3 Foreign Auto Stocks to Buy Despite Industry Challenges

Core Viewpoint - The Zacks Foreign Auto Industry outlook remains cautious, with varying growth prospects across key markets, particularly in China, Europe, Japan, and India, influenced by policy changes and consumer confidence [1][4][5][7]. Industry Overview - The Zacks Automotive – Foreign industry encompasses the design, manufacturing, and sale of vehicles and components, heavily influenced by economic conditions and business cycles [3]. - Key manufacturing countries include China, Japan, Germany, and India, with a significant shift towards electric and autonomous vehicles driven by stricter emission regulations and technological advancements [3]. Factors Influencing Industry Dynamics - China: After record sales in 2025, growth is expected to slow in 2026 due to reduced policy support for new energy vehicles (NEVs) and fragile consumer confidence [4]. - Europe: Modest growth of about 2.5% in 2025 is anticipated to continue, but profitability remains a concern due to a shift towards lower-margin mass-market and EV models [5]. - Japan: The market showed a 3.3% sales increase in 2025, with a positive outlook for 2026 supported by tax reductions, although prices limit a full recovery to pre-pandemic levels [6]. - India: The market grew by 5% in 2025, driven by government tax cuts improving affordability, with a positive sentiment expected to sustain demand momentum [7][8]. Industry Performance and Valuation - The Zacks Automotive – Foreign industry ranks 184, placing it in the bottom 25% of Zacks industries, reflecting a negative earnings outlook with a 62.6% decline in earnings estimates for 2026 [9][10]. - The industry has underperformed compared to the broader Auto, Tires, and Truck sector and the S&P 500, with an 11% increase over the past year compared to 16% and 14% for the sector and S&P 500, respectively [12]. - The industry is currently trading at an EV/EBITDA ratio of 10.48X, significantly lower than the S&P 500's 18.90X and the sector's 27.29X [15]. Stock Recommendations - XPeng Inc. (XPEV): Notable growth with a 126% increase in vehicle deliveries in 2025, expanding internationally and investing in future technologies [19][20][21]. - Nissan Motor (NSANY): Undergoing a strategic reset with cost-cutting measures and an electrification push, expecting significant improvements in sales and profitability by fiscal 2026 [24][25][26]. - Mazda Motor (MZDAY): Focusing on hybrids while delaying its major EV rollout, with a strategy to balance emissions reduction and consumer preferences, expecting substantial growth in sales and earnings by fiscal 2027 [29][30][31].