5 Key Auto Stocks to Buy or Avoid for 2025: BofA

BofA Securities notes that European car manufacturers will face price pressures, regulatory hurdles, and competition from Tesla (NASDAQ:TSLA) and Chinese rivals in 2025. The firm stated in a note that while established car manufacturers are confronted with profit margin risks, selected automotive suppliers and several OEMs present attractive opportunities.

The broker listed its views along with "buy" ratings for the following stocks:

Continental: The firm recommends Continental, citing potential value unlocking from the planned automotive spin-off, cost savings from restructuring, and semiconductor tailwinds expected to enhance growth in 2025-26.

Valeo (EPA:VLOF): Lower capital expenditures, cost savings, and more profitable contracts position Valeo for significant EBITDA and earnings per share growth. BofA also sees room for earnings or guidance surprises given the low market expectations.

Pirelli: With strong visibility for high single-digit earnings growth, Pirelli is well positioned in the challenging automotive sector. The resolution of Chinese shareholder uncertainty could further boost the stock.

Stellantis (NYSE:STLA): Following a transitional 2024, Stellantis is expected to rebound strongly in 2025 with improved fixed cost absorption and minimal impact from stricter CO2 regulations. Investor confidence may increase with the appointment of a new CEO by Chairman John Elkann.

BofA downgraded Mercedes-Benz (OTC:MBGAF) to "Underperform," citing a challenging 2025 marked by a weak model cycle and the transition to the MB.EA platform. The firm expects challenges to persist through 2026.

Car manufacturers are facing difficulties stemming from stricter EU emissions targets, which could impact profit margins unless delayed regulations provide relief.

However, suppliers appear better positioned to benefit from restructuring and lower input costs despite short-term risks, such as a potential Volkswagen (ETR:VOWG_p) strike early in 2025.