Despite the prevailing macroeconomic headwinds, carmakers achieved a solid performance in the first half of 2023. With an uptick in year-over-year vehicle sales and major automakers seeing growth, the industry’s overall outlook seems bright.
Therefore, it could be wise for investors to buy fundamentally sound auto stocks Stellantis N.V. (STLA) and Mazda Motor Corporation (MZDAY) this month. On the other hand, it could be wise to get rid of NIO Inc. (NIO), which has struggled to maintain its profits.
As supply chain snags gradually ease, the automotive sector has seen a rise in sales for the first half of this year. Auto sales rose by 16.8% from April to June, reaching just over 4.1 million, fueled by pent-up demand from nearly two years of global chip shortage.
Moreover, Cox Automotive reported that the U.S. new-vehicle sales volume reached 7.69 million units in the first half of 2023, indicating an increase of 12.3% year over year. After a surprisingly strong first half, the firm increased the full-year new-vehicle sales forecast to 15 million units.
In addition, the industry’s focus on developing Electric Vehicles (EVs) further accelerates its overall growth prospects. EV sales in the United States have surged by 50% year-over-year, with a total of 557,330 EVs sold in the first half of 2023, outpacing traditional fuel-powered cars. EV sales accounted for 7.2% of total car sales from January to June this year, up from 5.4% a year ago.
Given the spurring demand, it is no surprise that the overall EV market is projected to reach around $1.72 trillion by 2032, growing at a CAGR of 23.1%.
However, the wager is made riskier due to incessant concerns about a lack of charging infrastructure and pricing that could weigh on consumer demand. With U.S. EV sales expected to exceed 50% of total sales by 2030, expanding reliable charging infrastructure has become even more critical to widespread EV adoption.
With that being said, let’s evaluate the fundamentals of the featured stocks in detail:
Stocks to Buy:
Stellantis N.V. (STLA)
Headquartered in Hoofddorp, Netherlands, STLA designs, engineers, manufactures, distributes, and sells vehicles, components, and production systems. The company’s brand portfolio includes Abarth, Alfa Romeo, Chrysler, Dodge, Fiat, Fiat Professional, Jeep, Lancia, Ram, Peugeot, Citroen, DS Automobiles, Opel and Vauxhall, and Maserati.
On July 26, STLA revealed that seven major global automakers, including itself, had united to create an unprecedented new charging network joint venture that is expected to significantly expand access to high-powered charging in North America.
While this partnership focuses on elevating the customer experience, it should help STLA to expand its reach and strengthen its position in the EV market.
On July 24, the company signed a memorandum of understanding with Samsung SDI to build a second StarPlus Energy Gigafactory in the United States. The plant is expected to start production in 2027 and aims to have an initial annual production capacity of 34-gigawatt hours (GWh).
This partnership should help STLA expand its U.S. footprint. Furthermore, the Gigafactory is intended to be the sixth battery facility to support the company’s electrification plan outlined in Dare Forward 2030.
STLA’s net revenues rose 11.8% year-over-year to €98.37 billion ($108.35 billion) for the half-year that ended June 30, 2023. The company’s adjusted operating income increased 11% year-over-year to €14.13 billion ($15.56 billion), while its net profit rose 37.2% year-over-year to €10.92 billion ($12.03 billion).
Additionally, its cash flow from operating activities stood at €13.39 billion ($14.75 billion), up 36.1% from the prior-year period.
In terms of forward non-GAAP P/E, STLA is trading at 3.73x, 76.4% lower than the industry average of 15.83x. The stock’s forward EV/Sales multiple of 0.19 is 84.2% lower than the industry average of 1.22. Also, its forward EV/EBIT multiple of 1.62 compares to the industry average of 14.20.
Street expects STLA’s revenue to increase 19.2% year-over-year to $48.94 billion in the second quarter (ending September 2023). In the fiscal year 2023, it is expected to reach $208.51 billion, registering a 9.5% year-over-year growth. Moreover, it surpassed the revenue estimates in each of the trailing four quarters, which is promising.
The stock has gained 52% over the past nine months to close the last trading session at $20.55.
STLA’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It also has an A grade for Value and Sentiment and a B for Stability and Quality. It is ranked first among 55 stocks in the Auto & Vehicle Manufacturers industry. To see the other ratings of STLA for Growth and Momentum, click here.
Mazda Motor Corporation (MZDAY)
Headquartered in Hiroshima, Japan, MZDAY manufactures and sells passenger cars and commercial vehicles globally. The company’s main offerings include four-wheeled vehicles, gasoline reciprocating engines, diesel engines, and automatic and manual automobile transmissions.
On July 28, 2023, MZDAY released its production and sales results for June 2023 and January through June 2023. Owing to increased sales of passenger and commercial vehicles, the company’s domestic sales volume jumped 38.2% year-over-year in June and 26.1% year-over-year from January to June.
Also, its global sales volume improved 46.4% year-over-year in June and 12.5% year-over-year for the six months, thanks to increased sales in the United States, Europe, Japan, and other regions.
On June 22, MZDAY announced the mass production of the European model of the MAZDA MX-30 e-SKYACTIV R-EV at Ujina Plant No. 1 in Hiroshima City. Aiming to promote initiatives to reduce environmental impact across the production process to achieve carbon neutral, this development should benefit MZDAY and boost its revenues.
In terms of forward EV/Sales, MZDAY is trading at 0.18x, 85.1% lower than the industry average of 1.22x. The stock’s forward EV/EBITDA of 2.53x is 74.7% lower than the industry average of 10.03x.
In the fiscal year that ended March 31, 2023, MZDAY’s net sales increased 22.6% year-over-year to ¥3.83 trillion ($26.94 billion). Its operating income grew 36.2% from the year-ago value to ¥141.97 billion ($999.45 million). The company’s attributable net income came in at ¥142.81 billion ($1.01 billion) and ¥226.52 per share, representing a 75.1% year-over-year improvement.
Analysts expect MZDAY’s revenue to increase 56.1% year-over-year to $7.13 billion for the first quarter, which ended June 30, 2023. The consensus revenue estimate of $31.43 billion for the fiscal year 2023 indicates a 42.1% improvement year-over-year.
The stock’s trailing- 12-month ROCE and ROTA of 10.42% and 4.38% are 5.3% and 20.2% higher than the industry averages of 9.90% and 3.65%, respectively.
Over the past nine months, the stock has gained 50% to close the last trading session at $4.95.
It is no surprise that MZDAY has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. Also, it has an A grade for Value and a B for Quality. Within the same industry, it is ranked #10 among 55 stocks.
Beyond what we’ve stated above, we’ve also rated MZDAY for Growth, Momentum, Stability, and Sentiment. Get all MZDAY ratings here.
Stock to Avoid:
NIO Inc. (NIO)
Headquartered in Shanghai, China, NIO produces and markets high-end smart electric vehicles manufacturer. It provides power solutions, battery swapping services, rapid charging, vehicle internet assistance, and extended lifetime warranties.
In terms of forward EV/Sales and Price/Sales, NIO is trading at 2.95x and 2.96x, which are 142.2% and 220.9% higher than the industry averages of 1.22x and 0.92x, respectively. Likewise, its forward Price/Book multiple of 15.39 compare to the industry average of 2.74x.
Also, the stock’s trailing-12-month net income margin, ROCE, and ROTC of negative 35.05%, 65.49%, and 20.77% compared to the industry averages of 4.18%, 9.90%, and 6.08%, respectively.
For the fiscal quarter ended March 31, 2023, NIO’s gross profit decreased 88.8% year-over-year to RMB162.29 million ($22.72 million). Its adjusted loss from operations widened 163.6% year-over-year to RMB4.52 billion ($637.24 million).
Its non-GAAP net loss came in at RMB4.15 billion ($580.93 million), widening 216.9% from the prior-year quarter. In addition, its non-GAAP loss per share stood at RMB2.51, up 217.7% year-over-year.
Street expects NIO’s revenue for the fiscal second quarter (ended June 30, 2023) to decrease 12.9% year-over-year to $1.29 billion. Its earnings per share is expected to remain negative in the fiscal year 2023. Moreover, it missed the consensus EPS estimates in each of the trailing four quarters.
Shares of NIO have declined 22.5% over the past year to close the last trading session at $15.30.
NIO’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system.
It has an F grade for Stability and a D for Growth, Value, and Quality. Out of 55 stocks in the same industry, it is ranked #48. To see the additional ratings (Momentum and Sentiment) for NIO, click here.
What To Do Next?
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STLA shares were trading at $20.05 per share on Tuesday afternoon, down $0.50 (-2.43%). Year-to-date, STLA has gained 41.20%, versus a 20.30% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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