10 Best Small Cap Automotive Stocks To Buy

Nov 21, 2023

In this article, we discuss 10 best small cap automotive stocks to buy. If you want to skip our detailed discussion on the automotive industry, head directly to 5 Best Small Cap Automotive Stocks To Buy.

In 2023, the automotive industry will remain susceptible to hindrances due to global headwinds. These challenges include the energy crisis, lower automotive demand worldwide, and continuing supply-chain problems. In 2023, new-vehicle sales are projected to remain flat, particularly in Europe and the US. According to the Economic Intelligence Unit (EIU), global new car sales are expected to increase by just 0.9%, hindered by reduced consumer spending, high commodity prices, and supply-chain disruptions causing production delays. Sales in western Europe are predicted to fall by about 3%, while in North America, they are expected to drop by 2.4%. Additionally, new commercial vehicle sales will also decline globally by 1.3% due to a forecasted recession in the Eurozone and slower GDP growth in the US and China. Overall, new-vehicle sales are anticipated to see marginal growth in 2023, mainly driven by growth in Asia, the Middle East, Africa, and Latin America. Despite this, the total global new-vehicle sales of 79 million units in 2023 are expected to lag behind the pre-pandemic levels of 88 million units.

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At the end of March 2023, Affinitiv pointed out that the challenges plaguing the automotive industry go beyond just chip shortages, concerns about EV legislation, and technological collaborations. The firm mentioned seven trends to watch in 2023 which would shape the future of the auto industry. Firstly, Affinitiv cited recent studies which show that around 55% of buyers prioritize excellent customer experience over competitive prices when choosing a dealership. Additionally, 75% of customers would increase their dealership visits if the purchasing process were more convenient, while 60% would make quicker purchasing decisions if the process were made more accessible. Secondly, to combat supply chain challenges, it will be beneficial for manufacturers to shift from just-in-time to just-in-case inventory systems in order to boost supplies, even if it means incurring higher inventory costs.

Moreover, to cater to younger audiences, auto manufacturers are expected to integrate voice-activated services, biometric controls, digital cockpits, and 5G capabilities in their vehicles. The shift to EVs is also imperative in the future. Furthermore, Affinitiv observed that approximately 30% of consumers are comfortable buying online, and most car buyers expect dealers to provide permanent online options. However, some buyers are unhappy with initial online experiences due to dealers struggling with low inventory and extended waiting times after pre-orders. To address this, dealers must simplify negotiating and buying processes to prevent potential delays. Affinitiv also noted that about 75% of auto consumers are influenced by online videos when making a purchase decision. Innovative formats like 360-degree videos can sway 65% of consumers to buy a car without a test drive. Therefore, auto manufacturers should display video walkarounds on dealership websites offering potential buyers information equivalent to an in-person viewing experience. Lastly, the firm mentioned that dealerships should adopt AI to improve efficiency and business strategy in 2023, with three primary applications of AI being task automation, using chatbots for customer service, and optimizing advertising efforts.

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When investors think about the automotive industry, they often consider major players like Tesla, Inc. (NASDAQ:TSLA), General Motors Company (NYSE:GM), and Ford Motor Company (NYSE:F). However, this article focuses on small-cap automotive stocks. Investors often purchase these smaller stocks at lower prices to potentially reap significant rewards in the future.

Our Methodology

We first used a stock screener to filter out automotive stocks with market caps ranging from $300 million to $2 billion as of July 31. From these stocks we picked 10 small-cap automotive stocks with the highest number of hedge fund investors. We have assessed the hedge fund sentiment from Insider Monkey’s database of 943 elite hedge funds tracked as of the end of the first quarter of 2023. The list is arranged in ascending order of the number of hedge fund holders in each firm.

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Number of Hedge Fund Holders: 9

Vroom, Inc. (NASDAQ:VRM) operates an ecommerce platform that facilitates vehicle buying and selling. The company has three primary segments – Ecommerce, Wholesale, and Retail Financing. Vroom, Inc. (NASDAQ:VRM) also offers vehicle financing solutions to clients. On May 9, the company reported a Q1 GAAP EPS of -$0.54, beating Street estimates by $0.01. The $196.46 million revenue, however, missed market consensus by $43.42 million.

According to Insider Monkey’s first quarter database, 9 hedge funds were bullish on Vroom, Inc. (NASDAQ:VRM), compared to 13 funds in the prior quarter. Bill & Melinda Gates Foundation Trust is a notable stakeholder of the company, with 2.5 million shares worth $2.24 million.

In addition to Tesla, Inc. (NASDAQ:TSLA), General Motors Company (NYSE:GM), and Ford Motor Company (NYSE:F), Vroom, Inc. (NASDAQ:VRM) is one of the best automotive stocks to invest in.

Here is what ClearBridge Select Strategy has to say about Vroom, Inc. (NASDAQ:VRM) in its Q3 2021 investor letter:

“A handful of our rapid growers hit tough earnings comparisons in the summer reporting period after experiencing a surge in demand in the second quarter of 2020 as companies moved to remote work and consumers were confined to their homes. E-commerce platforms such as Vroom have also faced headwinds as consumers become more active outside the home.”

Number of Hedge Fund Holders: 9

Canoo Inc. (NASDAQ:GOEV) is a mobility technology company based in the United States. The company specializes in designing, and manufacturing electric vehicles for both commercial and consumer markets. Canoo Inc. (NASDAQ:GOEV)’s product lineup includes lifestyle delivery vehicles, lifestyle vehicles, multi-purpose delivery vehicles, and pickups. Canoo Inc. (NASDAQ:GOEV) is one of the best automotive stocks to invest in.

On July 12, Canoo Inc. (NASDAQ:GOEV) announced that it delivered three Crew Transportation Vehicles (CTVs) to NASA's Kennedy Space Center in Florida. These vehicles will be used to transport astronauts to the launch pad for the Artemis lunar missions in the future. The CTVs are specifically designed to carry fully suited astronauts, flight support crew, and equipment, ensuring comfort and safety during the nine-mile journey to the launch pad.

According to Insider Monkey’s first quarter database, 9 hedge funds held stakes worth $15 million in Canoo Inc. (NASDAQ:GOEV), compared to 13 funds in the prior quarter worth $5 million. Tony Chin’s Infini Capital is the largest stakeholder of the company, with 16.7 million shares worth nearly $11 million.

Number of Hedge Fund Holders: 9

Niu Technologies (NASDAQ:NIU) is a Chinese company that specializes in designing, manufacturing, and selling smart electric scooters. Niu Technologies (NASDAQ:NIU) provides the KQi series of one kick-scooters, BQi series of e-bikes, and Niu Aero Sports Bicycles. It is one of the best automotive stocks to invest in. Even though the sales performance in the first quarter of 2023 was not promising, Niu Technologies (NASDAQ:NIU)’s management expects a significant improvement in the second quarter. Management is projecting revenues for Q2 to be in the range of RMB 828 million to RMB 952 million for the entire year ahead. This would mean a flat growth rate or a 15% increase compared to the figures from 2022.

According to Insider Monkey’s first quarter database, 9 hedge funds were long Niu Technologies (NASDAQ:NIU), with collective stakes worth $10.5 million. Jonathan Guo’s Yiheng Capital is the leading position holder in the company, with 1.16 million shares worth $4.8 million.

Number of Hedge Fund Holders: 10

Hyzon Motors Inc. (NASDAQ:HYZN) offers decarbonized solutions and hydrogen supply infrastructure for the commercial vehicle market. The company specializes in assembling heavy-duty hydrogen fuel cell electric vehicles. On July 10, Hyzon Motors Inc. (NASDAQ:HYZN) completed and successfully tested the first nine single-stack 200kW Fuel Cell System B-samples at its production and innovation center in Bolingbrook, Illinois. This achievement keeps the company on schedule to initiate production and commercialization of its innovative Fuel Cell System in 2024. Hyzon Motors Inc. (NASDAQ:HYZN) is one of the best automotive stocks to invest in.

According to Insider Monkey’s first quarter database, 10 hedge funds were bullish on Hyzon Motors Inc. (NASDAQ:HYZN), with combined stakes worth $2.28 million. Ben Levine, Andrew Manuel, and Stefan Renold’s LMR Partners is the largest stakeholder of the company, with 2.14 million shares worth $1.74 million.

Number of Hedge Fund Holders: 10

Proterra Inc. (NASDAQ:PTRA) provides battery systems and electrification solutions to OEM customers, catering to delivery trucks, school buses, coach buses, construction, mining equipment, and other applications. The company also offers fleet-scale, high-power charging solutions, and software services, covering fleet and energy management, planning, hardware, infrastructure, installation, utility engagement, and charging optimization. Proterra Inc. (NASDAQ:PTRA) maintained its revenue guidance for the full-year 2023, expecting it to be between $450 million and $500 million, while the consensus estimate stood at $482.82 million. The company foresees a gross loss in the first half of 2023, but aims to achieve positive gross margins in the second half of the year.

According to Insider Monkey’s first quarter database, 10 hedge funds were bullish on Proterra Inc. (NASDAQ:PTRA), compared to 7 funds in the prior quarter. Ramius is the largest stakeholder of the company, with 10.5 million shares worth $16 million.

Like Tesla, Inc. (NASDAQ:TSLA), General Motors Company (NYSE:GM), and Ford Motor Company (NYSE:F), Proterra Inc. (NASDAQ:PTRA) is one of the top automotive stocks to consider.

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