2 Domestic Auto Players to Buy Even as the Industry Struggles

Industry Overview - The Zacks Domestic Auto industry includes companies involved in designing, manufacturing, and retailing various types of vehicles globally, including passenger cars, SUVs, trucks, and electric vehicles [3] - The industry is highly consumer cyclic and is undergoing significant transformation due to technological advancements and digitization [3] Factors Shaping the Industry's Prospects - Tariffs imposed by the U.S. on imported vehicles and key auto parts are expected to disrupt supply chains and negatively impact consumer demand, with new-vehicle sales dropping from 17.3 million in April to 15.6 million in May [4] - Major automakers like Ford, Tesla, and General Motors have withdrawn or lowered their guidance due to tariff-related pressures [4] - The average transaction price for new vehicles in May was $48,799, with incentives averaging 6.8% of ATP, putting pressure on profit margins amid rising costs from inflation and tariffs [6] Electric Vehicle Dynamics - U.S. EV sales grew to nearly 300,000 units in Q1 2025, marking an 11% year-over-year increase, with EVs accounting for 7.5% of all new vehicle sales [5] - Rivian Automotive and Lucid Group are positioned well in the EV market, focusing on new model launches and improved cost structures [2][5] Current Valuation - The Domestic Auto industry is trading at an EV/EBITDA ratio of 35.25X, significantly higher than the S&P 500's 16.81X and the sector's 20.9X [14] Stock Performance - The Domestic Auto industry has outperformed the Zacks S&P 500 composite and sector over the past year, gaining 18% compared to the sector's 7.4% and the S&P 500's 8.8% [11] Company Highlights - Rivian is focused on launching the R2 SUV, expected to be priced around $45,000, which aims to improve production efficiency and profitability [18] - Rivian's gross margin improved to 17% in the last reported quarter, and it expects to reduce its EBITDA loss for 2024 by 29% to $2.7 billion [19] - Lucid is expanding beyond its luxury Air sedan with the Gravity SUV, targeting a larger market and aiming to sell 20,000 vehicles in 2025, doubling from the previous year [23][24]