2 Domestic Auto Stocks to Buy Amid EV Incentive Expiry, Industry Woes

The domestic auto industry faces significant headwinds, including a projected sharp decline in EV sales as tax credits expire post-September, persistent high auto loan rates despite Fed cuts, and rising vehicle prices due to tight inventory and tariffs, contributing to a negative earnings outlook and a low Zacks Industry Rank. Despite these challenges, the sector has outperformed the S&P 500 over the past year. The article identifies Blue Bird Corporation (BLBD) and Xos, Inc. (XOS) as compelling investment opportunities, citing BLBD's robust demand for zero-emission school buses and raised EBITDA guidance, alongside XOS's growing electric truck deliveries, diversified revenue streams, and improving financial performance.

Analysis

The U.S. domestic auto industry is confronting a confluence of headwinds that temper its near-term outlook, despite recent outperformance against the broader market. Industry-wide EV sales experienced a significant surge in August, rising 14.1% from July to a record 146,332 units, driven by consumers rushing to secure a $7,500 tax credit before its expiration at the end of September. This policy-driven demand is expected to result in a sharp pullback in subsequent quarters. Compounding this issue are persistent affordability challenges; although the Federal Reserve implemented a 25 basis point rate cut, meaningful relief in auto loan rates is not anticipated until 2026 or later. Simultaneously, strong new vehicle sales, with a seasonally adjusted annual rate exceeding 16 million, are tightening inventories and, along with tariff impacts, are pushing prices higher, potentially slowing market momentum. This environment is reflected in the sector's Zacks Industry Rank of #147, placing it in the bottom 40% of industries due to a negative aggregate earnings outlook, highlighted by a 55% decline in 2025 earnings estimates over the past year. In contrast to this bleak industry-wide forecast, specialized EV manufacturers Blue Bird (BLBD) and Xos (XOS) demonstrate strong fundamentals. Blue Bird, a leader in electric school buses, raised its full-year adjusted EBITDA guidance to $205-$215 million and maintains a robust backlog of approximately 3,900 units. Xos reported a 50% year-over-year increase in unit deliveries, achieved positive free cash flow of $4.6 million, and narrowed its operating loss, indicating improving operational efficiency and financial discipline.

Key Decisions for Investors

• Investors should exercise caution regarding broad exposure to the domestic auto sector, given the impending EV demand cliff post-tax credit expiry and sustained pressure on consumer affordability from high financing costs.
• Consider long positions in niche commercial EV players like Blue Bird (BLBD), which demonstrates insulation from sector-wide consumer weakness through its strong backlog, raised EBITDA guidance, and leadership in the government-supported school bus market.
• For those with a higher risk tolerance, Xos (XOS) presents a speculative opportunity based on its improving operational metrics, including record unit deliveries, positive free cash flow, and growing adoption by major logistics fleets, suggesting a potential turnaround.
• Closely monitor post-September EV sales data to assess the magnitude of the demand contraction and track long-term Treasury yields for any signs of earlier-than-expected relief in auto financing costs, as these are critical variables for the sector's performance.