With an estimated 33 million cars on UK roads, it’s no surprise that many investors are keen to tap into this space, and this popularity of car stocks has further accelerated in recent years thanks to growing interest in the electric vehicle revolution. With this in mind, let’s take a closer look at car shares and some of the top options available to investors.
What are car stocks?
Car shares can be defined as those companies operating in the automotive industry in some capacity. These include manufacturers, those supplying parts or technology such as seats, tyres and batteries, auto dealer groups and parts retailers. There really is a lot of choice for the nimble private investor.
What makes this sector particularly interesting is the differing levels of competition companies face. Some firms have a commanding presence in a niche part of the car market; others are forced to battle it out to attract consumers to their products and services.
Some businesses operate exclusively online; others adopt a more hybrid approach. Some have brands that are household names; others have no direct contact with the consumer and are only known by the most committed of car aficionados.
To really get a handle on just how diverse this space is, let’s look at a selection of five car shares listed on the London Stock Exchange by descending market capitalisation.
Top car stocks in the UK
|Auto Trader (LSE: AUTO)||£5.11bn||A digital automotive marketplace offering visitors a selection of new and used car listings, motoring services and advice|
|Aston Martin (LSE: AML)||£803m||A leading manufacturer in the high-luxury sports car market|
|Halfords (LSE: HFD)||£497m||The UK’s leading retailer of automotive products and operator in MOT, tyres, car servicing and car repairs.|
|Seeing Machines (LSE: SEE)||£276m||A designer, manufacturer and seller of advanced software with the goal of enhancing driver safety and reducing accidents|
|Lookers (LSE: LOOK)||£275m||One of the UK’s largest integrated automotive retail and service groups|
Online marketplace Auto Trader has arguably become the go-to destination for anyone interested in buying a vehicle in the UK. This popularity has driven many investors to take position, pushing the company into the FTSE 100.
According to Auto Trader, consumers spend 7 times more minutes on its site compared to its nearest rival and over 75% of all time spent looking at classified advertisements of vehicles for sale.
The boom seen in car sales since the Covid-19 pandemic has only served to reassert this dominance. Back in November 2021, the company announced its highest ever six-monthly revenue and profits.
- Market Cap: £5.11bn (as of 12 May 2022)
- Average Daily Volume: 2,610,444
- HQ: Manchester
Aston Martin Lagonda Global Holdings
Aston Martin doesn’t need much in the way of an introduction. Regularly featured in the James Bond movies, the firm designs and produces some of the most luxurious cars in the world including the Vantage, DB11, DBX, DBS and Valkyrie. It then exports and sells these highly coveted vehicles in 55 countries around the world.
Unfortunately, this quality hasn’t been reflected in the performance of Aston Martin shares. Since listing in October 2018, the company has lost over 90% of its value due to concerns over its finances and pandemic-related headwinds.
Whether Aston Martin can recover remains to be seen. On an optimistic note, the recruitment of former Ferrari CEO Amedeo Felisa could prove to be a masterstroke. The latter’s share price has been on a tear in recent years.
- Market Cap: £803m (as of 12 May 2022)
- Average Daily Volume: 479,699
- HQ: Warwick
As any car owner will know, regular maintenance of one’s vehicle is essential. This is where Halfords comes in.
From fluffy dice to child seats to engine oil, the company sells every conceivable product a driver might need for keeping their car in top condition and passengers safe.
In addition to this, the mid-cap also runs a huge estate of Autocentres, delivering services that every owner needs to factor into their running costs every year.
Halfords recently reported that this part of the business had grown like-for-like revenues by a little over 33% in the three months to the end of 2021. Following some recent acquisitions, it now expects to carry out 7.5 million motoring services jobs a year.
- Market Cap: £497m (as of 12 May 2022)
- Average Daily Volume: 636,969
- HQ: Redditch
The vast majority of UK investors are unlikely to know about Australia-based minnow Seeing Machines. However, this could be set to change as it rapidly becomes the biggest player in software and systems designed to monitor driver distraction and fatigue and, in doing so, reduce accidents on the road.
Although only currently available on the premium models, this tech is likely to become standard over time in accordance with legislation. Seeing Machines also makes money from having its Guardian tech fitted retrospectively to fleets.
But Seeing’s eye-tracking tech isn’t just limited to cars and trucks. The company also has its fingers in multiple pies including aviation and rail. This could further turbocharge growth in the years ahead.
- Market Cap: £276m (as of 12 May 2022)
- Average Daily Volume: 5,038,603
- HQ: Canberra, Australia
Lookers is yet another way for UK investors to tap into car stocks. It is one of the largest automotive retailers around, selling 173,000 new and used vehicles in 2021 from 144 franchise dealerships. The small-cap also boasts an aftersales division, offering parts, servicing, MOT and accident repair.
Like some of the other stocks mentioned here, Lookers saw its share price soar since the pandemic as supply chain shortages held back production and increased demand for those cars already in existence. Revenue breached the £4bn mark and pre-tax profit hit £90m.
- Market Cap: £m (as of 12 May 2022)
- Average Daily Volume: 1,002,378
- HQ: Altrincham
Are car shares right for you?
The five car stocks mentioned above go some way to demonstrating the variety of opportunities available to UK investors in this space. This is not to say that they are necessarily right for everyone.
Depending on the time period used, there have certainly been some winners. Those investing in Auto Trader between March 2020 and the end of 2021 will have doubled their money. The share price of Seeing Machines also climbed from under 2p to 12p from March 2020 to August 2021. In sharp contrast, anyone holding Aston Martin will probably be nursing significant losses on paper.
One also needs to remember that demand for vehicles can depend on a huge range of factors that are beyond the control of these businesses. Tricky economic times can force people to postpone a new purchase, especially if there is nothing wrong with their existing vehicle. High fuel prices can also impact demand.
On a more positive note, some UK car stocks generate income for those holding them, which may help to take the sting out of any temporary fall in a company’s value. Naturally, these can never be guaranteed.
In summary, car shares certainly have the potential to generate great returns for those who are willing to take more risk with their cash. The gradual switch away from internal combustion engines to more environmentally friendly solutions, combined with lowering production costs and rising levels of affluence, could see even more investors pile into the space over the next few years.
However, the potential for significant volatility can’t be overstated. As such, a portfolio that also has exposure to other sectors makes Foolish sense.