Insights

The success of electric-vehicle makers like Tesla and Nio is spreading bullishness across the entire automotive sector.

The DJ Automobile Manufacturers Index ($DJUSAU) has gained 88 percent in the last three months. That’s the biggest gain of more than 150 industry indexes on the TradeStation platform. The Auto Part Index ($DJUSAP) was the second-best performer, up 78 percent. In contrast, the broader S&P 500 has risen 12 percent in the same period.

While TSLA and NIO have attracted the most attention, a lot more is going on. Here are some of the key trends:

• Investors are viewing General Motors (GM) and Ford Motor (F) as undervalued. Both trade for less than 1/20 the price of TSLA relative to their earnings, sales and book values.
• GM and F are rapidly shifting toward electric vehicles. GM unveiled a commercial-delivery solution called Brightdrop last week and plans to have 30 electric cars by model year 2025. F has gained on excitement over its stake in Rivian.
• In addition to exciting new products, old products like SUVs and pickups remain highly profitable. This could support GM and F for now, bridging the gap to a more fully electric future.
• Auto sales have rebounded strongly and are back near their pre-pandemic levels. The business could also benefit from the continuing spread of suburbanization and growth in the housing market.

Another company in the group has also flown higher with very little fanfare: Tata Motors (TTM) has more than doubled on strong sales and rumors it may strike a deal with TSLA. Despite being an Indian company, TTM owns brands like Jaguar and Land Rover.

Here are some of the big movers in the auto space lately:

This article was written by David Russell, TradeStation Securities, Inc., part of the Monex Group Inc, published on 22/01/2021.

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