The auto industry's critical parts shortage due to supply chain constraints is a relatively temporary situation. Eventually it will straighten out and parts and computer chips will flow smoothly again. It's going to hurt sales now, of course, but over the long haul automakers will prosper because of unrelenting demand for cars.
Whether electric, powered by fossil fuels, hydrogen fuel cells, or some other alternative fuel source, cars are attractive to American consumers, and that means the sharp drop in automaker stocks this year should put them on every investor's radar.
You might not catch the bottom buying shares now, but over the years to come your portfolio won't even notice. Here are three of the best auto stocks to buy for the long haul.
With its stock down just 4% in 2022, Tesla (TSLA 2.92%) is actually the best performing carmaker on the market, and there is little reason to think it won't continue to be a top performer for years to come.
Unlike every other vehicle manufacturer, Tesla spends zero dollars on advertising, yet continues to see sales grow. In fact, a case can be made that the more its rivals spend on showcasing their cars, the more electric vehicles (EVs) Tesla sells.
Tesla made that case in its just-released earnings report, which included a chart showing a spike in sales the day after the Super Bowl, when EV ads were in heavy rotation.
Tesla delivered over 310,000 vehicles in the first quarter, up 68% from the year-ago period and slightly above the 308,000 delivered in the fourth quarter. Revenue was up 87% while adjusted profits more than tripled to $3.22 per share. And that's something no other pure EV maker can boast: Consistent profitability over time.
Tesla is into its third straight year of banking profits, and with more Gigafactories here and around the world to pump out even more EVs to meet demand, investors reasonably expect the leading electric car maker to continue leading the way for years to come.
At the other end of the spectrum is Rivian Automotive (RIVN 3.64%). It's not the worst-performing automaker, but it hasn't been around for a year and it's still vying for the top spot. Even so, Rivian is one investors should consider.
The EV maker is beset by problems, most due to the supply chain crisis. While the computer chip shortage was bad enough, Rivian recently warned investors there was another problem looming on the horizon: a battery shortage. The Wall Street Journal reported CEO RJ Scaringe said the dearth of batteries will be "an order of magnitude worse" than the chip shortage, one that could last far longer.
It's already crimping in Rivian's ability to get production up and running on its R1T electric truck, R1S SUV, and commercial van, but those are some of the most lucrative segments of the vehicle market. It also arguably best positions Rivian to rival Tesla's success because of that, and it's getting to market first in that segment before Tesla is able to release any competing products.
Rivian went public in November at $78 a share, and now trades at $33 a stub, a loss of 58% of its value. It's also down over 80% from the highs it hit after going public. Despite that, big EVs -- trucks, vans, and SUVs -- will become a sought-after segment over the long and Rivian seems prepared to dominate it.
Ford Motor Company
Even though Ford Motor Company (F -0.60%) is making a splash in the EV market with its Mustang Mach-E, Transit Pro van, and the about-to-be released Lightning F-150 pickup, for most people this is still an old line automaker, and that's OK. Not everyone wants or can afford an electric car or truck.
Like most automakers, whether internal combustion or EV, Ford is confronting shortages and rising costs that will impact its near-term results. It recently reported March truck sales were down 34%, SUVs were down 9%, and sales in China were down 19% year over year, due to the continuing impact of COVID-19 on the supply chain. Interestingly, EV sales were up 17%.
While Ford is moving in the direction of replacing its internal combustion engine vehicles with EVs, it hasn't committed to giving up fossil fuels as General Motors has. Yet it will keep investing more into alternatives, and that makes Ford an attractive old-line manufacturer option.
Investors will get the best of both worlds with Ford's strategy. Furthermore, the stock trading for six times next year's estimates and a bargain basement seven times the free cash flow it produces. With earnings growth projected in the future, Ford is a cheap stock with a big growth runway before it.