Al Root
Things turned out much better than almost anyone expected for the car industry in 2025. That's great. Now, investors want to hear about 2026.
Earlier this year, President Donald Trump's automotive tariffs fueled fears of demand destruction and lower earnings up and down the automotive value chain. Ford Motor stock entered Tuesday trading north of $13. It traded as low as $8.44 in April.
Profits are down. General Motors is expected to earn a 2025 operating profit of about $12.6 billion, down from $14 billion. But $12.6 billion is still pretty good. And Americans will buy more than 16 million new cars in 2025, similar to the number sold in 2024, despite the average transaction price for a new car having topped $50,000 for the first time in September, according to data provider Kelly Blue Book.
Deutsche Bank's automotive team calls 2026 another "transitional year" for the car industry, as production will continue to become more localized. But the bank's analysts also expect something surprising: earnings growth. The worst of the tariff impacts is in the rearview mirror. What's more, auto makers aren't going to have to spend as much money on plants and equipment with the impetus for EV capacity fading.
As for U.S. car stocks, Deutsche Bank favors auto makers over suppliers. Analyst Edison Yu's top pick is Tesla, partly for its artificial-intelligence angle. Tesla, along with making electric vehicles, is using AI computing to build a robo-taxi business and, eventually, a humanoid robot business. Yu rates Tesla shares Buy and shares of traditional auto makers GM and Ford Hold.
As for suppliers, he likes Dana, Aptiv, and Mobileye. All three qualify as special situations for Yu. Aptiv is spinning off its electrical distribution systems business in 2026. Dana is selling its off-highway business to Allison Transmission. The deal is expected to be finalized this year. As for self-driving technology provider Mobileye, Yu expects new program wins to fuel the stock.
He rates all three suppliers shares Buy.
Yu's peers align most closely with his views regarding Aptiv and Dana, with 70% or more of the analysts covering those stocks rating shares Buy, according to FactSet. The average Buy-rating ratio for stocks in the S&P 500 is roughly 55%.
Mobileye has an above-average Buy-rating ratio, but barely, at 57%.
Only 17% of analysts covering Ford stock rate shares Buy. Tesla's Buy-rating ratio is 39%. For GM, 63% of analysts covering the stock rate shares Buy. And operating profit in 2026 is expected to rise to $13.5 billion from $12.6 billion.
GM stock, along with Tesla and the three suppliers Yu prefers, are five car stocks investors can think about heading into the New Year.
Write to Al Root at allen.root@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
December 09, 2025 14:47 ET (19:47 GMT)
Copyright (c) 2025 Dow Jones & Company, Inc.
Comments