Top 5 Automobile Stocks to Add to Your 2025 Watchlist

India's rapidly growing auto market is all set to hit a milestone, with projections indicating it will reach US$ 300 billion (bn) by 2026.

This growth is fuelled by a lot of reasons, including rising income levels, urbanisation, and a burgeoning middle class with increasing purchasing power.

In March 2024, the Indian auto industry produced a total of 2,325,959 units, covering passenger vehicles, three-wheelers, two-wheelers, and quadricycles.

India's dominance in the automotive arena is further highlighted by its status as the world's largest manufacturer of two-wheelers, with over 21 million (m) units produced annually, and as the largest manufacturer of tractors.Moreover, it ranks as the world's third-largest heavy truck manufacturer and fourth-largest car manufacturer.The sector has also been a magnet for foreign direct investment (FDI), with a cumulative equity FDI inflow of about US$ 35.40 bn in the previous two decades.

It is worth noting that the government's initiatives have spurred growth, with the total automobile exports from India reaching 4,500,492 units in FY24, contributing significantly to the nation's GDP.

What's next?

Are you ready to charge into the future of the auto segment?

India's electric vehicles (EVs) segment seems to have taken center stage and is gaining momentum in this space. It is projected to become the third-largest EV market by 2025, with 2.5 m vehicles expected to be driven on the road.

The market for EVs has proliferated in recent years and is expected to continue to grow quickly over the coming decade. The EV sector presents a massive investment opportunity of over US$ 200 bn over the next 8-10 years.

In addition to EVs, the automotive industry is witnessing a shift in consumer preferences towards larger and more powerful vehicles across all segments.

The industry's growth trajectory is further supported by initiatives such as Make in India, the Automotive Mission Plan 2026, and the National Electric Mobility Mission Plan 2020.

Other factors such as the revamped Vehicle Scrappage Policy and the introduction of Bharat NCAP, India's own vehicle safety assessment program, substantiate the government's commitment to fostering innovation and sustainability in the automotive sector.

Let's take a sneak peek at some of the top auto stocks in detail.

#1 Maruti Suzuki

The company is the market leader in Passenger Vehicles (PV) in India and is also India's largest exporter of PVs.

In FY24, the company posted the highest-ever total sales, surpassing the milestone of 2 m units. The company is the first among the PV manufacturers in India to achieve this milestone.

However, recently, in the domestic market, the demand for PVs was muted to some extent, largely due to the heat wave and elections which kept many potential customers away from the showrooms.

Talking about new products, the company launched the new Epic Swift and also introduced a dream series to attract potential buyers in the small car segment.

The company is investing in a battery manufacturing plant in India, wherein the production there is potentially expected to start in CY26.

Coming to the financial results, during the first quarter of FY25, the company registered net sales of Rs 338,753 m as against Rs 308,452 m in the first quarter of FY24.

The net profit for the quarter rose to Rs 36,499 m from Rs 24,851 m in the first quarter of FY24, a growth of 46.9%. This was broadly on account of cost reduction efforts, favorable commodity prices, and foreign exchange gains.

In addition, in Q1 FY25, there were some marginal benefits of commodities and forex which were partially offset by increased discounts.

The company is planning to achieve the 300,000 unit mark for exports for the next year.

Going forward, the company has a total of 6 EV models lined up all the way to 2031. It's planning to launch one model on average every year. Maruti Suzuki plans to double its production capacity to 4 m units per year by 2030-31.

#2 Mahindra & Mahindra

Mahindra & Mahindra Ltd (M&M) is one of the most diversified automobile companies in India with a presence across 2-wheelers, 3-wheelers, PVs, CVs (commercial vehicles), tractors, and earthmovers.

M&M's presence is spread across various businesses, including farm equipment, auto, defence, information technology, financial services, mobility services, renewable energy, logistics, real estate, hospitality, steel trading, automotive components, and maintaining parts for leading aerospace companies.

However, farm equipment and auto businesses together are the key revenue and profitability drivers.

In FY24, the company sold 824,939 vehicles. This was a growth of 18.1% over the previous year.

It sold 378,386 tractors including domestic sales and exports of Mahindra, Swaraj, and Trakstar Brands. This was a de-growth of 7.2% over the previous year. This represents the highest combined sales of vehicles and tractors in any single year by the company.

Mahindra is reportedly in advanced talks to acquire a 50% stake in Skoda Auto Volkswagen India, a deal potentially valued at around US$ 1 bn.

For Mahindra, this deal offers access to valuable production assets and global technologies. Mahindra, on the other hand, would gain not only manufacturing capacity but also a valuable partnership in global vehicle technology.

Going forward, the automotive business remains on track to deliver mid-teen volume growth for FY25 and is confident of outpacing industry growth in UVs (utility vehicles) over the next 2 years.

The Mumbai-based company targets to have Rs 270 bn capex and investment between FY25 to FY27.

Mahindra and Mahindra aims to strengthen its Indian market position by launching 23 new products by the decade's end.

The company also has a strong order book and is planning product refreshes under its new strategy, including EVs over the medium term.

#3 Tata Motors

Tata Motors is a leading global automobile manufacturer. Part of the illustrious multi-national conglomerate, the Tata group, it offers a wide and diverse portfolio of cars, sports utility vehicles, trucks, buses, and defence vehicles to the world.

The country's largest electric car maker Tata Motors has started working with used car marketplaces to facilitate resale and exchange for EV owners.

The company has the largest car park for EVs in India, estimated to be around 170,000 units. As a pilot, the company has already started work with the used online car marketplace Spinny.

In FY24 consolidated revenue from operations including finance revenues increased by 26.6% to Rs 4.3 trillion (tn) from Rs 3.4 in FY23. This increase was mainly attributable to increased vehicle volumes and better mix.

The net profit stood at Rs 313.9 bn in FY24, compared to a net profit of Rs 24.1 bn in FY23. An increase in volumes, better mix, better management of costs, and softening of commodity prices, resulted in the higher profits.

There was a 5% increment in the Jaguar Land Rover contribution to the company's total automotive revenue from 64% to 69% and the remaining 31% was contributed by Tata and other brand vehicles, and vehicle financing in FY24, compared to 36% in FY23.

Tata Motors plans to launch 10 new EV models by 2026. The company also plans to increase the percentage of Tata EV users who also use rooftop solar (RTS) from 10-15% to 50% by the end of the decade.

#4 Bajaj Auto

Bajaj Auto Ltd is an automotive manufacturing company. Its primary operations involve developing, manufacturing, and distributing two-wheeler and three-wheeler vehicles.

A key differentiator for Bajaj Auto is the company's introduction of the CNG-powered bike, the 'Freedom,' which has shown promising results in select states. Sales of the CNG bike averaged around 4,000 units per month in just two states.

The fact that Bajaj is the only original equipment manufacturer (OEM) offering this fuel powertrain gives it a competitive edge in the vast, untapped market segment for cost-conscious customers seeking to save on operational expenses.

Another standout feature for Bajaj is its dominance in the three-wheeler (3W) market. The company had maintained its leadership in this space and made significant strides in the electric three-wheeler (e3W) market, positioning itself for future growth.

Bajaj's entry into the electric rickshaw (eRick) segment, a rapidly expanding market is also advantageous to the company. Given that the eRick market is nearly double the size of the 3W market in terms of value, it is a substantial growth opportunity for Bajaj in this space.

Bajaj Auto reported a net profit of Rs 19.8 bn whereas, on a year-on-year (YoY) basis. The net profit for the company increased by 19.4%. The earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 24% YoY to Rs 24.16 bn.

Bajaj Auto attributed the expansion in the margin to better realisation and cost reduction, which more than offset the drag which came from the growing electric two-wheeler business.

Bajaj Auto plans to expand its EV portfolio, including electric three-wheelers and two-wheelers. The plan is to increase the production of the Chetak electric scooters. Bajaj Auto is also exploring hydrogen-powered vehicles going forward.

#5 TVS Motors

TVS Motor Company Ltd is engaged in manufacturing two-wheelers and their accessories. It currently manufactures a wide range of two-wheelers and three-wheelers.

TVS is one of the leading players in the two-wheeler industry and is the only company to have a presence in all three categories, i.e., motorcycles, scooters, and mopeds, catering to domestic and international markets.

TVS has been aggressive in the electric two-wheeler (E2W) market, with the company launching new variants to capture the growing demand.

TVS has led the export recovery so far in 2024, largely due to its lower reliance on the African market.

During FY24, revenue from operations grew 20% at Rs 317.7 bn as against Rs 263.7 bn recorded in FY23.

Operating EBITDA for the year improved to 11.1%. Net profit for FY24 was Rs 20.8 bn compared to Rs 14.9 bn reported in FY23.

The overall two-wheeler and three-wheeler sales including exports grew by 22% to 1 m units in the quarter ended March 2024 against 0.8 m units in the quarter ended March 2023.

TVS Motor is all set to accelerate its EV launch plans in FY25. TVS would be increasing its capacity to manufacture 50,000 electric vehicles per month.

The company reported a 100% growth in electric two-wheeler sales at 1.94 lakh units in FY25. TVS sold 17,403 units in April 2024.

TVS also has plans to enter the electric three-wheeler segment with both cargo and passenger vehicles. It has been acquiring electric bicycle brands in Europe and the company has a plan to launch an electric bicycle in India soon.

Going forward, TVS has a plan to launch an electric Norton motorcycle in India but that is likely to be after the launch of the four-cylinder Norton next year.

Conclusion

While the potential rewards from automobile stocks can be tempting, it is crucial to be aware of the associated risks.

The automotive industry is cyclical, meaning sales often fluctuate with economic conditions. During downturns, demand for vehicles may drop, thus affecting the share prices of automobile stocks.

Moreover, regulatory changes, such as stricter environmental standards, can impact manufacturers' costs and profitability.

Furthermore, there is high competition within the industry, with numerous established companies constantly innovating and competing.

This intense competition can put pressure on profit margins, making it challenging for companies to maintain consistent growth and profitability.

Additionally, disruptions in the supply chain, like component shortages or natural disasters, can hinder production and affect share prices.

Therefore, before investing in automobile stocks, conduct thorough research and stay informed about industry trends and developments to mitigate these risks effectively.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...