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2 Domestic Auto Stocks to Buy Amid EV Incentive Expiry, Industry Woes
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The Zacks Domestic Auto industry is navigating a period of shifting demand drivers shaped by policies, financing costs and pricing pressure. Electric vehicle (EV) sales are strong now as buyers rush to claim tax credits before they expire at the end of September—but demand could fall sharply once incentives vanish. Fed rate cuts offer some optimism, yet auto loan relief will likely be slow, keeping financing costly in the near term. Meanwhile, strong new-vehicle sales are colliding with tighter inventories and tariff pressures, pushing prices higher. As affordability weakens, the market risks losing momentum heading into the year’s final quarter.
Nonetheless, Blue Bird Corporation (BLBD - Free Report) and Xos, Inc. (XOS - Free Report) are two top-ranked industry participants that you can still bet on amid strong fundamentals.
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.
Key Themes Shaping the Industry
Tariffs and Rising Vehicle Prices Could Slow Momentum: New vehicle sales in August stayed strong, with the seasonally adjusted annual rate topping 16 million for the second month in a row and beating year-ago levels, according to Cox Automotive. But the upbeat data comes with warning signs. Vehicles are moving off lots more quickly, thinning inventory and reducing the need for discounts. At the same time, tariffed products are expected to push prices higher. Consumers shouldn’t expect big deals ahead, and affordability is set to weaken. As costs rise and inventory tightens, demand could slow and the new vehicle market may lose steam heading into the fourth quarter.
Fed Cuts Rates, But Auto Loan Relief Still Distant: The Fed cut interest rates by 25 basis points yesterday, fueling optimism in financial markets. But for the auto industry, the impact may be limited. As Cox Automotive’s chief economist, Jonathan Smoke, notes, Fed cuts only move short-term rates, while auto loans track longer-term Treasury yields that aren’t expected to fall much soon. Loan rates could ease gradually as credit performance improves, yet meaningful relief isn’t likely until 2026 or later. For now, buyers and dealers should brace for continued pressure from high borrowing costs, with only modest near-term relief in sight.
Tax Credit Rush Lifts EV Sales, Future Demand in Question: EV sales in August hit a record 146,332 units—up 14.1% from July and 17.7% year over year. The surge could be attributed to the looming end of the $7,500 EV tax credit by September-end. Consumers and dealers scrambled to lock in deals before the Trump administration’s planned cutoff. September is expected to mirror this urgency, as buyers rush to capture benefits while they last. But once the credits disappear and the policy-driven boost fades, EV sales are likely to see a sharp pullback.
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 #147, which places it in the bottom 40% 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 tepid 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, the industry’s earnings estimates for 2025 have declined by 55%.
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 31% compared with the sector and the S&P 500’s growth of 24% and 18%, 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 45.27X compared with the S&P 500’s 18.34X and the sector’s 22.83X. Over the past five years, the industry has traded as high as 70.03X, as low as 10.22X and at a median of 28.93X, as the chart below shows.
EV/EBITDA Ratio (Past Five Years)
2 Stocks to Buy
Blue Bird: The company is a leading name in low- and zero-emission school buses, with more than 20,000 propane, natural gas, and electric vehicles running nationwide. Blue Bird is driving cleaner student transportation, supported by federal and state incentives. Its U.S. manufacturing network is well-positioned to meet demand, and more than half of its sales are non-diesel. It is also expanding services through its Blue Bird Energy Services and Clean Bus Solutions joint venture, providing fleets with complete charging infrastructure solutions.
The company continues to see strong demand. In the last reported quarter, it delivered a record 271 electric buses and now has 1,200 EVs sold or in backlog, supporting its 2025 EV sales targets. Overall backlog remains around 3,900 units at the end of the fiscal third quarter of 2025, despite industry slowdowns. Reflecting this performance, Blue Bird has raised full-year adjusted EBITDA guidance to the range of $205-$215 million with approximately 14.5% margin, which will be a new company record, if achieved.
The Zacks Consensus Estimate for BLBD’s fiscal 2025 and fiscal 2026 sales implies year-over-year growth of 8% each. The bottom-line estimates for the current and next fiscal suggest a year-over-year improvement of 17% and 3%, respectively. Blue Bird stock currently carries a Zacks Rank #1 (Strong Buy).
Xos: The company builds fully electric, zero-emission medium- and heavy-duty trucks along with powertrain systems and charging solutions.Its fleet-first growth strategy is paying off, with major operators like UPS and FedEx ISPs adopting its trucks. At the same time, Xos is expanding revenue streams beyond vehicle sales. Its powertrain systems and mobile charging hubs provide fleets with a complete electrification platform. Recent approval of the Xos Hub for California’s CORE incentive program also makes its charging solution far cheaper than most rivals, strengthening its competitive edge. Xos is also working to cushion tariff-related risks by sourcing critical materials through a broad supplier network.
In the last reported quarter, Xos delivered record volumes of 135 units, up 50% year over year. Revenues climbed 18.7% to $18.4 million, while operating loss narrowed to $7.1 million, the lowest since going public. Importantly, Xos generated positive free cash flow of $4.6 million for the second time. These results highlight improving efficiency and financial discipline.
The Zacks Consensus Estimate for Xos’ 2025 and 2026 sales implies year-over-year growth of 3% and 25.5%, respectively. The bottom-line estimates for the current and next year suggest a year-over-year improvement of 46% and 27%, respectively. The stock currently carries a Zacks Rank #2 (Buy).
Price & Consensus: XOS
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2 Domestic Auto Stocks to Buy Amid EV Incentive Expiry, Industry Woes
The Zacks Domestic Auto industry is navigating a period of shifting demand drivers shaped by policies, financing costs and pricing pressure. Electric vehicle (EV) sales are strong now as buyers rush to claim tax credits before they expire at the end of September—but demand could fall sharply once incentives vanish. Fed rate cuts offer some optimism, yet auto loan relief will likely be slow, keeping financing costly in the near term. Meanwhile, strong new-vehicle sales are colliding with tighter inventories and tariff pressures, pushing prices higher. As affordability weakens, the market risks losing momentum heading into the year’s final quarter.
Nonetheless, Blue Bird Corporation (BLBD - Free Report) and Xos, Inc. (XOS - Free Report) are two top-ranked industry participants that you can still bet on amid strong fundamentals.
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.
Key Themes Shaping the Industry
Tariffs and Rising Vehicle Prices Could Slow Momentum: New vehicle sales in August stayed strong, with the seasonally adjusted annual rate topping 16 million for the second month in a row and beating year-ago levels, according to Cox Automotive. But the upbeat data comes with warning signs. Vehicles are moving off lots more quickly, thinning inventory and reducing the need for discounts. At the same time, tariffed products are expected to push prices higher. Consumers shouldn’t expect big deals ahead, and affordability is set to weaken. As costs rise and inventory tightens, demand could slow and the new vehicle market may lose steam heading into the fourth quarter.
Fed Cuts Rates, But Auto Loan Relief Still Distant: The Fed cut interest rates by 25 basis points yesterday, fueling optimism in financial markets. But for the auto industry, the impact may be limited. As Cox Automotive’s chief economist, Jonathan Smoke, notes, Fed cuts only move short-term rates, while auto loans track longer-term Treasury yields that aren’t expected to fall much soon. Loan rates could ease gradually as credit performance improves, yet meaningful relief isn’t likely until 2026 or later. For now, buyers and dealers should brace for continued pressure from high borrowing costs, with only modest near-term relief in sight.
Tax Credit Rush Lifts EV Sales, Future Demand in Question: EV sales in August hit a record 146,332 units—up 14.1% from July and 17.7% year over year. The surge could be attributed to the looming end of the $7,500 EV tax credit by September-end. Consumers and dealers scrambled to lock in deals before the Trump administration’s planned cutoff. September is expected to mirror this urgency, as buyers rush to capture benefits while they last. But once the credits disappear and the policy-driven boost fades, EV sales are likely to see a sharp pullback.
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 #147, which places it in the bottom 40% 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 tepid 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, the industry’s earnings estimates for 2025 have declined by 55%.
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 31% compared with the sector and the S&P 500’s growth of 24% and 18%, 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 45.27X compared with the S&P 500’s 18.34X and the sector’s 22.83X. Over the past five years, the industry has traded as high as 70.03X, as low as 10.22X and at a median of 28.93X, as the chart below shows.
EV/EBITDA Ratio (Past Five Years)
2 Stocks to Buy
Blue Bird: The company is a leading name in low- and zero-emission school buses, with more than 20,000 propane, natural gas, and electric vehicles running nationwide. Blue Bird is driving cleaner student transportation, supported by federal and state incentives. Its U.S. manufacturing network is well-positioned to meet demand, and more than half of its sales are non-diesel. It is also expanding services through its Blue Bird Energy Services and Clean Bus Solutions joint venture, providing fleets with complete charging infrastructure solutions.
The company continues to see strong demand. In the last reported quarter, it delivered a record 271 electric buses and now has 1,200 EVs sold or in backlog, supporting its 2025 EV sales targets. Overall backlog remains around 3,900 units at the end of the fiscal third quarter of 2025, despite industry slowdowns. Reflecting this performance, Blue Bird has raised full-year adjusted EBITDA guidance to the range of $205-$215 million with approximately 14.5% margin, which will be a new company record, if achieved.
The Zacks Consensus Estimate for BLBD’s fiscal 2025 and fiscal 2026 sales implies year-over-year growth of 8% each. The bottom-line estimates for the current and next fiscal suggest a year-over-year improvement of 17% and 3%, respectively. Blue Bird stock currently carries a Zacks Rank #1 (Strong Buy).
Price & Consensus: BLBD
You can see the complete list of today’s Zacks #1 Rank stocks here.
Xos: The company builds fully electric, zero-emission medium- and heavy-duty trucks along with powertrain systems and charging solutions.Its fleet-first growth strategy is paying off, with major operators like UPS and FedEx ISPs adopting its trucks. At the same time, Xos is expanding revenue streams beyond vehicle sales. Its powertrain systems and mobile charging hubs provide fleets with a complete electrification platform. Recent approval of the Xos Hub for California’s CORE incentive program also makes its charging solution far cheaper than most rivals, strengthening its competitive edge. Xos is also working to cushion tariff-related risks by sourcing critical materials through a broad supplier network.
In the last reported quarter, Xos delivered record volumes of 135 units, up 50% year over year. Revenues climbed 18.7% to $18.4 million, while operating loss narrowed to $7.1 million, the lowest since going public. Importantly, Xos generated positive free cash flow of $4.6 million for the second time. These results highlight improving efficiency and financial discipline.
The Zacks Consensus Estimate for Xos’ 2025 and 2026 sales implies year-over-year growth of 3% and 25.5%, respectively. The bottom-line estimates for the current and next year suggest a year-over-year improvement of 46% and 27%, respectively. The stock currently carries a Zacks Rank #2 (Buy).
Price & Consensus: XOS