At some point, car companies stopped being attractive assets for investment. But now, on the background of the market recovery after the global lockdown of 2020, interest in them has appeared again. Why is this happening and how profitable can an investment in the automotive sector be?
Well, the auto industry tends to follow cycles in the economy. The global economy was in a stage of decline. But now, with the global vaccination, the economy is expected to grow, which means that the automotive industry will grow even more. For this reason, investing in auto stocks can be a great idea if this is done smartly.
What's Going On With Car Companies Share?
First, it's worth returning to 2019. At that time, shares of automobile companies were unpromising, and interest in buying them was rapidly dying. However, today we see a fundamentally different picture: companies grow by one hundred percent or even more in a year. There are good reasons for this growth.
After March 2020, when the entire market began to collapse rapidly because of the coronavirus lockdown, companies in the consumer sector began to gain strength. The pandemic has especially emphasized the importance of everything private. As a result, the demand for cars also increased. In contrast to risky travel by public transport, they became a kind of safety zone for those who were not ready to give up their movement. In the first quarter of 2021, a giant like Ford already reported its all-time high in net profit. In addition, recently, Ford said that its second-quarter operating profit will exceed expectations due to lower costs and rising prices for new and used vehicles.
In addition, in recent years, companies have shown two obvious growth points: the production of electric cars and the development of unmanned technologies. Whereas previously a couple of companies, including Tesla, boasted about the expansion of the electric model range and the development of automotive "smartness," at the moment most of the conservative-minded automakers are investing huge resources to the electric future. The market, in turn, meets this with the rapid growth of shares. Now, large corporations like Volkswagen and Toyota have everything to compete with Tesla and even become the leaders in the electric vehicle market.
What Kind Of Growth Is Happening?
The growth is quite strong! Over the past year, Ford and General Motors have grown by more than 120 percent, while Indian giant Tata has grown by almost 300 percent. The Italian brand Ferrari and German BMW have also grown by 20 and 40 percent.
And Tesla is worth a separate paragraph. First, it grew by 700%, then it crashed, and then another rise happened. But overall, this brand should still be considered separately since the situation of the company on the stock market is largely due to the personal activity of its head, Elon Musk.
What Problems Can You Expect When Investing In Car Brands?
As with other industries, the automotive sector has its own specifics. One of the most visible problems today can be called a temporary crisis caused by a shortage of electronic chips for control units and electronics. Due to a shortage of these components, automakers are suspending their assembly plants and urgently looking for alternative solutions.
At the same time, more and more companies are switching to the production of semiconductor chips, and investments in this direction are growing. Therefore, it is likely that the problem will be solved in the near future, after which it will be possible to forget about the existence of such a problem in the automotive sector.
What Investors Are Currently Buying?
A person who is ready to invest in cars has a choice of stocks in nearly a dozen major global companies. Among the American ones, Ford, General Motors, Tesla, and Harley Davidson stand out. European brands are Ferrari and BMW.
Shares from designated manufacturers can be purchased directly. But the investor has other ways to get auto shares. For example, you can buy an index of shares of world companies, that is, a part of a large collection fund, which accumulates hundreds of shares of different companies. One percent of it can be held by shares of, let's say, Toyota company. Directly these securities are not available, since they are traded on the Tokyo stock exchange, but buying a set of securities opens up access to investments in your favorite company.
Or, for example, you can take an index of shares of German companies, three percent of which will be the shares of the Volkswagen concern. Buying a small part of the fund for a beginner is actually a good idea. Such a step allows you to invest in a company you can trust, and at the same time diversify your own portfolio as much as possible so that it is less risky. Since large stocks are usually well balanced, the fall of some stocks is offset by the growth of others.