The Zacks Automotive – Foreign industry presents a mixed outlook, shaped by key market trends. In China, the auto market remains resilient, with production and sales hitting record highs, driven by strong demand for new-energy vehicles (NEVs). Europe, however, is on a bumpy road, with sluggish battery electric vehicle (BEV) sales and ongoing economic pressure dampening growth. Meanwhile, Japan’s market is on a recovery path after a weak 2024, though EV sales have struggled. Given the industry dynamics, a few stocks like BYD Co Ltd BYDDY, Geely Auto GELYY and XPeng Inc. XPEV make for smart investment choices now.

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

China Auto Market to Stay Resilient: In 2024, China's auto production and sales reached record highs, according to the China Association of Automobile Manufacturers (CAAM). The country produced 31.28 million vehicles and sold 31.44 million, marking year-on-year increases of 3.7% and 4.5%, respectively. This was the second straight year in which sales exceeded 30 million units. China has led global auto production and sales for 16 consecutive years. New-energy vehicle production and sales also set new records, surpassing 12 million units for the 10th consecutive year. NEV output reached 12.89 million, while sales hit 12.87 million, up 34.4% and 35.5%, respectively. NEVs accounted for 40.9% of total new car sales, an increase of 9.3 percentage points from 2023. CAAM projects total auto sales to reach 32.9 million units in 2025, a 4.7% increase, with NEV sales expected to hit 16 million, up 24.4%.

Europe Auto Market on a Bumpy Road: In 2024, new car registrations in the European Union (EU) edged up 0.8% to around 10.6 million units. However, sales of BEVs and plug-in hybrids dropped 6% and 7%, respectively, as governments scaled back subsidies, putting pressure on the electric vehicle (EV) market. The European auto industry faces a tough road ahead, with challenges like EU tariffs on Chinese EV imports, potential U.S. tariffs under Trump, cautious consumers, economic slowdown, tapering subsidies on zero-emission vehicles and shifting emissions regulations. According to the Society of Motor Manufacturers and Traders, stricter emissions laws and rising costs could continue to squeeze automakers' profit margins. Meanwhile, high inflation and interest rates are further straining profits, leaving companies with fewer resources to invest in research and development, particularly in electrification.

Cautious Optimism Amid Challenges in Japan: In 2024, new car sales in Japan fell 7.5% year on year to 4.42 million units, largely due to Daihatsu’s suspension of shipments over emissions irregularities, according to data from the Japan Automobile Dealers Association and Japan Light Motor Vehicle and Motorcycle Association. S&P Global Mobility expects Japan’s light vehicle market to recover after a weak 2024, projecting sales to reach 4.6 million units in 2025. Having said that, risks remain, including potential U.S. tariffs and weaker global economic conditions, which could hurt Japan’s auto exports, particularly to North America. Japan’s EV sales dropped 33% in 2024, marking their first decline in four years. EVs now account for less than 2% of total new car sales. While Japanese automakers were early leaders in hybrid technology, their slow response to the EV boom is proving costly as they struggle to compete in the rapidly evolving global market.

Zacks Industry Rank is Not Promising

The Zacks Automotive – Foreign industry within the broader Zacks Auto-Tires-Trucks sector currently carries a Zacks Industry Rank #154, which places it in the bottom 38% of around 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. Over the past year, the industry’s earnings estimates for 2025 have moved 30.2% south.

Before we present a few stocks that are still worth adding to your portfolio, 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 23.7% against the S&P 500 and the sector’s growth of roughly 23% and 11%, 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.

Based on the trailing 12-month enterprise value to EBITDA (EV/EBITDA), the industry is currently trading at 8.93X compared with the S&P 500’s 17.67X and the sector’s 19.85X.

Over the past five years, the industry has traded as high as 12.59X, as low as 5.65X and at a median of 9X, as the chart below shows.

EV/EBITDA Ratio (Past Five Years)

3 Stocks to Buy

Geely: One of the leading automakers in China, GELYY follows a "multi-energy" strategy, offering ICE, hybrid, electric and methanol vehicles. Last year, the company sold 2.17 million units, a 32% increase from the previous year. This year, it aims to sell 2.71 million units. Geely has expanded its presence to more than 80 countries, entering more than 10 new markets last year, including the Middle East, Eastern Europe and Latin America. Popular models like the Coolray, Monjaro, Emgrand and Geely EX5 will drive Geely’s growth. Its global sales and service network grew to about 900 locations, a 69% increase from 2023.

To improve supply chains, Geely built a global parts network with a central hub and five overseas facilities. It also strengthened its presence in Oceania through a partnership with the Giltrap Group in New Zealand. New dealerships in Australia and New Zealand will boost sales. Geely also expanded into Indonesia by partnering with five major dealers. This move highlights its commitment to growth in Southeast Asia. With strong global expansion, Geely is set to achieve success.

GELYY currently sports a Zacks Rank #1 (Strong Buy) and has a VGM Score of A. The consensus mark for 2025 revenues and EPS implies year-over-year growth of 66.6% and 149%, respectively. The Zacks Consensus Estimate for 2025 earnings per share has been upwardly revised by 15 cents over the past 60 days.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Price: GELYY

BYD: This Chinese automaker is involved in vehicle manufacturing, secondary batteries and mobile components. Its vertically integrated model, spanning mining, batteries and chips, provides a competitive edge. BYD offers a wide range of vehicles. It sells budget-friendly models like the Seagull and Denza, as well as luxury cars under the Yangwang brand. Its Song and Qin hybrid and EV models are among China's bestsellers. The company continues to focus on affordability and efficiency with its DM 5.0 hybrid system and e-Platform 3.0.

In 2024, BYD set a record by selling over 4.27 million NEVs. Fully electric vehicle sales reached 1.76 million units, a 41% increase from the previous year. Its international growth is strong, with overseas NEV sales jumping 72% to more than 417,000 units.BYD is also advancing in autonomous driving. It introduced the "God's Eye" smart driving system recently, offering advanced driver assistance at a low cost. The company is also integrating AI from DeepSeek into its most advanced driver-assist system. BYD continues to push innovation in the global auto industry.

BYDDY currently carries a Zacks Rank #2 (Buy) and has a VGM Score of B. The consensus mark for 2025 revenues and EPS implies year-over-year growth of 21% and 27%, respectively. The Zacks Consensus Estimate for 2025 earnings per share has been upwardly revised by 14 cents over the past seven days.

Price: BYDDY

XPeng: This Chinese EV maker delivered 190,068 vehicles in 2024, a 34% increase from the previous year. Its lineup includes the P7, P5, G6, G9, and X9 models. The company also launched the MONA-branded EV last year, a mass-market car priced under 200,000 yuan ($27,630), featuring Level 2 autonomous driving.XPeng is also expanding globally. It partnered with Volkswagen to build one of China’s largest super-fast charging networks. In November 2024, it entered the UK market through a partnership with IML. By the end of 2024, XPeng was in 30 countries and regions. It plans to reach 60 by 2025. In the next decade, XPeng expects half of its sales to come from overseas.

XPeng aims to achieve Level 4 autonomous driving in China by 2025. In November 2024, it introduced the XPENG Kunpeng Super Electric System, Turing AI Intelligent Driving System, and an AI Robot. At CES 2025, XPeng made headlines with its AeroHT Land Aircraft Carrier. This six-wheel EV concept serves as a launch pad for an electric aircraft, showcasing a futuristic vision for transportation.

XPEV currently carries a Zacks Rank #2 and has a VGM Score of A. The consensus mark for 2025 top- and- bottom line implies year-over-year improvement of 91% and 73%, respectively. The Zacks Consensus Estimate for 2025 loss per share has narrowed by 6 cents over the past seven days.

Price & Consensus: XPEV

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