to Buy Even as the Industry Struggles
The Zacks Domestic Auto industry faces a tough road ahead as tariffs on imported vehicles and key auto parts are expected to disrupt supply chains and dampen consumer demand. New-vehicle sales slowed in May. Several auto biggies have withdrawn guidance amid tariff woes. At the same time, affordability issues and rising incentives are squeezing profit margins, while inflation and tariffs are complicating pricing strategies.
The electric vehicle (EV) segment is growing, though at a more measured pace amid policy and demand shifts. That said, two stocks — Rivian Automotive (RIVN - Free Report) and Lucid Group (LCID - Free Report) — are relatively better positioned. They are leaning on new model launches, improved cost structure, supply chain localization and strong financial backing to stay competitive.
Industry Overview
The Zacks Domestic Auto industry includes companies that are engaged in designing, manufacturing and retailing vehicles across the globe. These include passenger cars, crossover vehicles, sport utility vehicles, trucks, vans, motorcycles and electric vehicles. The industry — which is highly consumer cyclic and provides employment to a large number of people — is at the forefront of innovation, courtesy of its nature and the transformation that it is going through. The widespread usage of technology and rapid digitization are resulting in a fundamental restructuring of the automotive market. Several companies in the industry have engine and transmission plants and conduct research and development, and testing of electric and autonomous vehicles.
Factors Shaping the Industry's Prospects
Tariff Troubles: The United States has imposed 25% tariffs on imported cars and key auto parts like engines and transmissions. These tariffs are expected to disrupt supply chains and weigh on consumer demand. The new-vehicle sales pace slowed in May, falling to 15.6 million from 17.3 million in April. Major automakers are pulling back on their outlooks. Ford has withdrawn its full-year guidance and expects a significant hit to adjusted EBIT. Tesla hasn’t reaffirmed its previous delivery forecast and plans to reassess during the second quarter update. General Motors has also lowered its guidance due to tariff-related pressures. Tariff concerns are forcing automakers to remain cautious and pose a challenging outlook for the industry.
Shifting EV Dynamics: U.S. EV sales continue to grow, with nearly 300,000 units sold in the first quarter of 2025 — up more than 11% year over year. EVs made up 7.5% of all new vehicle sales, slightly higher than 7% a year ago. Automakers like Ford and General Motors posted strong year-over-year gains in EV volumes, though Tesla saw a 9% drop, even as it maintained market leadership. Despite political headwinds and rising uncertainty—especially with President Trump’s unfriendly stance on EVs—the long-term transition to electrification remains underway. However, the pace may stay uneven through 2025, driven by shifting consumer preferences, policy risks, and intensifying competition across the EV landscape.
Pricing Pressure and Margin Squeeze: According to Kelley Blue Book, the average transaction price (ATP) for new vehicles in May remained high at $48,799. Incentives also edged up slightly, averaging 6.8% of ATP, or about $3,297 per vehicle. While discounts help support sales, they are putting pressure on automaker and dealer profit margins. Compounding the issue, costs are rising due to inflation and tariffs, but raising prices further in the current market is difficult. As the full impact of tariffs sets in, vehicle prices may climb, squeezing margins even more. The result is a challenging environment where manufacturers must balance volume, pricing and profitability with increasing precision.
Zacks Industry Rank Not Encouraging
The Zacks Automotive – Domestic industry is part of the broader Zacks Auto-Tires-Trucks sector. The industry currently carries a Zacks Industry Rank #209, which places it in the bottom 14% of roughly 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dull 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. Looking at the aggregate earnings estimate revisions, it appears that analysts are getting pessimistic about this group’s earnings growth potential. Over the past year, industry’s earnings estimates for 2025 have declined 63.6%.
Despite the industry’s weakness, we will present a few stocks that you might consider adding to your watchlist. Before that, let us discuss the industry’s recent stock market performance and valuation picture.
Industry Tops Sector & S&P 500
The Domestic Auto industry has outperformed the Zacks S&P 500 composite and sector over the past year. The industry has gained 18% compared with the sector and the S&P 500’s growth of 7.4% and 8.8%, respectively.
One-Year Price Performance
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. On the basis of the trailing 12-month enterprise value to EBITDA (EV/EBITDA), the industry is currently trading at 35.25X compared with the S&P 500’s 16.81X and the sector’s 20.9X. Over the past five years, the industry has traded as high as 62.42X, as low as 10.08X and at a median of 28.06X, as the chart below shows.
EV/EBITDA Ratio (Past Five Years)
2 Stocks to Buy
Rivian: This California-based EV startup manufactures R1T pickup, R1S SUV, and EDV delivery vans. Rivian is focused on its long-term plans, with the upcoming R2 SUV being a major milestone. The R2 will be a more affordable EV, priced around $45,000, much cheaper than Rivian’s current premium models. It is expected to be launched in 2026. The R2 platform should also lower production costs and improve efficiency, speeding up Rivian’s path to profitability.
There are early signs of progress. Rivian posted a 17% gross margin in the last reported quarter. This was the second time it has done so. This improvement was partly due to its new partnership with Volkswagen, which will help develop next-generation software and electronics for the R2. On the operations front, things are improving. Better engineering, supply chain fixes, and lower costs helped Rivian cut its 2024 EBITDA loss by 29% to $2.7 billion. For 2025, it expects losses to shrink further to $1.7-$1.9 billion.
The Zacks Consensus Estimate for Rivian’s 2025 sales implies year-over-year growth of 6% and 47%, respectively. For 2026, the estimates for the bottom line suggest an increase of 38% and 21%, respectively. The stock currently carries a Zacks Rank #2 (Buy).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price & Consensus: RIVN
Lucid: California-based EV maker Lucid has moved beyond its luxury Air sedan with the Gravity SUV, targeting the broader premium SUV market. CEO Peter Rawlinson highlights that Gravity’s addressable market is six times larger than that of Air, making it a potential game-changer for Lucid. Designed to attract families and high-end buyers, Gravity could drive a major boost in vehicle volumes once production scales. Lucid is also working to secure its supply chain. A new multi-year deal with Graphite One ensures access to U.S.-sourced natural graphite, supporting its strategy of building a localized and resilient EV materials network.
Backed by the Public Investment Fund (PIF) of Saudi Arabia, which has invested around $9 billion since 2018, Lucid continues to benefit from strong financial support. The company aims to sell 20,000 vehicles in 2025, doubling from last year. In the first quarter of 2025, it also cut its net loss to $366.7 million, reflecting tighter cost controls and improved operations.
The Zacks Consensus Estimate for Lucid’s 2025 sales implies year-over-year growth of 67% and 107%, respectively. For 2026, the estimates for the bottom line suggest an increase of 27% and 30%, respectively. The stock currently carries a Zacks Rank #2.
Price & Consensus: LCID