I would probably not be where I am today without the UK automobile industry. My father’s business sold packing cases to Ford, used to export car parts to Africa for assembly. The cases were so big that they were used as houses by homeless locals.
For Dad, however, they were an essential part of his livelihood. That was when the UK was an automotive powerhouse, a leading exporter and home to some of the best-known cars in the world, from luxury models to runarounds.
Virtually every famous British brand has now been snapped up by foreign owners. BMW picked off Rolls-Royce and Mini, Volkswagen slid into the driving seat at Bentley, Indian car giant Tata Motors owns Jaguar and Land Rover. Our global market share has slipped to below 10 per cent and production has slumped from 1.7 million cars in 2016 to around 700,000 today.
The decline is distressing and sentiment is gloomy. Green-inclined governments the world over are keen to shift drivers from conventional diesel and petrol cars to electric vehicles (EVs). The UK is determined to go one step further. This year alone, car makers in this country have been told that 22 per cent of new sales must be electric, rising to 28 per cent next year and becoming increasingly ambitious out to 2030 and beyond.
Firms have responded by reducing production of old-school motors and moving towards full-scale EV lines. But the average price tops £45,000, there are not enough charging points, top-up prices vary hugely and many drivers prefer to stick with what they know.
Desperate car makers have slashed prices to fire up EV sales and meet targets. Figures last week showed that demand has picked up but only after firms spent around £4billion discounting electric models. Now they have had enough. Managers are calling for urgent change, workers are striking or threatening to down tools, factories are closing – and the road ahead is still filled with potholes. Suppliers have been hit hard too, with reports of falling revenues and fears about the future.
James Bond’s iconic Aston Martin DB5. For investors keen to back a UK-listed car maker, there is but one choice: Aston Martin Lagonda Global Holdings
The Aston Martin DB5 used on the set of ‘No time to die’ in Matera, Italy
But do not write off this industry. Jaguar’s latest attempts to be down with ‘the greenerati’ may have turned this iconic brand into a global laughing stock, but the UK still packs a punch in the motor world – and rewarding opportunities can be found for the canny investor. Despite successive setbacks, the automotive industry is our largest exporter of goods, with sales of around £100 billion a year. The sector can also boast of unparalleled breadth and variety, from high-end brands such as McLaren and Morgan to taxis, buses, trucks and many family motors. These firms are supported by thousands of component makers, engineers and entrepreneurs, some of which continue to do well despite tough market conditions.
Testing, testing
AB Dynamics exemplifies the breed. Founded in 1982 by Anthony Best, this Bath-based business tests vehicles to make sure they are safe, reliable and fit for the road.
A leader in its field, AB uses cutting-edge technology and has developed a global reputation for top-tier service. Revenues have almost doubled to £111million over the past five years, with profits up 50 per cent and the dividend streaking ahead by 73 per cent to 7.6p. AB shares have done well too, up 18 per cent this year alone to £20.64 and expected to rise materially from here.
Car makers may be suffering but vehicles still need to be tested. Safety regulation has intensified and many firms are pushing ahead with research and development to try and stay ahead of cheap Chinese competition. AB Dynamics has soared in price since Midas recommended the stock at £2.34 in 2015 but there should be more to come. With new products coming on stream at pace, this company shows UK innovation at its best.
The long road
Dowlais is a top supplier to the car industry. Known as GKN for most of its recent past, the firm fell victim to a controversial takeover from hostile bidder Melrose Industries in 2018. Five years later, Melrose spun off part of its acquisition to create Dowlais, named after the village in south Wales where GKN’s story began.
The company has fared poorly since rejoining the stock market. Hit by persistent problems across the automotive market, Dowlais shares have halved in value to 63p. The decline has come as no surprise to industry followers. Dowlais is a leading producer of critical parts, working with 90 per cent of manufacturers across the world. Half the vehicles on the road use Dowlais technology. The company is renowned for its kit and has become a pioneer in the development of electric cars as well. The group’s integral role in the industry is a blessing during good times but leaves chief executive Liam Butterworth vulnerable when conditions are tough.
Recent results make the point. Half-year figures showed declining sales, a chunky 32 per cent slump in profits to £95million and an admission from Butterworth that part of the business may be put up for sale. Prospects are uncertain, as the group’s key customers grapple with demanding EV targets, consumer apathy and intense competition. Sales and profits are likely to remain under pressure and dividends are forecast to remain unchanged at 4.2p this year and next. For patient investors, however, Dowlais’s woes could present an opportunity. Short-term turmoil may persist but at 63p, the shares should deliver over the longer term.
Auto appeal
Britain’s car industry spreads far beyond making vehicles and the bits that go in them. Crucially, they need to be sold. More than 500,000 people spend their working day trying to persuade cash-strapped consumers to buy new and used vehicles. Beyond the obvious challenges presented by inflation, high interest rates and supply chain difficulties, car retailers have battled with changing technology, shifting consumer habits and now a brewing scandal around mis-sold loans.
Many are flailing. Some continue to thrive. Take Auto Trader: founded back in the 1970s as a classified advertising specialist, Auto Trader has evolved to become the dominant player in online car sales. The transition involved hard work, foresight and serious investment, but it has paid off in spades.
Today, Auto Trader is ten times larger than its nearest competitor, selling millions of used cars and new ones, too. The group works with manufacturers, dealers and individual consumers, matching buyers’ needs with sellers’ products.
Sales, profits and dividends all rose at the half-year and brokers expect further gains for the 12 months to next March and beyond, including dividend increases from 9.6p last year to 10.4p for 2025 and 11.6p the year after. As the company has grown, so its share price has motored ahead. Floated on the stock market at £2.35 in 2015, the stock has risen consistently since then and today tops £8.40.
Yet chief executive Nathan Coe does not rest on his laurels. Deal Builder, launched in 2023, allows consumers to do as much or as little as they like online, including part exchange, applying for finance, reserving a specific vehicle and arranging delivery. It has proved highly popular and just been followed by a new tool – Co-Driver – which uses AI to make buying and selling easier for customers and dealers alike.
Coe is relatively cautious about the future and Auto Trader shares may well tread water for a while, but the used-car market is far more robust than its new equivalent – and this is Auto’s sweet spot.
Focused and innovative, the business has shown its mettle and should repay loyal investors.
Time to deal
Motorpoint specialises in used cars, sold via dealerships or online. The shares have had a torrid time, slumping from £3.40 to £1.38 in the past two years, as the business has dealt with tricky markets, constrained supplies and, in recent months, concerns that it may be caught up in the car loans mis-selling scandal.
Longstanding boss Mark Carpenter tried to calm nerves in November, unveiling a return to profit after losses last year, an increase in cars sold and an expression of quiet confidence in the future. Carpenter also declared that measures have been taken around car loans and that the saga should not affect profit expectations for 2025.
Nervous investors may still choose to steer clear of the business; opportunists may sense a bargain at current levels. Motorpoint is well managed and the shares could gain ground as external conditions improve.
Fit for royalty
King Charles was presented with a DB6 Volante by the late Queen on his 21st birthday and has been an enthusiast ever since
For investors keen to back a UK-listed car maker, there is but one choice: Aston Martin Lagonda Global Holdings. One of the most revered brands in the industry, Aston Martin made its name in James Bond films but is also a favourite of the Royal Family.
King Charles was presented with a DB6 Volante by the late Queen on his 21st birthday and has been an enthusiast ever since, converting one model to an eco-roadster run on cheese and wine. Other proud owners include David Beckham and Gordon Ramsay, while even Margot Robbie has been seen at the wheel of a top-end DB12. Sadly, however, the firm’s glamorous fan club has done little for its share price.
After joining the stock market in 2018 at £19, Aston Martin has had a tumultuous six years, punctuated by profit warnings, fund raisings and management changes. Today, the stock is trading at just £1.10, after admitting days ago that earnings would fall short of expectations this year.
Fancy toys attract wealthy boys, and Aston Martin is chaired by Lawrence Stroll, a Canadian billionaire who owns the car maker’s F1 team. He remains upbeat about Aston Martin’s prospects, following a pivot from high-end to ultra-luxury, with models such as the new, limited edition Valiant costing in excess of £2million.
Optimists believe the shares could reach £2 next year but past performance does not inspire confidence. As Dan Coatsworth of AJ Bell points out, the group has been declared bankrupt seven times and suffers from a groaning debt pile. This share is for patriotic adventurers only.
Car makers and their suppliers are clamouring for change. They point out that the shift to an EV future cannot happen without a pick-up in consumer demand.
Other countries have lined motorists’ pockets with incentives. Britain’s industry is calling for similar inducements, from less-punitive taxation and a temporary reduction in VAT to fairer charge-point fees out of the home.
Much is at stake. The UK has a long and proud history in the automobile industry, many marques are world-renowned and the sector is a source of constant research and innovation. Some firms have proved their resilience even as others have struggled.
If the Government recognises the wealth creation this industry provides and acts accordingly, many more companies could shift into gear and deliver rewards for their investors.
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