3 Foreign Auto Stocks to Remain Resilient Amid Economic Uncertainty

Industry Overview - The Zacks Automotive – Foreign industry involves designing, manufacturing, and selling vehicles and components, heavily influenced by business cycles and economic conditions [2] - Key manufacturing countries include China, Japan, Germany, and India, with a significant shift towards technology and green vehicles due to stricter emission targets and supportive government policies [2] - Competition is intensifying as foreign automakers invest in R&D for electric and autonomous vehicles, fuel efficiency, and low-emission technologies [2] Key Themes Shaping the Industry - In April 2025, China's passenger vehicle sales reached 1.755 million units, a 14.5% increase year-over-year, with total vehicle sales from January to April exceeding 10 million units, up 10.8% [3] - New energy vehicle (NEV) sales in China surged to 4.3 million units, reflecting a 46.2% increase, making up 42.7% of all new car sales, driven by government incentives [3] - Japan's vehicle sales rose 14% to 1.101 million units in Q1 2025, with a forecasted economic growth of 1.2% in 2025, sustaining vehicle demand [4] - European automakers faced a 0.4% decline in new car sales in Q1 2025, with a projected profit reduction of 20% to 30% due to U.S. auto tariffs and global economic slowdown [5] Industry Performance and Valuation - The Zacks Automotive – Foreign industry ranks 224, placing it in the bottom 9% of around 250 Zacks industries, indicating a negative earnings outlook [6][7] - The industry has underperformed the Auto, Tires, and Truck sector and the S&P 500, losing 15.1% compared to the sector's growth of 10.9% and the S&P 500's 13% [9] - The industry is currently trading at an EV/EBITDA ratio of 7.43X, significantly lower than the S&P 500's 16.56X and the sector's 18.38X [13] Company Highlights - Toyota: A leading global automaker focusing on restoring production levels, optimizing inventory, and enhancing its value chain. The Zacks Consensus Estimate for fiscal 2026 sales implies a 5.41% year-over-year growth [19][20] - Honda: Aiming for 100% EV and FCEV sales by 2040, with plans to reduce battery costs by over 20% in North America by 2030. The Zacks Consensus Estimate for fiscal 2026 sales implies a 0.13% year-over-year growth [23][25] - NIO: A pioneer in China's EV market, with a strong vehicle lineup and plans to expand beyond luxury offerings. The Zacks Consensus Estimate for 2025 sales implies a 50.4% year-over-year growth [28][29]