If you listen to the general narrative in the automotive industry, it's a dire one that warns of highly affordable and advanced Chinese electric vehicles (EVs) sweeping the globe in dominating fashion. There's certainly a lot of truth to that narrative, but many promising EV companies in China are busy battling themselves amid a brutal price war.

Nio (NYSE: NIO) is included, and despite the ongoing Chinese price war, the company has a couple of reasons for investors to remain optimistic.

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Profitable battery swaps?

For many investors, it feels like a double edged sword when it comes to Nio's battery swap ambitions. On one hand, it gives the company a unique competitive advantage since it has built out a leading battery-as-a-service network. On the other hand, it's quite an expensive endeavor for a company burning cash as profits remain in the distance.

There are positive signs for the battery-swap strategy. Only recently, Nio saw demand for these services spike to a record high 136,720 swaps in a single day on Feb. 3. The period from Jan 28 to Feb. 4 was China's New Year Holiday, with travel peaking before and after the dates. Between Jan. 22 and Feb. 5, Nio provided over 1.7 million battery swaps, a strong 44% increase compared to the prior year.

There are also signs that its customers prefer the option once they've tried it. During the previously mentioned time frame, 83.2% of the power added by Nio users on the highway came from battery swap stations. The even better news: This chunk of Nio's business and capital expenditures could break even by the end of 2026, according to a team at Chinese brokerage Western Securities.

The problem with Nio's battery swap business currently is that there simply isn't enough volume of swaps to generate enough revenue to cover day-to-day operations. According to Chief Financial Officer Stanley Qu, a battery swap station can break even if it serves 60 to 70 motorists a day. That's exactly what should happen, according to the analyst team. As new brands and new models ramp up in production and deliveries, more Nio users will use the battery swap technology.

A path to doubling sales

Nio has come a long way since launching the first ES8 premium SUV in 2018. The company now sells a list of options under its premium brand Nio, and began deliveries of its second brand, Onvo, late in 2024. Its third brand, Firefly, is set to begin deliveries in 2025 while continuing to accelerate production throughout the year.

Its second and third brands are intended to open the door to a much larger addressable audience with lower price tags. Management said on last November's earnings conference call that it was confident it could double sales in 2025 while still targeting 2026 for profitability.

That means Nio expects to deliver roughly 440,000 vehicles in 2025 on the backs of its newest brands and models. Not only would that do wonders for Nio's revenue, but the additional production capacity being used would also help the company's gross margin -- something that would be greatly appreciated by investors amid a brutal price war in China.

Is Nio a buy?

Nio has always been a compelling and unique option, thanks in part to its leading battery-swap network. The company's premium Nio brand has been well received, and its two newest brands, Onvo and Firefly, are poised to help double deliveries this year.

But the stock has shed 80% of its value over the past three years, the company is burning cash, and it faces a price war in China and tariff uncertainty overseas.

There's a lot of risk that comes with investing in companies such as Nio, but a lot of upside as well. Nio should always remain a small position in any portfolio, but despite a slow start to 2025 the company should begin succeeding on all its plans sooner, rather than later.

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It's been a wild ride for investors in Rivian Automotive (NASDAQ: RIVN) and Nio (NYSE: NIO), filled with ups and downs. Both companies have previously had solid momentum behind them, and faced headwinds, setbacks, or disruptions. Both also still have much to prove to investors.

One analyst recently cast doubt on Rivian's gross profit, and Nio will need to show that it can offset the effects of China's brutal price war. Let's dive into both electric vehicle (EV) makers below and see what may lay ahead for them.

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Gross profit in doubt?

One of the biggest takeaways from Rivian's fourth quarter was that it achieved $170 million in gross profit, which is simply total revenue minus the cost of revenue. It was a sizable win compared to analysts' estimates of $49 million in gross profit and was the company's first quarterly gross profit in its short history.

While the company certainly made progress -- Rivian's cost of revenue dropped 18.6% while revenue spiked 31.9% higher -- there was a small drawback. That came in the form of sharply higher sales of regulatory credits, which added $299 million in revenue during the fourth quarter. Regulatory credits are awarded to automakers that produce and sell electric vehicles, and the excess can be sold to other automakers that need the credits to meet emissions standards.

Rivian expects sales of regulatory credits to be similar for 2025 and guided for a positive gross profit for the full-year. Doing so would be a big step toward proving to investors that it has a path to profitability.

At least one analyst disagrees with Rivian's management. Bernstein's Daniel Roeska warned that the company may fail to reach that goal until 2027.

It's true that Rivian will face challenges. Its delivery growth has stalled, so much of the automaker's gross profit improvement will come from a reduction in revenue costs. The company lacks a revenue catalyst, with the R2 not set to hit the roads until the first half of 2026.

Gross profit will be something that analysts and investors both focus on throughout 2025, and it would go a long way if Rivian could achieve its full-year positive gross profit.

Where art thou, revenue growth?

Meanwhile, Nio is expected to see strong momentum throughout 2025, driven by two new brands, Onvo and Firefly. In fact, during Q4, the company's deliveries broke down to 52,760 from its premium Nio brand and 19,929 from its Onvo brand. As deliveries of both Onvo and Firefly accelerate it is expected to drive strong revenue and delivery growth, but that didn't materialize quite as expected during Q4 with Firefly only having just launched.

Nio's Q4 deliveries were up 45% compared to the prior year, but its total revenue jumped a much lesser 15.2%, suggesting that the exhaustingly brutal price war in China is having a large effect on its pricing power.

Nio's first-quarter deliveries were in line with management's guidance at 42,094. But investors must remember the disappointment from that guidance, as it fell far short of analysts' original expectation of 65,000 in deliveries.

Information source: Nio delivery press releases. Graphic source: Author.

Something to prove

Over the past three years, Rivian and Nio have shed 70% and 82% of their value, respectively, and both certainly have much to prove to investors on their way toward profitability. It won't happen overnight, but if Rivian can achieve full-year 2025 gross profit, perhaps even with less reliance on regulatory credit sales, and Nio can offset the weight of China's price war, both will set themselves up for a much brighter future.

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The markets received good news when it was announced that President Donald Trump would pause reciprocal tariffs on most countries for 90 days and is opting to implement a base 10% tariff on most goods. Automakers, however, didn't catch a break as the pause didn't extend to the 25% duty on vehicle imports.

Worse yet, the automotive industry is expected to get slapped with an additional 25% tariff on automotive parts next month. The problem for General Motors (NYSE: GM) investors is that this could force the company to change one thing it's done really well recently: buying back shares.

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Share buybacks

When it comes to share buybacks, General Motors has been in overdrive, eating up shares in recent years. Between 2023 and 2025, GM announced $16 billion in share buybacks, and it's had a significant impact on how the stock has traded. That's a huge amount when you consider that the Detroit automaker has a market capitalization of $45 billion. As GM started buying back large amounts of shares, you can see the impact on the stock price.

GM data by YCharts

The trend continues as GM just announced recently it approved a $0.03 per share increase to the dividend, or a 25% hike, and also a new $6 billion share repurchase authorization. Further, the automaker began an accelerated share repurchase program to execute $2 billion of the authorization in the near term.

Turbulent tariffs

Unfortunately, General Motors is perhaps the worst of its domestic peers to get hit by Trump's tariff plan. While it was recently announced that the reciprocal tariffs would be paused for most countries for 90 days, in favor of a base 10% tariff on most goods, the automotive tariffs were not included in that pause.

The reason behind GM's looming tariff pain is that while the company produces more than half of the vehicles that it sells in the U.S. domestically, only about a third of its vehicles are produced using American parts. That might not sound like a big deal, but take it from JPMorgan analyst Ryan Brinkman:

We estimate GM imports ~$56 billion of vehicles annually from Mexico and Canada, which after adjusting for content originating in the U.S. may amount to ~$38 billion--subject to a ~$10 billion tariff under a 25% rate .... For parts, we estimate GM's share of the ~$92 billion imported by the industry may be ~$4 billion, implying a total tariff exposure of ~$14 billion before coping mechanisms.

GM's larger reliance on imports and parts created significant downside, causing Brinkman to lower his GM price target by $11, down to $53 per share. GM was trading at roughly $44 Thursday morning.

What it all means

The impact from tariffs shouldn't be underestimated and could become crippling, and it puts GM in a tough position. One option is to pause the share buybacks to conserve cash, or in a show of strength it could press on with its accelerated purchase program. Your guess is as good as mine what GM will do, and management has mentioned the company is exploring several options to mitigate tariffs.

For investors, however, the pause of reciprocal tariffs is an example of how quickly these developments can reverse course. As crippling as these tariffs may be in the near term, it would be wise not to make any knee-jerk reactions, and over the long term GM will almost certainly continue returning significant value to shareholders through share buybacks.

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Detroit automakers can run but they can't hide from the potentially devastating impacts tariffs could have on their business. The stocks have been hammered all year long, some worse than others, and the true impact is yet to be felt.

Amid the slew of analyst downgrades and lowered price targets there's a reality that is setting in for some investors: Tariffs could cause Ford Motor Company (NYSE: F) to alter how it returns value to shareholders. In other words, Ford may be forced to cut its coveted dividend.

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Lucrative dividend

Ford has no doubt faced its share of challenges lately. The company is working to cut costs at the same time it's attempting to improve quality issues that have dinged the company's bottom-line through warranty costs. It has challenges in a tough Chinese market, and it's also burning through billions of dollars churning out each electric vehicle at a loss currently.

Throw in the potential impact of tariffs and it's not farfetched to think that Ford may have to cut its lucrative dividend, which remains one of the largest reasons to own the stock. Ford's current dividend yield sits at a lofty 7.8% due to the stock's sell-off, and trades at a paltry price-to-earnings ratio of 5.8.

"It is time to confront some hard truths, once more: vehicle tariffs have commenced, and parts tariffs are likely to follow within a month," wrote Bernstein analyst Daniel Roeska, according to Barron's. "We extend our company analysis to Ford and find significant downside not priced by the market yet."

He could be exactly right when it comes to the downside not being priced into Ford stock yet. As you can see in the graph below, likely thanks to having more production capacity located in the U.S., Ford's stock has shed less value than its competitors so far in 2025.

TSLA data by YCharts

The good news is that Ford shouldn't have to cut the dividend right away, as the company has ample liquidity to wait and see if the tariff drama ends in the near term, one way or another. In fact, you can see in the graph below that Ford has steadily improved its cash position and can easily cover the dividend.

F Cash and Equivalents (Annual) data by YCharts

How costly could it be?

The pain from the tariffs won't be completely felt through the 25% tariff on imported vehicles, but rather next month when another 25% tariff is expected to be slapped on imported automotive parts. For example, Ford produces about 82% of its U.S. sales domestically, but only about a third of its cars are built using domestic parts.

The cost could end up being significant. J.P. Morgan analyst Ryan Brinkman wrote in a note to investors that the current tariff proposals could cost Ford around $6 billion -- rival General Motors fared worse with his estimated cost reaching around $14 billion.

If there's anything to take away from this assessment, it's just how serious these tariffs could be. Not only could they affect Ford's bottom line, but if the tariff pain is extended long-term it could jeopardize the company's lucrative dividend.

With that said, if the dividend is a core part of why you're considering owning shares of Ford, understand that it will always be a focus for the company. Even if it is temporarily cut to mitigate tariff costs, it will one day reach its full potential again as management is committed to returning value to shareholders in that manner.

Should you invest $1,000 in Ford Motor Company right now?

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Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $495,226!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $679,900!*

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Daniel Miller has positions in Ford Motor Company and General Motors. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends General Motors and Stellantis. The Motley Fool has a disclosure policy.

Given how much news is swirling about this month regarding tariffs, you have likely heard about the 25% tariffs that the Trump administration slapped on all imported vehicles that began last week. On top of those steep import taxes, next month is scheduled to bring another 25% tariff on all automotive parts shipped in from outside the U.S. market.

It's a huge move, and potentially a very costly one for the automotive companies and for their customers. It has shaken the industry and sent many automotive stocks spiraling downward. Well, all except for one or two, including the often-overlooked Ferrari (NYSE: RACE).

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How's it looking?

It takes only a glance at year-to-date stock prices to see how devastating the tariff announcements have been.

Data by YCharts.

Investors might have thought Ferrari would be one of the hardest hit since the 25% tariff slapped on its imported ultra-luxury vehicles would be a much bigger chunk than, say, an average mainstream $40,000 vehicle. After all, this is the car company that produces the F80, which retails at a staggering $3.9 million before options!

While that's true, investors also have to consider context. That context is that Ferrari's typical consumer doesn't really have money issues. It's the driving force behind the stock's resiliency during a recession, since those consumers are less affected by such downturns and continue buying Ferraris regardless of the economic outlook.

Also weighing in its favor is that the company focuses on very strict exclusivity, going as far to limit the number of vehicles it sells to keep demand high and prices strong. You can see the pricing strength as recently as the fourth quarter when the number of Ferraris sold increased a modest 2% but its revenue jumped 14%. The average vehicle sold cost more than $500,000.

More good news

Even better, Ferrari's outstanding pricing power filters down to the bottom line as well. Operating profit jumped 26% year over year during the fourth quarter while earnings per share jumped a significant 32%. Ferrari is a cash-printing machine, but it's also incredibly consistent with revenue gains over the years, as you can see below.

Data by YCharts.

Even the slight dip caused by the pandemic didn't last for long. Ferrari historically trades at a premium, and rarely will investors get an opportunity to buy at a discount. But even so, the company launched a $2 billion share-buyback program in 2022, which suggests management believes it may still be undervalued.

To put in perspective how powerful Ferrari's pricing and margins are, simply compare them to mainstream automakers.

Data by YCharts; TTM = trailing 12 months.

To put it bluntly, not only is Ferrari arguably the best automotive stock to own, it's potentially one of the best stocks to own, period. Over the last 10 years, the stock price has zoomed 627% higher and left the S&P 500's 151% gain in the rearview mirror.

So, when it comes to automotive tariffs, don't be surprised if the automaker once again shows its resiliency and pricing power, since it almost certainly can and will pass the cost on to its lucrative target audience. It's just one more reason owning Ferrari is a smart investment, and even a small 6% dip year to date might be an entry point.

Should you invest $1,000 in Ferrari right now?

Before you buy stock in Ferrari, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Ferrari wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $578,035!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

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Daniel Miller has positions in Ford Motor Company and General Motors. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends General Motors and Stellantis. The Motley Fool has a disclosure policy.