The automotive sector uses a wide range of materials in manufacturing. Metals such as aluminum and steel, advanced plastics and other materials such as glass are used in most modern automobiles. The pricing of materials is a significant expense for automakers and fluctuations in price may change profit margins. Vehicle composition is changing as a result of new safety and fuel economy standards. Cars and trucks are becoming lighter and increasingly made with aluminum as a substitute for steel. Aluminum demand is expected to continue increasing as advanced manufacturing methods make aluminum easier to weld and more competitive with the use of steel. Investors interested in the automotive sector may also consider investments in the basic materials sector. Changing demand for materials used to manufacture vehicles may benefit investment in the materials of new manufacturing methods.

In 2015, raw materials and steel were 47% of the manufacturing cost of vehicles. The most significant components include steel, iron, plastic, aluminum and glass. Fluctuations in material pricing may significantly impact the cost of production since nearly half of the manufacturing cost is due to the pricing of materials. Steel composes around 22% of a vehicle and represents a substantial cost. Aluminum is more expensive than steel but is growing in popularity as an alternative. Aluminum composition is lighter than steel and helps improve fuel economy. As fuel consumption standards increase, aluminum use becomes more common. European vehicles began using more aluminum before U.S. automakers. Use by American industry is expected to increase demand for aluminum by 40% along with global demand for the commodity. Iron is a lesser component of cars that has a mild impact on prices but is still sensitive to economic conditions.

Plastic is another significant component of many cars and trucks. Advanced plastics such as polycarbonate and polyurethane are used in car interiors, exteriors and in manufacturing processes. Mid-sized cars now contain an average of 15% plastic materials. This percentage is increasing as plastic technology improves. Plastics also contribute to making cars lighter and therefore more fuel-efficient. These materials also allow greater flexibility than metals and are more readily made into a variety of designs. Hard plastics and plastic foams make up much of the overall plastic content of cars and offer an easy-to-use material for manufacturers.

Investors interested in the automotive sector may also choose investments in automotive materials. Companies in the materials sector offer securities that may be purchased for investment. Many of these materials companies are poised for growth as global demand for and consumer spending on automobiles increases. Fuel-efficient materials demand will likely increase as design standards increase in countries concerned about environmental impact. Improved technology will likely change the proportion of materials used and investors may profit handsomely as a direct result.

  1. What raw materials do auto manufacturers use?

    Learn about some of the raw materials required for auto manufacturing, including iron for steel, aluminum, rubber, and petroleum ... Read Answer >>
  2. What was the first company with a $1 billion market cap?

    United States Steel Corportation (NYSE:X) was the world's first company to surpass the market capitalization mark of $1 billion ... Read Answer >>
  3. What is the average return on equity for a company in the automotive sector?

    Discover the average return on equity, or ROE, for companies in the automotive sector and the importance of ROE as an equity ... Read Answer >>
  4. What are the most popular mutual funds that invest in the automotive sector?

    Discover some of the mutual funds investors use to profit from gains in the automotive industry portion of the transportation ... Read Answer >>
  5. What economic indicators are important for investing in the automotive sector?

    Discover the most important economic indicators when investing in the automotive sector: auto sales, unemployment and consumer ... Read Answer >>
Related Articles
  1. Investing

    The Top 5 Small-Cap Basic Material Stocks for 2016 (WOR, CMC)

    Find out what kind of small-cap basic material stocks may make a run in 2016 and how their different business characteristics have played into the selection.
  2. Investing

    The Top 3 ETFs For Investing in Aluminum (IYM, AA)

    Discover information about how investors can use ETFs to obtain exposure to the aluminum market, including information on specific funds.
  3. Insights

    (AA) Who are Alcoa's Main Competitors?

    Learn about the financial profiles and operations of three main competitors to Alcoa Inc. and why this industry is becoming more global and competitive.
  4. Investing

    Is Century Aluminum's 76% Stock Surge Deserved?

    Thanks to sustained optimism about infrastructure spending, Century's 76% year-to-date gain has shocked the market.
  5. Investing

    Why Century Aluminum Surged 38% Last Week (CENX)

    After posting almost 40% returns last week, Century Aluminum answered questions about its valuation with some authority.
  6. Investing

    How China Impacts the Global Steel Industry

    The Chinese economy is having a significant impact on the performance and profitability of steel and mining stocks.
  7. Investing

    Are There Still More Gains For Steel Stocks Ahead?

    The steel sector has rebounded quite nicely over the last few months as investors have looked for value. Given the longer term demand picture, the value is still there and more gains could still ...
  8. Investing

    Assessing Century Aluminum After 28% One-Week Rise

    Although the company is still operating at a loss, the stock has surged as much as 305% from its 52-week low of $2.84.
  9. Trading

    Traders Turn Defensive and Look to Basic Materials for Support (DD, DOW)

    Bullish chart patterns on basic materials stocks suggest traders are turning defensive. We'll take a look at several charts that are pointing to higher prices.
  1. Basic Materials Sector

    The basic materials sector is a category of stocks for companies ...
  2. Material News

    News released by a company that might affect the value of its ...
  3. Materials Requirements Planning (MRP)

    Materials requirements planning is one of the first software-based ...
  4. Section 232 of the Trade Expansion Act

    Section 232 of the Trade Expansion Act of 1962, authorizes the ...
  5. Commodity Price Risk

    Commodity price risk is price uncertainty that adversely impacts ...
  6. Derived Demand

    Derived demand is the demand for a good or service resulting ...
Trading Center