Typically, an earnings beat increases an investors’ confidence in a company and most often translates into price appreciation for the stock. For an industry riddled with changing dynamics, an earnings beat is a welcome break from the overall uncertainty. The story is particularly true for the Auto sector.

Per the latest Earnings Trends, as of Oct 25, 164 S&P 500 companies have already announced their results. These companies have posted 7% year-over-year growth in earnings and a 4.8% rise in revenues, with a 72% and 68.35 beat ratio, respectively. As of the same date, 40% of the companies from the Auto sector reported results with 22.8% and 16.2% year-over-year decline in earnings and revenues, respectively. Here, the beat ratio is 50% for both earnings and revenues.

For the third quarter, earnings and revenue growth rates for auto companies are expected in the negative territory. Auto stocks are expected to register a respective 9.8% and 4% year-over-year decline in earnings and revenues.

This does not mean that the sector is bereft of any likely earnings beat. Let’s look at the fundamentals ruling the space and influencing its performance this reporting cycle.

Auto Stocks: Uncertain Future

Of late, automakers are going through a transformation in industry dynamics and making compulsory adjustments. The growing necessity for electric vehicles and green cars has prodded automakers to invest for the future. However, the profit proposition of this new transition strategy is yet to be proved that rewarding. Despite having spent years in research and development, traditional automakers might not lose their position so early and easily.

On the other hand, perennial problems of recalls and lawsuits are still plaguing some automakers. Also, major U.S. automakers reported year-over-year decline in auto sales in the United States in July and August. However, this trend has reversed in September. Although the 2017 outlook for some makers is bullish, this does not ensure any upcoming bull-run.