While 2022 has been tough for several stock sectors, it's been incredibly tough for all sorts of automotive industry stocks, from suppliers to manufacturers to dealers to consumers buying the vehicles.
Thankfully, it's resilient enough that a tough year isn't going to cause the automotive industry to disappear. And for long-term investors, this tough year created a great opportunity to buy in.
General Motors (GM 4.37%) and QuantumScape (QS 3.71%) are two cheap or oversold auto stocks with great long-term prospects that investors should keep an eye on. Let's find out a bit more about these two buy-now-and-never-sell stocks.
1. GM: A comeback leader
General Motors stock is down roughly 42% year to date, nearly twice the decline of the broader S&P 500 index, and it remains trading at a paltry 6.4 times price-to-earnings ratio. GM's decline and cheap price offer investors an opportunity to buy a long-term position in a company that has completely turned itself around from the Great Recession of 2007-09. GM is setting itself up for long-term growth through increased investment in electric vehicles (which, once upon a time, management would have scoffed at), autonomous technology, and even service businesses.
Let's scratch the surface of these strategies.
Through 2025, GM plans to unveil a number of electric vehicles (EVs) to cover 31% of vehicle segments, but those critical segments will enable the company to cover 69% of U.S. industry volume and over 75% of U.S. industry revenue. The Detroit automaker is aiming for a roughly 1 million EV unit production capacity in 2025, with an estimated revenue of nearly $50 billion. And here's the important part: GM is estimating low to mid-single-digit margins on its EVs during that timeframe.
GM's EV future is bright, but it also has a strong position in developing autonomous vehicles with Cruise and through its new BrightDrop business that focuses on solutions for commercial delivery and logistics. Keep in mind that BrightDrop is already on pace for $1 billion in revenue next year, and is expected to reach 20% profit margins by the end of the decade.
Through its EV, autonomous vehicle, and commercial delivery solutions, GM projects its total revenue to increase 12% annually through 2025, with incredible upside beyond that. GM's 2022 stock price decline offers investors a chance to own a massive automaker with great upside on the cheap.
2. QuantumScape: To be greedy, or to be fearful?
When it comes to high risk and high reward in the auto industry, you might not find a more polarizing company than battery maker QuantumScape.
If investors buy into famed investor Warren Buffett's notion of being greedy when others are fearful, now might be just the right time to consider QuantumScape. The stock is down roughly 74% year to date. Goldman Sachs analyst Mark Delaney downgraded the stock from neutral to sell, as the company is likely to generate negative earnings and cash flows for several years.
It's true that the company is at least a year or two away from larger-scale production of its vehicle batteries. And while it has the cash to continue funding the development of its next-generation lithium batteries, the stock price is likely to remain depressed in the near term, especially with current macroeconomic headwinds. It's working on a solid-state battery technology that, in theory, offers much upside over the current lithium-ion batteries found in EVs.
Image source: QuantumScape investor presentation.
If investors are willing to stomach owning a highly speculative stock as a small part of an overall portfolio, QuantumScape could be a huge long-term winner. The truth is that QuantumScape probably shouldn't even be publicly traded at this point, although management can't be blamed for taking advantage of money on the table during the 2021 SPAC run that enabled it to do so.
Another truth is that improving EV batteries' performance and lowering their costs will be necessary for the industry to go mainstream and take over from traditional internal combustion engines. If QuantumScape delivers its potentially breakthrough battery technology in the years ahead, it could be a massive winner for investors.
That makes QuantumScape either a stock investors need to avoid entirely as it is highly speculative, or a stock that you need to nibble on now and hold forever with the hopes of serious gains down the road.
The race has just begun
The automotive industry is evolving toward electrification, and the change is just now gaining serious momentum. The industry is also developing several futuristic technologies, such as autonomous vehicles, that were once only the stuff of science fiction. Because of the industry's wild and rapid evolution, there are many speculative and questionable companies out there, making it difficult to pick long-term winners.
However, when investors do their due diligence and invest in companies they believe in, GM and QuantunScape should be companies to never sell and instead enjoy for a long, long ride into the future. And right now, investors can get these two stocks at a discount.
