Auto 2025: These stocks may outperform despite industry speed bumps

Morgan Stanley released its 2025 preview of the automobile sector on Tuesday. The firm stayed true to the consensus view that the year ahead will be a bumpy road for investors due to the impact of new EV policies, push for onshoring issues, tariff risk, and uncertain inflation rates.

Cutting against the grain a bit, analyst Adam Jonas said the U.S. election result has extended the ‘ICE is Nice’ trade for a bit longer, but he said to keep on the lookout for hidden value in the EV ecosystem into the second half. As for the overall U.S. auto market, the expectations are for 3.2% year-over-year growth in 2025 and a lower battery-electric penetration rate of 8.5%.

He said 2025 is shaping up to be a volatile year, dominated by expected U.S. relaxation of emission standards and the potential for sharply increased tariffs. Jonas noted that since the U.S. Presidential election, investors have been bidding up ICE-exposed names such as General Motors (NYSE:GM) and Phinia (PHIN) relative to EV-oriented names like Rivian Automotive (NASDAQ:RIVN) and Aptiv (APTV).

Stock picks

Morgan Stanley named Tesla (NASDAQ:TSLA) as its top auto stock for 2025. The company’s potential to play a greater role in the U.S. renewable/autonomous industrial complex is seen as a tailwind. Jonas and his team assigned a base case price target of $400 to Tesla (NASDAQ:TSLA) and a bull case price target of $600.

Lucid Group (LCID) is still rated at Underweight heading into the new year. Meanwhile, Morgan Stanley boosted General Motors (NYSE:GM) to an Equal-weight rating to join Ford Motor (NYSE:F). “Curtailment of EV incentives may extend the de-adoption of profitable ICE vehicles which can support FCF for the US-based legacy OEMs,” highlighted Jonas.

Heading into 2025, Morgan Stanley reiterated its preference for the franchise dealer complex, which was said to be in the ‘latter innings’ of gross profit per unit mean reversion relative to the legacy OEMs. Top picks from MS on the retail side of the auto business are Group 1 Automotive (GPI), Penske Automotive Group (PAG), and AutoNation (AN).

As for suppliers, Morgan Stanley selected BorgWarner (BWA), (AXL), and Lear (LEA) as its top picks to hold into 2025.

A check of Seeking Alpha’s Quant Rating system shows Carvana (CVNA), Group 1 Automotive (GPI), General Motors (GM), XPeng (XPEV), BYD Company Limited (OTCPK:BYDDF), Strattec Security (STRT), Dorman Products (DORM), and Cooper-Standard (CPS) as buy-rated based purely on quantitative analysis.