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3 Foreign Auto Stocks to Gain From Momentum in Key Markets
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The Zacks Automotive – Foreign industry presents a mixed picture based on sales trends in China, Japan and Europe. Strong demand for new-energy vehicles (NEVs), government incentives and rapid technological innovation are boosting growth in China, while Japan’s auto market is experiencing a stable recovery, supported by solid domestic demand. In contrast, Europe’s market is struggling with declining sales, policy-related pressures and competitive challenges. Honda Motor Co.,Ltd. (HMC - Free Report) , Geely Automobile Holdings Limited (GELYY - Free Report) and NIO Inc. (NIO - Free Report) are well-positioned to gain from the sustained momentum across pivotal automotive markets.
Industry Overview
Companies in the Zacks Automotive – Foreign industry are involved in designing, manufacturing and selling vehicles, components, as well as production systems. The foreign automotive industry is highly dependent on business cycles and economic conditions. China, Japan, Germany and India are some of the key foreign automotive manufacturing countries. The widespread usage of technology is resulting in the fundamental restructuring of the market. Stricter emission and fuel-economy targets and ramp-up of charging infrastructure, as well as supportive government policies, are boosting sales of green vehicles. With almost all firms intensifying their electrification game, competition is getting tougher with each passing day. Foreign automakers are now actively engaged in the R&D of electric and autonomous vehicles, fuel efficiency and low-emission technologies.
Factors Influencing the Industry Dynamics
Government Initiatives Boost China’s Auto Market: China’s retail sales of passenger vehicles reached an estimated 1.834 million units in July, up 7% year over year, per the China Passenger Car Association. From January to July, cumulative retail sales rose 10% to 12.736 million units. Sales of NEVs in July totaled 1.003 million units, up 14% compared to the same month last year, with NEVs accounting for 54.7% of the retail passenger car market. This growth is largely fueled by ongoing technological innovation, as Chinese automakers introduce new models that attract consumers eager for the latest features. To further stimulate demand, the Chinese government has launched initiatives to boost NEV sales in rural areas by promoting vehicle trade-ins and expanding use-case scenarios, generating fresh momentum for the auto market.
Domestic Demand Powers Japan’s Auto Market Growth: In Japan, the automotive sector continues its stable growth trajectory in 2025. Vehicle sales between January and June totaled 2.345 million units, up 10% year over year, rebounding from a 13% decline during the same period in the previous year, per the Japan Automobile Manufacturers Association Inc. New vehicle sales rose more than 5% in June 2025, reaching 393,160 units compared to 373,599 a year earlier. Japan’s economy is expected to grow 1.2% in 2025, driven mainly by domestic demand rather than exports. A recovery in consumer confidence, along with rising wages supported by favorable spring labor negotiations, is boosting private consumption and sustaining demand for new vehicles.
Policy Pressures Weigh on European Car Market: The European car market is showing signs of strain. New vehicle registrations in the region dropped more than 5% in June, while for the first half of 2025, registrations declined 1.9% year over year. European automakers are facing mounting challenges, including stiff competition from Chinese manufacturers, 25% import tariffs from the United States and stringent domestic policies accelerating the shift to electric vehicles. Per S&P Global Mobility, car sales in Europe are expected to remain nearly flat at around 15 million units in 2025, a marginal 0.1% year-over-year increase due to economic slowdown risks, high vehicle prices, waning EV incentives, new EV-related tariffs and political uncertainty in key markets like Germany and France.
Zacks Industry Rank Indicates Dim Prospects
The Zacks Automotive – Foreign industry within the broader Zacks Auto-Tires-Trucks sector currently carries a Zacks Industry Rank #177, which places it in the bottom 28% of around 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates dim near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Over the past year, the industry’s earnings estimates for 2025 and 2026 have moved down 36.20% & 41.90%, respectively.
Before we present a couple of stocks that are worth adding to your watchlist, let’s look at the industry’s recent stock market performance and current valuation.
Industry Lags Sector and the S&P 500
The Zacks Automotive – Foreign industry has underperformed the Auto, Tires and Truck sector and the Zacks S&P 500 composite over the past year. The industry has gained 6.3% compared with the S&P 500 and the sector’s growth of 19.1% and 13.5%, respectively.
One-Year Price Performance
Image Source: Zacks Investment Research
Industry's Current Valuation
Since automotive companies are debt-laden, it makes sense to value them based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio.
Based on the trailing 12-month enterprise value to EBITDA (EV/EBITDA), the industry is currently trading at 9.10X compared with the S&P 500’s 16.94X and the sector’s 20.63X.
Over the past five years, the industry has traded as high as 12.59X, as low as 6.49X and at a median of 9.10X, as the chart below shows.
EV/EBITDA Ratio (Past Five Years)
Image Source: Zacks Investment Research
Image Source: Zacks Investment Research
3 Stocks to Watch
Honda: It is one of the leading names in the auto industry and is known for its reliability and affordability. The surge in hybrid adoption is boosting the company’s sales. It expects hybrid EV sales to rise in North America. In fiscal 2026, Honda projects to sell 21.3 million motorcycles, reflecting year-over-year growth of 3.5%, driven by higher sales in Asia & other regions. Honda aims for EVs and FCEVs to constitute 100% of its global vehicle sales by 2040.
Honda currently carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for HMC’s fiscal 2026 sales implies year-over-year growth of 4.05%. The Zacks Consensus Estimate for HMC’s fiscal 2027 sales and earnings implies year-over-year growth of 0.11% and 54.56%, respectively.
Geely: One of the leading automakers in China, GELYY follows a "multi-energy" strategy, offering ICE, hybrid, electric and methanol vehicles. In the first half of 2025, the company sold 1.93 million units, a 30% increase from the previous year. It revised its 2025 annual sales target upward from 2.71 million to 3 million units. The company’s global expansion gained further momentum, with export volumes reaching 184,000 units. Exports of pure electric vehicles soared 307% year over year, with sales growth achieved in 22 countries, underscoring Geely Auto’s strong international competitiveness and adaptability.
Geely currently sports a Zacks Rank #1. The Zacks Consensus Estimate for GELYY’s 2025 sales implies year-over-year growth of 94.14%. The Zacks Consensus Estimate for Geely’s 2026 sales and earnings implies year-over-year growth of 19.46% and 35.05%, respectively.
Price & Consensus: GELYY
Image Source: Zacks Investment Research
NIO: Often touted as the “Tesla of China,” NIO is a pioneer in China’s EV market. It appears poised for a robust growth phase, fueled by an expanding vehicle portfolio and strategic initiatives. NIO's strong vehicle lineup, including ES6, ET5T, ES8, EC6, ES7, ET5, ET7, EP9, EVE, ET9 and EC7 models, is aiding the company’s deliveries growth. In December 2024, the company launched a flagship smart executive sedan, the NIO ET9. In the first four delivery months, ET9 surpassed the BMW7 Series and Audi A8 in China. NIO is set to launch a major product in the second half of this year. NIO is expanding beyond its luxury lineup with the launch of a more affordable ONVO brand and a high-end and small car brand, Firefly, to boost deliveries.
NIO currently carries a Zacks Rank #3. The Zacks Consensus Estimate for NIO’s 2025 sales and earnings implies year-over-year growth of 49.61% and 31.13%, respectively. The Zacks Consensus Estimate for NIO’s 2026 sales and earnings implies year-over-year growth of 30.17% and 58.89%, respectively.
Price & Consensus: NIO
Image Source: Zacks Investment Research
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3 Foreign Auto Stocks to Gain From Momentum in Key Markets
The Zacks Automotive – Foreign industry presents a mixed picture based on sales trends in China, Japan and Europe. Strong demand for new-energy vehicles (NEVs), government incentives and rapid technological innovation are boosting growth in China, while Japan’s auto market is experiencing a stable recovery, supported by solid domestic demand. In contrast, Europe’s market is struggling with declining sales, policy-related pressures and competitive challenges. Honda Motor Co.,Ltd. (HMC - Free Report) , Geely Automobile Holdings Limited (GELYY - Free Report) and NIO Inc. (NIO - Free Report) are well-positioned to gain from the sustained momentum across pivotal automotive markets.
Industry Overview
Companies in the Zacks Automotive – Foreign industry are involved in designing, manufacturing and selling vehicles, components, as well as production systems. The foreign automotive industry is highly dependent on business cycles and economic conditions. China, Japan, Germany and India are some of the key foreign automotive manufacturing countries. The widespread usage of technology is resulting in the fundamental restructuring of the market. Stricter emission and fuel-economy targets and ramp-up of charging infrastructure, as well as supportive government policies, are boosting sales of green vehicles. With almost all firms intensifying their electrification game, competition is getting tougher with each passing day. Foreign automakers are now actively engaged in the R&D of electric and autonomous vehicles, fuel efficiency and low-emission technologies.
Factors Influencing the Industry Dynamics
Government Initiatives Boost China’s Auto Market: China’s retail sales of passenger vehicles reached an estimated 1.834 million units in July, up 7% year over year, per the China Passenger Car Association. From January to July, cumulative retail sales rose 10% to 12.736 million units. Sales of NEVs in July totaled 1.003 million units, up 14% compared to the same month last year, with NEVs accounting for 54.7% of the retail passenger car market. This growth is largely fueled by ongoing technological innovation, as Chinese automakers introduce new models that attract consumers eager for the latest features. To further stimulate demand, the Chinese government has launched initiatives to boost NEV sales in rural areas by promoting vehicle trade-ins and expanding use-case scenarios, generating fresh momentum for the auto market.
Domestic Demand Powers Japan’s Auto Market Growth: In Japan, the automotive sector continues its stable growth trajectory in 2025. Vehicle sales between January and June totaled 2.345 million units, up 10% year over year, rebounding from a 13% decline during the same period in the previous year, per the Japan Automobile Manufacturers Association Inc. New vehicle sales rose more than 5% in June 2025, reaching 393,160 units compared to 373,599 a year earlier. Japan’s economy is expected to grow 1.2% in 2025, driven mainly by domestic demand rather than exports. A recovery in consumer confidence, along with rising wages supported by favorable spring labor negotiations, is boosting private consumption and sustaining demand for new vehicles.
Policy Pressures Weigh on European Car Market: The European car market is showing signs of strain. New vehicle registrations in the region dropped more than 5% in June, while for the first half of 2025, registrations declined 1.9% year over year. European automakers are facing mounting challenges, including stiff competition from Chinese manufacturers, 25% import tariffs from the United States and stringent domestic policies accelerating the shift to electric vehicles. Per S&P Global Mobility, car sales in Europe are expected to remain nearly flat at around 15 million units in 2025, a marginal 0.1% year-over-year increase due to economic slowdown risks, high vehicle prices, waning EV incentives, new EV-related tariffs and political uncertainty in key markets like Germany and France.
Zacks Industry Rank Indicates Dim Prospects
The Zacks Automotive – Foreign industry within the broader Zacks Auto-Tires-Trucks sector currently carries a Zacks Industry Rank #177, which places it in the bottom 28% of around 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates dim near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Over the past year, the industry’s earnings estimates for 2025 and 2026 have moved down 36.20% & 41.90%, respectively.
Before we present a couple of stocks that are worth adding to your watchlist, let’s look at the industry’s recent stock market performance and current valuation.
Industry Lags Sector and the S&P 500
The Zacks Automotive – Foreign industry has underperformed the Auto, Tires and Truck sector and the Zacks S&P 500 composite over the past year. The industry has gained 6.3% compared with the S&P 500 and the sector’s growth of 19.1% and 13.5%, respectively.
One-Year Price Performance
Image Source: Zacks Investment Research
Industry's Current Valuation
Since automotive companies are debt-laden, it makes sense to value them based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio.
Based on the trailing 12-month enterprise value to EBITDA (EV/EBITDA), the industry is currently trading at 9.10X compared with the S&P 500’s 16.94X and the sector’s 20.63X.
Over the past five years, the industry has traded as high as 12.59X, as low as 6.49X and at a median of 9.10X, as the chart below shows.
EV/EBITDA Ratio (Past Five Years)
Image Source: Zacks Investment Research
Image Source: Zacks Investment Research
3 Stocks to Watch
Honda: It is one of the leading names in the auto industry and is known for its reliability and affordability. The surge in hybrid adoption is boosting the company’s sales. It expects hybrid EV sales to rise in North America. In fiscal 2026, Honda projects to sell 21.3 million motorcycles, reflecting year-over-year growth of 3.5%, driven by higher sales in Asia & other regions. Honda aims for EVs and FCEVs to constitute 100% of its global vehicle sales by 2040.
Honda currently carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for HMC’s fiscal 2026 sales implies year-over-year growth of 4.05%. The Zacks Consensus Estimate for HMC’s fiscal 2027 sales and earnings implies year-over-year growth of 0.11% and 54.56%, respectively.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price & Consensus: HMC
Image Source: Zacks Investment Research
Geely: One of the leading automakers in China, GELYY follows a "multi-energy" strategy, offering ICE, hybrid, electric and methanol vehicles. In the first half of 2025, the company sold 1.93 million units, a 30% increase from the previous year. It revised its 2025 annual sales target upward from 2.71 million to 3 million units. The company’s global expansion gained further momentum, with export volumes reaching 184,000 units. Exports of pure electric vehicles soared 307% year over year, with sales growth achieved in 22 countries, underscoring Geely Auto’s strong international competitiveness and adaptability.
Geely currently sports a Zacks Rank #1. The Zacks Consensus Estimate for GELYY’s 2025 sales implies year-over-year growth of 94.14%. The Zacks Consensus Estimate for Geely’s 2026 sales and earnings implies year-over-year growth of 19.46% and 35.05%, respectively.
Price & Consensus: GELYY
Image Source: Zacks Investment Research
NIO: Often touted as the “Tesla of China,” NIO is a pioneer in China’s EV market. It appears poised for a robust growth phase, fueled by an expanding vehicle portfolio and strategic initiatives. NIO's strong vehicle lineup, including ES6, ET5T, ES8, EC6, ES7, ET5, ET7, EP9, EVE, ET9 and EC7 models, is aiding the company’s deliveries growth. In December 2024, the company launched a flagship smart executive sedan, the NIO ET9. In the first four delivery months, ET9 surpassed the BMW7 Series and Audi A8 in China. NIO is set to launch a major product in the second half of this year. NIO is expanding beyond its luxury lineup with the launch of a more affordable ONVO brand and a high-end and small car brand, Firefly, to boost deliveries.
NIO currently carries a Zacks Rank #3. The Zacks Consensus Estimate for NIO’s 2025 sales and earnings implies year-over-year growth of 49.61% and 31.13%, respectively. The Zacks Consensus Estimate for NIO’s 2026 sales and earnings implies year-over-year growth of 30.17% and 58.89%, respectively.
Price & Consensus: NIO
Image Source: Zacks Investment Research