The Car Market

Although the automotive industry faced a dip that started in 2020, innovative directions among car manufacturers seem to point to exciting prospects for the future of the industry. In fact, ResearchAndMarkets.com reports that the global automotive market is expected to go from $35.7 billion in 2021 to being worth $49.4 billion by 2027 — showing a CAGR of 5.20% over five years.

If you’re an investor looking to expand your portfolio, then the automotive industry is worth considering. Here’s what you need to know about how the car market is doing, and what’s ahead for investors.

The car market’s performance

Global disruptions in 2020 have challenged the car market with persistent supply chain issues. Among the factors contributing to these disruptions is the Russo-Ukraine conflict. Around 50% to 70% of the world’s neon gas supply comes from Ukraine. The substance is integral to making semiconductor chips, and securing new sources of neon gasses may take time. There are also microchip shortages attributed to bottlenecks at Chinese ports, as well as labour negotiations at US ports.

As car manufacturers encountered difficulties in production, they raised prices to compensate for the lost volume. And while the current performance of the car market may seem dim, this might not be completely bad news for investors, especially if you have a long investment horizon.

Rising trends in the car market

Despite these challenges, the demand for cars perseveres. In fact, Sound Dollar states that average auto loan balances have increased 75% since 2003, rising from $2,960 to $5,210. Despite rising costs, these numbers illustrate the sustained demand for automobiles, even going so far as to revitalize the used car market.

Car companies have also had to adjust to changing consumer values and purchasing capabilities, as a result of manufacturing shortages. This results in a great outlook for electric cars in particular. Because of shifting preferences towards alternative power sources — due to both preference for sustainability as well as spiking gas prices — many established automobile companies are now releasing their own electric models. This includes the Ford Mustang Mach-E, Hyundai’s Ioniq 5, and the Nissan LEAF.

That some of the world’s most trusted car manufacturers are now delving further into electric is a good sign of their dedication to future-proofing their companies. The future of automobiles could be very profitable as the industry adapts positively to the demands of today’s most pressing issues.

How to invest in the car market

Investing in the car market can be a great addition to your portfolio. Our article on ‘The Fine Wine Market’ explains how you can invest in wines either by owning the bottles themselves or by investing in wine stocks. Similarly, you can choose to invest in cars themselves or stocks at car companies.

Investments in automotive stocks can be useful indicators of economic disruption or recovery, as the rise and fall of its value is dependent on consumers’ confidence. For stocks, you have options between three types of automotive companies — automakers, auto dealer groups, and auto parts retailers. Before investing, evaluate the company’s earnings before interest and taxes and its margins to track its financial performance. Consider other factors, too, such as whether the company’s vision and trajectory are forward-thinking and sustainable.

Alternatively, you can invest in collectible cars. Not only are they highly profitable, but they also diversify your investment portfolio. It does require being savvy about car culture and carries risks as tangible personal property that gets you capital gains tax if you profit from its sale. However, they can serve as hedges and gain more value over time than other types of collectibles. They can ultimately be valued at a couple of million dollars.

The car market may be experiencing temporary disruptions in 2022, but the demand for cars continues to flourish. So, if you’re looking for ways to pad out your portfolio, then the automotive industry could be largely beneficial to you.

DISCLAIMER: The above references an opinion and is for information purposes only. It is not intended to be investment advice and I am by no means a trained nor professional investment advisor, I therefore accept no responsibility for any losses incurred by investors. Remember, the value of investments can fall as well as rise, and you could get back less than you invest. If you’re not sure about investing, seek independent advice. Tax rules can change and their effects on you will depend on your individual circumstances.