10 Best Small Cap Automotive Stocks To Buy

In this article, we discuss 10 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.

Don’t Miss: 10 Best Auto and Truck Dealership Stocks to Buy

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. 

Also Read: 10 Best Auto Parts Stocks to Buy Now

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.

Photo by carlos aranda on Unsplash

Best Small Cap Automotive Stocks To Buy

10. Vroom, Inc. (NASDAQ:VRM)

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.”

9. Canoo Inc. (NASDAQ:GOEV)

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. 

8. Niu Technologies (NASDAQ:NIU)

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. 

7. Hyzon Motors Inc. (NASDAQ:HYZN)

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. 

6. Proterra Inc. (NASDAQ:PTRA)

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.

5. America’s Car-Mart, Inc. (NASDAQ:CRMT)

Number of Hedge Fund Holders: 12

America’s Car-Mart, Inc. (NASDAQ:CRMT) is an automotive retailer that specializes in selling older model used vehicles and offering financing options to its customers. The company was established in 1981 and is headquartered in Rogers, Arkansas. America’s Car-Mart, Inc. (NASDAQ:CRMT) is one of the best automotive stocks to watch. On May 24, the company FQ4 GAAP EPS of $0.32 and a revenue of $388.3 million. Revenue for the quarter increased 12.2% year-over-year and outperformed Wall Street estimates by $20.37 million. 

According to Insider Monkey’s first quarter database, 12 hedge funds were bullish on America’s Car-Mart, Inc. (NASDAQ:CRMT), compared to 13 funds in the prior quarter. Adam Peterson’s Magnolia Capital Fund is the largest stakeholder of the company, with 725,500 shares worth $57.4 million. 

Here is what Merion Road Capital specifically said about America’s Car-Mart, Inc. (NASDAQ:CRMT) in its Q3 2022 investor letter:

“During the quarter I initiated a position in America’s Car-Mart, Inc. (NASDAQ:CRMT). CRMT is a used auto retailer and financing company serving low-end consumers. Given their focus on rural areas with limited public transportation, CRMT offers an essential service – a way for poor credit quality customers to get to work. As you might expect, loan charge-offs have averaged 25% annually and typically occur when a customer loses their job or the car breaks down. To offset this risk, CRMT charges a hefty 16% annual rate.

You might wonder why I would buy this given the economic sensitivity of the low-end consumer and falling auto prices. Should unemployment pick-up we will likely see increasing loss incidence rates. And with falling auto prices it would be logical to assume that their upfront margins would compress and loss recovery rates would fall.

Over the past two decades CRMT loss reserves peaked two times to the 32-35% range. In both of these periods CRMT loss expenses exceeded actual charge-offs of 30-33% as the company had to increase their balance sheet reserves. The good news is that, today, balance sheet reserves are already at the high end of the range at 22.4%. Even considering those previous catch-ups, CRMT has been profitable every year over this time frame. Of course, it is entirely possible that we enter another period of high charge-offs. But these are relatively short-term loans (42 months on average) where the majority of defaults occur within the first twelve months. Given the quick turnaround, CRMT has the opportunity to adjust its underwriting standards in real time. As of last quarter loan’s delinquent 30 days or more stood at 3.6%, slightly below the long-term average. Furthermore, in April of this year the company financed half of their loans via a non-recourse securitization. Not only does this diversify their funding sources, but it also helps ringfence some risks to the enterprise…” (Click here to read the full text)

4. Faraday Future Intelligent Electric Inc. (NASDAQ:FFIE)

Number of Hedge Fund Holders: 14

Faraday Future Intelligent Electric Inc. (NASDAQ:FFIE) is involved in the design, development, manufacturing, engineering, and distribution of electric vehicles and related accessories. It was incorporated in 2014 and is headquartered in Los Angeles, California. Faraday Future Intelligent Electric Inc. (NASDAQ:FFIE) is one of the best automotive stocks to monitor. 

On June 27, Faraday Future Intelligent Electric (NASDAQ:FFIE) secured an additional funding commitment of $90 million along with the acceleration of an existing commitment of $15 million. The investment round was led by ATW Partners Funds and Senyun International. This financing will aid in the continued production and delivery of the FF 91 electric vehicle and support the company’s long-term strategic objectives.

According to Insider Monkey’s first quarter database, 14 hedge funds were bullish on Faraday Future Intelligent Electric (NASDAQ:FFIE), with combined stakes worth $2.3 million. Ryan Tolkin’s Schonfeld Strategic Advisors is a prominent stakeholder of the company, with 528,000 worth $186,964. 

3. OPENLANE, Inc. (NYSE:KAR)

Number of Hedge Fund Holders: 17

OPENLANE, Inc. (NYSE:KAR) operates a digital marketplace for used vehicles. It serves as a platform connecting sellers and buyers in multiple regions, including North America, Europe, the Philippines, and Uruguay. OPENLANE, Inc. (NYSE:KAR) is one of the best automotive stocks to invest in. On May 2, the company reported Q1 GAAP earnings per share of $0.01, in line with market consensus. Revenue for the quarter increased 13.9% year-over-year to $420.6 million, outperforming Wall Street estimates by $33.12 million. 

According to Insider Monkey’s first quarter database, 17 hedge funds  were bullish on OPENLANE, Inc. (NYSE:KAR), compared to 19 funds in the prior quarter. Amy Minella’s Cardinal Capital is the largest stakeholder of the company, with 5 million shares worth $69 million. 

White Brook Capital made the following comment about KAR Auction Services, Inc. (NYSE:KAR) in its Q1 2023 investor letter:

“KAR Auction Services, Inc. (NYSE:KAR): More constrained banks have resulted in higher yields for incumbent non-bank dealer floor plan financing companies. This should positively impact the ability of KAR, a very large dealer floor plan lender, to lend profitably at higher yields.

KAR’s loans are typically installment loans where the principal must be paid along with interest.  Higher yields on still-high used car prices should incentivize dealers to wholesale cars they cannot retail more quickly and to accept lower bids for those cars when they do try to wholesale them. This is a positive for the fundamentals of both company divisions that has gone largely unappreciated.”

2. Cars.com Inc. (NYSE:CARS)

Number of Hedge Fund Holders: 17

Cars.com Inc. (NYSE:CARS) operates a digital marketplace for the automotive industry. The company facilitates connections between dealers and manufacturers with potential buyers, offering financing tools for instant online loan screening and approvals. Cars.com Inc. (NYSE:CARS) is one of the top automotive stocks to monitor. On May 4, the company reported a Q1 GAAP EPS of $0.17 and its revenue came in at $167.1 million, up 5.6% compared to the prior-year quarter. The number of Average Monthly Unique Visitors (UVs) increased by 7% year-over-year, reaching 28.5 million. Additionally, web traffic saw an 11% year-over-year growth, amounting to 164.8 million views.

According to Insider Monkey’s first quarter database, 17 hedge funds were bullish on Cars.com Inc. (NYSE:CARS), compared to 14 funds in the earlier quarter. Bruce Emery’s Greenvale Capital is the leading stakeholder of the company, with 5 million shares worth $96.50 million.

Here is what Spree Capital Advisers has to say about Cars.com Inc. (NYSE:CARS) in its Q1 2021 investor letter:

“Our businesses are doing well, and thus we only made one minor adjustment to the portfolio. In the first quarter we sold Cars.com (CARS) in order to redeploy funds elsewhere. Our return on CARS of 40% hit our bogey over our nearly two-year holding period but extracted a modest opportunity cost as it underperformed the rest of the portfolio. Our returns and exposure continue to be weighted towards high quality businesses with long duration runways for scalable revenue and earnings growth.”

1. Sonic Automotive, Inc. (NYSE:SAH)

Number of Hedge Fund Holders: 20

Sonic Automotive, Inc. (NYSE:SAH) is an automotive retailer in the United States with its operations divided into three segments – Franchised Dealerships, EchoPark, and Powersports. On July 27, Sonic Automotive, Inc. (NYSE:SAH) reported a Q2 non-GAAP EPS of $1.83 and a revenue of $3.65 billion, surpassing Wall Street estimates by $0.19 and $50 million, respectively. Sonic Automotive, Inc. (NYSE:SAH) is one of the best automotive stocks to invest in. 

According to Insider Monkey’s first quarter database, 20 hedge funds were bullish on Sonic Automotive, Inc. (NYSE:SAH), compared to 22 funds in the prior quarter. Michael Moriarty’s Teewinot Capital Advisers is the biggest stakeholder of the company, with 244,695 shares worth $13.3 million. 

Insider Monkey focuses on uncovering the best investment ideas of hedge funds and insiders. Please subscribe to our free daily enewsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below. You can also check out 10 Best August Dividend Stocks To Buy and 12 Best Small Cap Tech Stocks To Buy.

Suggested articles:

• 20 Expensive Places to Retire That Are Worth It
• 15 Biggest Green Tech Companies in the World
• 11 Oversold Dividend Stocks to Invest In

Disclosure: None. 10 Best Small Cap Automotive Stocks To Buy is originally published on Insider Monkey.