2 Domestic Auto Players to Buy Even as the Industry Struggles

The U.S. domestic auto industry faces significant headwinds, including 25% tariffs, slowing new vehicle sales (May at 15.6M units), and margin compression from rising costs and incentives, leading major automakers to revise guidance. Despite this challenging outlook, which ranks the industry in the bottom 14% of Zacks sectors, Rivian Automotive (RIVN) and Lucid Group (LCID) are identified as relative opportunities. Rivian's strategy centers on its more affordable R2 SUV for 2026, achieving a 17% gross margin, and significantly reducing EBITDA losses, supported by a Volkswagen partnership. Lucid, financially backed by Saudi Arabia's PIF, is expanding its market with the Gravity SUV, targeting 20,000 units sold in 2025, and has demonstrated improved cost controls by cutting its Q1 2025 net loss to $366.7 million. Both EV makers are leveraging new product launches, supply chain localization, and financial support to enhance competitiveness amidst industry struggles.

Analysis

The U.S. domestic auto industry is navigating a challenging environment characterized by significant macroeconomic and policy-driven headwinds. The imposition of 25% tariffs on imported vehicles and parts is directly impacting supply chains and profitability, prompting major automakers like Ford, GM, and Tesla to withdraw or lower their financial guidance. This pressure is compounded by a slowdown in new vehicle sales, which fell to a 15.6 million unit pace in May, and margin compression from rising incentives that now average 6.8% of the average transaction price of $48,799. The sector's bleak near-term outlook is quantified by its Zacks Industry Rank in the bottom 14% of industries, with aggregate 2025 earnings estimates having declined 63.6% over the past year. In contrast to the struggling incumbents, EV-focused manufacturers Rivian (RIVN) and Lucid (LCID) are presented as distinct investment opportunities. Rivian is demonstrating operational improvement, having posted a 17% gross margin and cut its projected 2024 EBITDA loss by 29% to $2.7 billion, with its future growth contingent on the 2026 launch of its more affordable R2 SUV. Similarly, Lucid, backed by Saudi Arabia's PIF, is expanding its target market with the Gravity SUV and improving its financial discipline, evidenced by a reduced Q1 2025 net loss of $366.7 million and a target to double vehicle sales to 20,000 in 2025.

Key Decisions for Investors

• Investors should exercise caution on broad domestic auto sector exposure due to negative guidance from legacy automakers and persistent margin pressure from tariffs and incentives.
• For those considering Rivian, focus should be on execution milestones related to the 2026 R2 platform and continued progress in reducing its EBITDA loss, which is a key indicator of its path to profitability.
• Lucid's investment case hinges on its ability to scale production for the new Gravity SUV and achieve its 2025 sales target of 20,000 vehicles, making these critical metrics to monitor.
• While Rivian and Lucid show promise, their high-growth forecasts are subject to risks from a potentially uneven EV transition and policy uncertainty, warranting close attention to market share and adoption rates.