Despite macroeconomic uncertainties, the auto manufacturing industry is well-positioned for solid growth thanks to strong customer demand, robust inventories, the shift to electric vehicles (EVs), government incentives, and improved supply chains.
Given this backdrop, we delve into the fundamentals of Tesla, Inc. (TSLA) and Dongfeng Motor Group Company Limited (DNFGY) to understand if they can help capitalize on the industry's tailwinds. Although TSLA might not be the optimal choice at the moment due to its business slowdown, I believe DNFGY could be a worthwhile addition to your watchlist for appealing entry points.
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s shaping the auto industry’s prospects.
The auto manufacturers industry is undergoing transformation due to the growing preference for environmentally sustainable transportation options. Automakers heavily invest in research and development to support the shift toward electric vehicles (EVs).
Improved inventory and robust demand are set to drive global auto sales to an estimated 86.8 million units in 2023, surpassing initial predictions. The upward trend is expected to continue in 2024, reaching 90.2 million units, primarily attributed to enhanced supply chain performance. Notably, U.S. motor vehicle production is projected to reach approximately 11.7 million units by 2025.
As advanced technologies become more prevalent and the number of passenger vehicles increases, the global automotive market is anticipated to reach $3.58 trillion by 2031, growing at a 3% rate annually. The Automotive Products market value is projected at $362.80 billion this year and grow at a 2.20% CAGR until 2028.
The industry is experiencing substantial growth due to the global shift towards electric vehicles (EVs). This transition is supported by government policies, automakers’ commitment to EVs, and increasing concerns about climate change. These factors collectively contribute to a rising demand for electric vehicles worldwide.
Considering these conducive trends, let’s examine the fundamentals of the two stocks from the Auto & Vehicle Manufacturers industry.
Stock to Sell:
Tesla, Inc. (TSLA)
TSLA designs, develops, manufactures, leases, and sells electric vehicles and energy generation and storage systems in the United States, China, and internationally. It operates in two segments: Automotive and Energy Generation and Storage.
In terms of the trailing-12-month gross profit margin, TSLA’s 19.81% is 44.3% lower than the 35.56% industry average. Likewise, its 1.68% trailing-12-month levered FCF margin is 67% lower than the 5.08% industry average.
TSLA’s total revenues for the third quarter ended September 30, 2023, came in at $23.35 billion. Its total gross profit decreased 22.4% year-over-year to $4.18 billion. Its non-GAAP net income attributable to common stockholders decreased 36.6% year-over-year to $2.32 billion, while the company’s non-GAAP EPS came in at $0.66, representing a decline of 37.1% year-over-year.
Street expects TSLA’s EPS for the quarter ending December 31, 2023, to decrease 38.1% year-over-year to $0.74. Over the past three months, the stock has declined 6.6% to close the last trading session at $240.08.
TSLA’s POWR Ratings reflect its weak fundamentals. It has an overall rating of D, equating to a Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #39 out of 51 stocks in the B-rated Auto & Vehicle Manufacturers industry. It has an F grade for Value and a D for Growth, Stability, and Sentiment. Click here to see TSLA’s Momentum and Quality ratings.
Stock to Hold:
Dongfeng Motor Group Company Limited (DNFGY)
Headquartered in Wuhan, China, DNFGY manufactures and sells commercial, passenger, military, and energy vehicles, as well as key automotive components and parts in the People's Republic of China. It operates in four segments: commercial vehicles, passenger vehicles, financing services, corporate and others.
In terms of the trailing-12-month net income margin, DNFGY’s 6.42% is 44.3% higher than the 4.45% industry average. Likewise, its 6.11% trailing-12-month Capex/Sales is 94.4% higher than the industry average of 3.14%.
On the other hand, the stock’s 8.47% trailing-12-month gross profit margin is 76.2% lower than the industry average of 35.56%. Additionally, its 0.30x trailing-12-month asset turnover ratio is 69.7% lower than the industry average of 0.99x.
DNFGY’s sales revenue for the six months that ended June 30, 2023, increased 2.9% year-over-year to RMB45.68 billion ($6.43 billion). However, its profit for the period decreased 96% year-over-year to RMB206 million ($29 million). In addition, its EPS came in at RMB14.79, representing a decrease of 76.8% year-over-year.
Analysts expect DNFGY’s revenue for the fiscal year ending December 31, 2023, to decrease marginally by 1.5% year-over-year to $13.25 billion. Over the past three months, the stock has gained 33.5% to close the last trading session at $23.97.
DNFGY’s bleak fundamentals are reflected in its POWR Ratings. It has an overall rating of C, equating to a Neutral in our proprietary rating system.
It has a C grade for Momentum and Sentiment. Within the same industry, it is ranked #35. In total, we rate DNFGY on eight different levels. Beyond what we stated above, we have also given DNFGY grades for Growth, Value, Stability, and Quality. Get all the DNFGY ratings here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
TSLA shares were trading at $233.83 per share on Friday morning, down $6.25 (-2.60%). Year-to-date, TSLA has gained 89.83%, versus a 20.64% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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