Car-Ful" Considerations: Navigating The Road To Automotive Investment

Investing in cars is not for the faint of heart. It requires a significant amount of capital, knowledge, and a willingness to accept high carrying costs. However, for automotive aficionados, it can be a rewarding endeavour, both financially and personally.

When it comes to what car to buy as an investment, there are a few key factors to consider. Firstly, it is important to look for vehicles that are rare and desirable, as this will drive up their value over time. This could include limited-edition models, cars with unique features or capabilities, or those with a notable presence in pop culture. For example, the 1982 DeLorean DMC-12 from Back to the Future gained a new lease of life thanks to its appearance in the film.

Secondly, it is crucial to do your research and identify cars that are at the right point in their depreciation curve. While new cars can lose value quickly, some mature classics have reached the bottom of their depreciation and may start to appreciate, especially if they are well-maintained and in high demand. This was the case for the 1986-1991 Mercedes-Benz 300SE-W126, which had a 95% return on investment over a one-year period.

Thirdly, it is beneficial to diversify your investment portfolio by choosing cars from different eras and categories. Classic cars, for instance, refer to vehicles built up to the year 2000, including modern classics like the 1994 Toyota Supra A80 and European hot hatches. Antique cars, on the other hand, are those manufactured before 1975, like the golden age of American muscle cars. Finally, vintage cars are those produced before 1930, such as the 1926 Bugatti Type 41 Royale.

Lastly, it is essential to remember that investing in cars comes with risks. The market can be unpredictable, and there is no guarantee that a particular car will appreciate in value. Additionally, the costs of maintenance, preservation, insurance, and taxes can eat into any profits made from the sale of the vehicle.

In conclusion, investing in cars can be a lucrative and enjoyable endeavour for those with the necessary capital and knowledge. By considering factors such as rarity, depreciation curves, and diversification, investors can make informed decisions about which cars to add to their portfolio. However, it is important to approach car investing with caution and be prepared for potential risks and costs.

Classic cars as an investment

Classic cars are a niche market for connoisseurs, the well-to-do, and high-net-worth individuals who can afford the costs of entry. They are quite unlike any other collectible because they require maintenance and mechanical expertise to keep them in good condition.

The value of classic cars relies on several factors, including supply and demand, geography, automotive performance, and notoriety. The rarer a car is, the more likely it is to appreciate in value. For example, the Vauxhall Monaro is a unique, old-school Aussie muscle car with a powerful V8 engine. Only a few examples made it to the UK, so choice is limited, and values are only heading one way – up.

The Lotus Elise Series 1 is another example of a classic car that has appreciated in value. With brilliant driving dynamics, low kerb weight, and head-turning design, the mid-engined two-seater was an instant hit when it arrived in 1996, saving the cash-strapped Lotus firm. The first generation is the purest and most desirable model, and with only 725kg of kerb weight and a zesty 118bhp 1.8-litre Rover K-series motor, the original Elise will go down as one of the all-time greats.

The Porsche Carrera GT is another classic car that has proven to be a good investment. According to a study by Classic.com, this sports car had an 80% return on investment (ROI) in the last year, with an average sales price of $1.6 million. Only 16 of these Porsche Carrera GTs have sold in the last year, making it quite a rare find.

The Mercedes-Benz 300SE-W126 is another classic car that has performed well as an investment. According to Classic.com, this model had a 95% ROI since June 30, 2021, the highest of any vehicle type in their study. The cheapest sale for this Mercedes in the past year was $3,600, while the most expensive was $28,3000.

When it comes to investing in classic cars, it is important to remember that not every vehicle will appreciate in value. For example, the Mercedes-Benz 230SL Pagoda (1963-1967) had a -16% ROI in the past year. Additionally, classic cars require a significant amount of maintenance and can come with high carrying costs, including insurance, storage, and taxes.

However, for automotive enthusiasts with the capital and knowledge, investing in classic cars can be a rewarding experience, both financially and emotionally.

Online auctions for investment cars

Online auctions have become an increasingly popular way to buy and sell cars, with the COVID-19 pandemic playing a significant role in this shift. As per a study by Classic.com, the top ten vehicle types that provided the highest return on investment (ROI) in the past year were:

• Mercedes-Benz 200SE-W126 (1986–1991) – 95% ROI
• GMC Typhoon (1992–1993) – 83% ROI
• Porsche Carrera GT (2004–2006) – 80% ROI
• Porsche 928 – Base Model, Automatic (1978–1982) – 77% ROI
• BMW 633CSi – Manual, E24 (1978–1984) – 73% ROI
• BMW 540i – E34 (1992–1996) – 72% ROI
• Mini Cooper S Convertible – 1st Gen (2005–2008) – 71% ROI
• BMW 535is – E28 (1987–1988) – 62% ROI
• Honda S2000 CR – AP2 (2007–2009) – 59% ROI
• BMW M6 Convertible – Manual (2007–2010) – 58% ROI

Online auction websites such as ACV Auctions and Capital Auto Auction provide a platform for buyers and sellers to interact. ACV Auctions, for instance, offers a wide range of vehicles, including sports cars, luxury cars, SUVs, and trucks, and provides services such as transportation, flooring, inventory management, and vehicle appraisal. Capital Auto Auction, on the other hand, hosts live online car auctions, offering a variety of vehicles such as repossessions, dealer consignments, government vehicles, and donations. They also provide the option to sell or donate your vehicle.

When considering investing in a car, it is important to remember that the best investment car to buy is one that you personally desire, as the value may decrease over time. Additionally, factors such as the favourable economy, reduced availability of used cars, and the proliferation of online auctions have contributed to the growth of this market.

Future classic cars

When it comes to buying a car as an investment, it's important to remember that most cars lose money over time. However, some vehicles can reverse this trend and appreciate in value as they age and become more desirable.

Honda Civic Type R (2018-Present)

With relatively low production numbers, fun dynamics, and a cult following, the Honda Civic Type R is expected to remain desirable for years to come.

Chevrolet Camaro Z/28 (2014-2015)

The Camaro Z/28 is a rare track-focused car that is unlikely to be seen on the road, making it a valuable collectible item.

BMW 1 Series M (2011)

The BMW 1 Series M, also known as the 1M, is a small, fast, comfortable, and fun-to-drive car that gained value as soon as it drove off the lot.

Honda S2000 (2000-2009)

The Honda S2000 was Honda's last true sports car, known for its naturally aspirated VTEC four-cylinder engine and enjoyable driving experience. Prices for good examples are starting to climb, so it may be a good idea to buy one soon.

Porsche Cayman GT4/Boxster Spyder (2016-Present)

The Porsche Cayman GT4 and Boxster Spyder are dedicated to enthusiasts, offering a flat-six engine, a six-speed manual transmission, and upgraded aero and suspension. These cars check all the boxes for desirable future classics.

Lotus Elise (2005-2011)

The Lotus Elise is a lightweight and agile car known for its exceptional handling. With limited sales in the US, the second-generation Elise is expected to gain value over time.

Ford F-150 SVT Raptor (2010-2014)

The first-generation Ford F-150 SVT Raptor is a cool truck with a statement-making presence, whether you choose the turbocharged V6 or the 6.2-litre Boss V8 engine. Its limited production and unique characteristics make it a potential future classic.

Pontiac Solstice Coupe (2009-2010)

The Pontiac Solstice Coupe is a rare two-seater, rear-wheel-drive car with a manual gearbox. With only 1,266 coupes built compared to 64,000 roadsters, the limited production and desirability of this car make it a potential future classic.

Subaru WRX Hatchback (2008-2014)

The Subaru WRX Hatchback, including both the base WRX and the faster STI versions, is a hot hatch that offers explosive fun and practicality. The rarity of hatchback body styles in collectible cars further enhances its potential for future appreciation.

Cadillac CTS-V Wagon (2011-2014)

The Cadillac CTS-V Wagon combines a supercharged V8 engine, a manual transmission, and a wagon body style, making it a unique and desirable future classic. Its limited production and appreciation among automotive journalists further contribute to its potential for value appreciation.

Electric cars as an investment

Electric cars have become an attractive investment option for environmentally conscious investors. They offer a solution to car and truck emissions, which make up about a quarter of all greenhouse gases. The impact and threat of climate change have turned electric vehicles into a booming market for both consumers and investors.

How to Invest in Electric Cars

There are several ways to invest in the electric vehicle (EV) market:

• Direct investment in EV manufacturers: The most direct way to invest in any technology is to purchase stock in the companies that make those products. As a result, you could buy stock in companies that manufacture electric vehicles, such as Tesla (TSLA), Li Auto Inc. (LI), Nio Inc. (NIO), Nikola Corp. (NKLA), and Canoo Inc. (GOEV). However, it is important to note that stocks like Tesla have been particularly volatile in recent years.
• Investment in legacy carmakers: You can also invest in legacy car manufacturers that are expanding into the EV market, such as General Motors (GM), Toyota (TM), Honda (HMC), and Ford (F). Ford's F-150 Lightning, an all-electric version of the popular F-150 truck, is a notable example.
• Commercial EV manufacturers: Emerging companies like Rivian, which has a deal with Amazon Prime, and BYD are commercial EV manufacturers that offer investment opportunities. Some legacy firms like Peterbilt (PCAR), Daimler, and Volvo have also started competing in the electric truck market.
• EV parts and suppliers: Automakers have vast networks of suppliers, and electric cars are no different. You can invest in companies that supply automakers with EV parts, motors, and batteries. Many electric cars rely on parts sourced from other countries, particularly Korea and China, with companies like CATL, BYD, and LG Energy Solution providing batteries. NVIDIA (NVDA), known for its graphics cards, is another example of a company branching out into self-driving technology for EVs.
• Exchange-Traded Funds (ETFs): ETFs that track the electric vehicle industry are another option for investors. These funds allow investors to purchase shares in funds that track the development of the EV sector. Significant ETFs in this space include QCLN and LIT. The First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN) includes Tesla among its holdings, while the Global X Lithium (LIT) ETF tracks lithium suppliers and battery companies like Albemarle Corp. and Yunnan Energy-A Ltd.
• Commodities contracts: As electric cars require large quantities of commodities related to energy and magnetics (lithium, nickel, cobalt, graphite, aluminum, and manganese), investing in these commodities can be a way to get in on the "ground floor" of the EV market. However, this approach also exposes investors to the volatile commodities marketplace.

While the primary focus of this article is on investing in the electric vehicle industry, it is worth noting that electric cars themselves can also be considered investment vehicles, particularly classic or rare models. As the internal combustion engine era comes to an end, certain exciting and petrol-powered cars may become more covetable and valuable.

Additionally, electric cars themselves can be a wise investment for those looking to reduce their environmental impact and save on fuel costs over time. However, this depends on factors such as the availability of charging infrastructure and the type of electricity generation in your region.

Final Thoughts

The electric vehicle market is still in its relatively early stages, with about 5% of all new car sales in the United States being electric. However, this number is expected to grow substantially in the next decade, presenting numerous investment opportunities along the way. As with any investment, careful consideration and evaluation of the potential risks and returns are essential before making any decisions.

Factors that determine the value of an investment car

Rarity

The rarer the car, the more likely it is to appreciate in value. For example, the R53 Mini Cooper S JCW GP, of which only 2,000 were made, is expected to be an appreciating asset. Similarly, the Renault Megane R26.R, of which only 159 were built, is another example of a rare car that is likely to increase in value.

Desirability

Cars that are desirable to car enthusiasts are more likely to be good investments. For example, the Lotus Elise S1 is considered one of the best-handling cars ever made, and its aluminium structure was pioneering at the time. The Lotus Exige is another example of a car that is desirable due to its lightweight design and excellent handling.

Condition

The condition of a car is an important factor in determining its value. A car that is in excellent condition, with low mileage and no significant wear and tear, will be worth more than a car that is in poor condition, with high mileage and significant wear and tear.

Maintenance and Service History

A car that has been well-maintained and has a full service history will be worth more than a car that has not been properly maintained or has a spotty service history. It is important to keep up with regular maintenance and to address any issues or problems as they arise.

Location

The location of the vehicle can also play a role in its value. Certain types of vehicles are more popular in certain areas. For example, convertibles and sports cars tend to command higher prices along the coasts and in warmer climates, while four-wheel-drive trucks and SUVs are more sought-after in areas that get a lot of snow.

Options and Features

The options and features that a car has can also affect its value. Some options that tend to hold their value well include diesel engines, all-wheel drive, panoramic moon roofs, premium sound systems, and leather seats. On the other hand, personalising a car with aftermarket options such as oversized wheels or stereo speakers can often hurt its value, as buyers may not share the previous owner's taste.

Market Trends and Demand

The value of an investment car can also be influenced by market trends and demand. For example, the recent ban on sales of new petrol and diesel cars may impact the used car market in ways that are difficult to predict. Additionally, the COVID-19 pandemic led to a reduced availability of used cars, which contributed to an increase in used car prices.

Frequently asked questions