The U.S. auto industry faced headwinds in 2024, with affordability emerging as a central issue amid high interest rates and elevated vehicle prices. These challenges dampened demand, leading to a 2% year-over-year decline in third-quarter new vehicle sales — the second consecutive quarterly drop. Production forecasts for North American light vehicles were adjusted downward to 15.5 million units from an earlier estimate of 15.8 million as automakers opted for strategic production cuts to manage inventory levels.
Affordability concerns are unlikely to dissipate quickly in 2025, as inflation remains sticky and interest rates, while expected to decline, are projected to fall at a slower pace. Fed Chairman Jerome Powell has signaled a more cautious approach, hinting at fewer rate cuts next year than previously anticipated. Policy changes under the Donald Trump administration could add further complexity, with proposed tariffs on imports potentially driving vehicle prices higher.
S&P Global Mobility projects U.S. auto sales volumes to reach 16.2 million units in 2025, reflecting a modest 1.2% increase from the estimated 2024 level. As the auto industry navigates an uncertain landscape in 2025, large-cap stocks like Tesla TSLA, General Motors GM and CarMax KMX could be great considerations, all boasting improved earnings outlooks. These stocks offer a balanced blend of stability and growth potential.
In times of market volatility, large-cap stocks offer a stable and reliable investment option. Their established market presence, robust financials, and consistent performance make them attractive, particularly for risk-averse investors. Additionally, large-cap companies often prioritize shareholder returns through dividends and share buybacks, further enhancing their appeal.
While large caps may lack the high-growth allure of smaller, more volatile companies, their steadiness provides a cushion against market turbulence. This makes them an essential component of a well-diversified portfolio, especially given the unpredictable dynamics expected in 2025.
Tesla: This electric vehicle (EV) giant has been on a tear since Trump’s victory in the 2024 elections. Despite potential rebate cuts under a Trump presidency, Tesla is well-positioned to thrive without subsidies, thanks to its cost efficiency and unmatched scale. CEO Elon Musk’s forecast of 20%-30% growth in vehicle deliveries for 2025 underscores Tesla’s robust demand trajectory. Additionally, its thriving Energy Generation & Storage segment, expansive Supercharger network and AI advancements augur well.
Tesla’s robust balance sheet, with a high liquidity buffer, supports continued innovation and expansion. Progress in the autonomous vehicle domain, including plans to launch robotaxi services in 2025, positions the company well. Tesla is no longer just an automaker but a transformative force in the clean energy and technology sectors.
The Zacks Consensus Estimate for Tesla’s 2025 revenue and earnings imply year-over-year growth of 17.5% and 32%, respectively. Over the past 30 days, the EPS estimates for 2025 have moved up 6 cents to $3.26. TSLA (with a market cap of roughly $1.5 trillion) currently carries a Zacks Rank #2 (Buy).
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General Motors: It is the top-selling automaker in the United States, with a compelling portfolio and a strong demand for its quality pickups and SUVs. The company’s cost-cut efforts are praiseworthy. It is on track to achieve its $2 billion net cost reduction program by the year-end. Its superior liquidity profile and robust buyback program are positive indicators. GM had total automotive liquidity of $40.2 billion as of Sept. 30, 2024. The company has bought back shares worth around $12.5 billion since last November and is expected to continue its buyback spree in the foreseeable future.
GM is advancing well in its electrification journey. It aims to improve sales and profitability in its EV business by reducing battery costs, introducing new models and expanding its scale. The company is on track to make its EVs profitable on an EBIT basis by the end of this year.
The Zacks Consensus Estimate for General Motors’ 2025 earnings suggests year-over-year growth of 2.7%. Over the past 30 days, EPS estimates for 2025 have moved up 13 cents to $10.62. It has surpassed earnings estimates in each of the trailing four quarters. GM (with a market cap of roughly $59 billion) currently carries a Zacks Rank #2.
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CarMax: It is the leading used car retailer in the United States. The company’s extensive nationwide footprint and logistics network provide CarMax with a competitive advantage. In fiscal 2025 (ending February 2025), KMX plans to open five new stores, including smaller cross-functional ones, launch a second reconditioning facility in Mississippi, and debut an offsite auction in Los Angeles. Fiscal 2026 will see additional offsite reconditioning and auction locations, further enhancing its operations.
Strategic buyouts like the Edmunds acquisition have bolstered its digital capabilities and market expertise. Collaboration with Recurrent provides insights into used EV batteries, cementing KMX’s leadership in used EV sales. Omnichannel initiatives, including MaxOffer and an online appraisal tool, are driving growth in purchases and wholesale sales, supported by data science and AI enhancements. KMX’s investor-friendly moves inspire confidence.
The Zacks Consensus Estimate for CarMax’s fiscal 2025 and 2026 earnings suggests year-over-year growth of 4.3% and 22.2%, respectively. Over the past seven days, the EPS estimates for current and next fiscal have moved up by 14 cents and 11 cents, respectively. KMX (with a market cap of roughly $13 billion) currently carries a Zacks Rank #2.
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You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.
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