2025 could be the year of the automotive as Donald Trump takes up the U.S. presidency. Within the automotive space, the trend of gasoline cars could return as Trump announces his intention to make cars affordable. A policy-level change in the second-largest automotive market could drive the sector to recovery after a more than three-year downturn. The change in the United States could bode well for Canadian investors who purchased automotive-related stocks like Magna International (TSX:MG) in the downturn.
How could the automotive mega trend shape Canadian investments in 2025?
Magna International is a components supplier for several automotive companies. The stock saw a 125% jump in 2021 when Joe Biden was elected U.S. president and announced support for electric vehicles (EVs). Automotive is a cyclical industry that has undergone a downcycle. The upturn of the industry requires strong economic growth, lower interest rates, and higher disposable income.
The last time the sector saw a rally was when the world came out of the first wave of the pandemic in 2021. People had money, interest rates were at a record low, and the cost of cars was affordable. However, the semiconductor supply headwinds followed by demand headwinds like high interest rates, high cost of EVs, rising gasoline prices, and economic uncertainty slowed demand. Automotive company Fisker filed for bankruptcy, while several car companies switched to hybrid models.
Magna stock took a significant hit as the company was one of the largest suppliers of top car makers. It even wrote off costs associated with its operations for Fisker.
Donald Trump plans to boost oil production and bring down the cost of gasoline. Moreover, he plans to end the EV mandate. This will reverse the trend and shift automakers to producing gasoline cars at affordable prices. A reduction in corporate taxes and an increase in jobs could give consumers buying power that could boost automotive sales.
Canadian automotive-related stocks that could buck the 2025 megatrend
Magna has several assembly plants in the United States. Around 18% of its sales volumes come from North America. Trump’s automotive and energy policy could bode well for the auto sector. However, the rules around higher import tariffs could adversely impact Magna’s earnings.
In the upcoming earnings on February 21, Magna’s management will shed some light on the impact of Trump’s policies on the company. Despite the tariff, the company could benefit from rising automotive demand.
BlackBerry stock
Although I am bearish on BlackBerry (TSX:BB) stock’s long-term recovery, a sudden jump in automotive sales could unlock US$816 million in royalty revenue. The company makes QNX software for cars and other embedded devices. It earns revenue in two stages: the design stage and the production stage. The company secured design wins for several car models from top automakers. A significant portion of this revenue will be unlocked when the cars equipped with QNX software are produced and sold.
However, the royalty revenue can keep the ball rolling till the automotive upcycle lasts. And not to forget, automotive software is a competitive space.
Investing strategy for auto stocks
If you purchased BlackBerry stock below $4, you could consider holding it and see how the fresh demand for cars fares for the software company. At the same time, you could consider buying Magna stock while it still trades below $60. The four-year-long downturn could probably end, and the stock could see a recovery this year. In the meantime, a 4.59% dividend yield can keep your money growing with inflation.
