The global automotive industry witnessed a measurable recovery last year following the pandemic-led disruptions. The global auto industry registered a healthy 5.3% increase in sales in 2021. Despite rising interest rates and elevated prices, U.S. vehicle sales rose 2.8% month-over-month in September. Moreover, new-vehicle sales in the United States were remarkably stable in the third quarter.
Electric vehicle (EV) giant Tesla, Inc. (TSLA) fiscal third quarter (ended September 30, 2022) results show improvement, but the company missed revenue estimates. Its total revenue for the quarter increased 56% year-over-year to $21.45 billion but missed the consensus estimate by 2%. Its non-GAAP net income increased 74.5% year-over-year to $3.65 billion. Its non-GAAP EPS came in at $1.05, representing a 69.3% increase year-over-year.
TSLA CEO was bullish during the earnings call, but it failed to impress analysts, as evident from the stock’s continued downtrend. TSLA has declined 41.2% in price year-to-date and 32.9% over the past month to close the last trading session at $207.28.
Bernstein senior research analyst Toni Sacconaghi said, “Answers to many questions on the earnings call were curt and almost dismissive, with CEO Musk instead repeatedly making very bold prognostications about Tesla’s future and capabilities.” The analyst has an ‘underperform’ rating on the stock.
In addition, TSLA CEO Elon Musk’s Twitter acquisition deal could spell a headwind for the stock.
However, the auto industry continues to witness strong demand despite the ongoing chip shortage and supply chain issues. Auto sales are expected to rise, driven by the transition to electric vehicles and supportive government initiatives to boost EV sales. The automotive market in the United States is expected to grow at a CAGR of 13.2% to reach $37.80 million by 2029.
Considering these factors, investors might consider investing in fundamentally strong auto stocks Volkswagen AG (VWAGY), Stellantis N.V. (STLA), and Honda Motor Co., Ltd. (HMC) instead of TSLA to capitalize on the industry’s growth.
Volkswagen AG (VWAGY)
Headquartered in Wolfsburg, Germany, VWAGY operates through four segments: Commercial Vehicles, Power Engineering, Financial Services, Passenger Cars, and Light Commercial Vehicles. The company also offers motorcycles. It provides its products under brands such as Volkswagen Passenger Cars, Audi, Škoda, Bentley, and Porsche, among others.
For the fiscal second quarter ended June 30, 2022, VWAGY’s sales revenue increased 3.3% year-over-year to €69.54 billion ($68.05 billion). The company’s gross result increased 15.7% from the prior-year quarter to €14.49 billion ($14.18 billion). In addition, its current assets increased 4.8% to €210.05 billion ($205.56 billion), compared to €200.34 billion ($196.05 billion) for the fiscal year ended December 31, 2021.
VWAGY’s revenue for the quarter ended September 30, 2022, is expected to increase 3% year-over-year to $68.52 billion. Over the past month, the stock has fallen 19% to close the last trading session at $16.53.
VWAGY’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the Auto & Vehicle Manufacturers industry, it is ranked #9 out of 64 stocks. The company has an A grade for Value and a B for Stability and Quality.
Click here to see the additional POWR Ratings of VWAGY for Growth, Momentum, and Sentiment.
Stellantis N.V. (STLA)
Headquartered in Hoofddorp, Netherlands, STLA engages in the design, engineering, manufacturing, distribution, and sale of automobiles and light commercial vehicles, engines, transmission systems, metallurgical products, and production systems worldwide. The company offers its products under the brand names such as Abarth, Alfa Romeo, Chrysler, Citroën, DS, and Dodge, among others.
On October 12, 2022, STLA inaugurated a new software center in Bengaluru, Karnataka, India, focusing on developing software and technological innovations crucial to the advancement of automobiles and mobility. Establishing the new digital hub demonstrates STLA’s unabated dedication to facilitating the global mobility sector’s digital transformation.
For the six months ended June 30, 2022, STLA’s net revenues increased 16.8% year-over-year to €87.99 billion ($86.11 billion). Its industrial net financial position came in at €22.05 billion ($21.58 billion), compared to €19.09 billion ($18.68 billion) for the fiscal year ended December 31, 2021. The company’s adjusted operating income increased 46.6% from the prior-year period to €12.37 billion ($12.10 billion).
Analysts expect STLA’s revenue for the quarter ended September 30, 2022, to increase 2.7% year-over-year to $39.13 billion. Over the three months, the stock has declined 0.3% to close the last trading session at $12.76.
STLA’s strong fundamentals are reflected in its POWR Ratings. The stock's overall A rating translates to a Strong Buy in our proprietary rating system. It is ranked #3 in the Auto & Vehicle Manufacturers industry. It has an A grade for Value and a B for Stability and Quality.
We have also given STLA grades for Growth, Momentum, and Sentiment. Get all STLA ratings here.
Honda Motor Co., Ltd. (HMC)
Headquartered in Tokyo, Japan, HMC develops, manufactures, and distributes motorcycles, automobiles, power products, and other products in Japan, North America, Europe, Asia, and internationally. It operates through four segments: Motorcycle Business, Automobile Business, Financial Services Business, and Life Creation and Other Businesses.
On October 11, 2022, HMC and LG Energy Solution announced that their new joint venture battery plant would be in Fayette County, Ohio. Dong-Myung Kim, Executive VP of the Advanced Automotive Battery Division at LG Energy Solution, believes this is a significant step toward electrification, which will power HMC's brand-new EV models and support Ohio's green economy, creating thousands of quality jobs.
HMC’s sales revenue for the first quarter ended June 30, 2022, increased 6.9% year-over-year to ¥3.83 trillion ($25.54 billion). The company’s net cash from operating activities increased 8,422.4% year-over-year to ¥618.12 billion ($4.12 billion). Its cash and cash equivalents at the end of the period increased 45% year-over-year to ¥3.63 trillion ($242.10 billion).
Analysts expect HMC’s EPS for fiscal 2024 to increase 22.2% year-over-year to $3.74. Its revenue for fiscal 2023 is expected to increase 328.6% year-over-year to $114.47 billion. Over the past month, the stock has fallen 11.1% to close the last trading session at $21.67.
HMC’s solid prospects are reflected in its POWR Ratings. The company has an overall rating of A, which equates to a Strong Buy. It is ranked #4 in the Auto & Vehicle Manufacturers industry. In addition, it has an A grade for Value and a B for Stability and Quality.
To see the other ratings of HMC for Growth, Momentum, and Sentiment, click here.
VWAGY shares were trading at $16.67 per share on Friday afternoon, up $0.14 (+0.86%). Year-to-date, VWAGY has declined -41.39%, versus a -21.07% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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