Rivian Automotive, Inc. (RIVN) is troubled with software glitches and substantial debt accumulation. However, the flourishing automotive industry, fueled by growing demand and technological advancements, should work in favor of quality auto stocks Hino Motors, Ltd. (HINOY), PACCAR Inc (PCAR), and Volkswagen AG (VWAGY).
Recently, EV maker RIVN released and subsequently canceled an over-the-air software update intended for bug fixes and enhancements to the proximity locking feature. Regrettably, the update resulted in malfunctions within the infotainment systems of some Rivian R1T and R1S vehicles.
This incident could impact the company's reputation and customer satisfaction, potentially leading to increased scrutiny and a dent in consumer confidence. Shares of RIVN have plummeted 16.1% over the past month and 50.8% over the past year, closing the last trading session at $16.39.
In addition, the company is also garnering significant attention by securing nearly $15 billion in debt for a new manufacturing plant in Georgia. Although this move offers growth opportunities, it also introduces financial complexities.
The capital infusion could fuel expansion and competitiveness, yet the added debt raises financial risk, impacting profitability and shaping shareholder expectations contingent on effective utilization and successful growth. While RIVN's outlook is uncertain, the broader automotive industry appears poised for significant growth.
Recent advancements, such as applications of Artificial Intelligence (AI), Machine Learning (ML), and robotics, are revolutionizing vehicle manufacturing and usage. These technologies are reshaping automotive processes and also offering significant prospects for innovating and capitalizing on novel automotive app concepts.
Vehicles are transitioning from mere conveyance to fully connected devices. This facilitates personalized user experiences, enables seamless over-the-air updates, and spurs the creation of advanced infotainment systems, signaling a promising trajectory toward enhanced functionality and connectivity.
In October, U.S. new vehicle sales reached 1,211,141 units, increasing 2% year-over-year, propelled by a rising demand for electric vehicles (EVs) and the nation's economic recovery. For 2023, global auto sales are projected to surge to approximately 86.8 million units, underscoring the industry's continued expansion.
Also, in response to international initiatives like the Paris Agreement, numerous countries are implementing stringent emissions regulations for new vehicle models. Consequently, automakers are diversifying into the electric mobility sector. In the first half of 2023, EVs experienced a remarkable 55% increase compared to the same period in the prior year.
Furthermore, EV sales reached a new pinnacle in the fiscal 2023 third quarter, surpassing 300,000 units for the first time in the U.S. market. EV sales through September exceeded 873,000, indicating a trajectory to surpass 1 million for the first time. This milestone is anticipated to be reached in November.
The global automotive market is expected to grow at a CAGR of 3% and reach $3.58 trillion by 2031, as per a report by Business Research Insights.
Considering the outlined factors, HINOY, PCAR, and VWAGY present better investment opportunities than RIVN. Therefore, let us dive into the fundamentals of these three Auto & Vehicle Manufacturers industry stocks, beginning with number three.
Stock #3: Hino Motors, Ltd. (HINOY)
Headquartered in Hino, Japan, HINOY manufactures and sells trucks, sightseeing buses, route buses, and industrial diesel engines. The company is also involved in the production of machined parts, forged parts, dies, and electrical components, as well as the assembly of automobiles and unit parts.
On May 30, HINOY, Daimler Truck Holding AG (DTRUY), Mitsubishi Fuso Truck and Bus Corporation (MFTBC), and Toyota Motor Corporation (TM) formalized a Memorandum of Understanding (MoU) to expedite advanced technology development and merge MFTBC with HINOY.
The merger entails commercial vehicle development, procurement, and production collaboration, aiming to establish a globally competitive Japanese commercial vehicle manufacturer. This would allow HINOY to leverage synergies, optimize resources, and enhance market competitiveness, potentially leading to increased profitability and growth.
On May 2, HINOY signed an exclusive distribution agreement with Hexagon Purus ASA (HPURF) for a complete battery electric tractor incorporating HPURF’s zero-emission technology. The collaboration is expected to benefit HINOY by diversifying its product portfolio, tapping into the growing market for electric vehicles, and potentially increasing revenue and market share.
From April 1, 2023, to September 30, 2023, HINOY’s net sales increased 3% year-over-year to ¥755.39 billion ($5 billion). Its gross profit marginally grew from the year-ago value to ¥124.01 billion ($821.27 million).
In addition, as of September 30, 2023, the company’s cash and deposits stood at ¥87.82 billion ($581.59 million), compared to ¥82.15 billion ($544.05 million) as of March 31, 2023. Its total assets amounted to ¥1.42 trillion ($9.42 billion), compared to ¥1.36 trillion ($9.02 billion) as of March 31, 2023.
For the ongoing fiscal year ending March 2024, HINOY’s revenue is expected to increase 66.3% year-over-year to $10.35 billion. The company’s revenue for the next fiscal year (ending March 2025) is estimated to grow 11.9% from the previous year to $11.59 billion. HINOY has plunged 11.1% over the past six months to close the last trading session at $35.25.
HINOY’s positive fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
HINOY has a B grade for Value and Stability. It is ranked #23 in the 52-stock B-rated Auto & Vehicle Manufacturers industry.
In addition to the POWR Ratings I’ve highlighted, you can see HINOY’s ratings for Growth, Momentum, Quality, and Sentiment here.
Stock #2: PACCAR Inc (PCAR)
PCAR designs, manufactures, and distributes a comprehensive range of commercial trucks, spanning light, medium, and heavy-duty categories. It operates across three segments: Truck; Parts; and Financial Services. The company produces and markets industrial winches under the Braden, Carco, and Gearmatic brand names.
On September 6, PCAR, in collaboration with Accelera by Cummins, the zero-emissions business unit of Cummins Inc. (CMI), and Daimler Trucks & Buses US Holding LLC, announced their strategic partnership to expedite and localize battery cell production and supply chain in the United States.
With a $2-3 billion investment, the venture aims to manufacture battery cells, driving electric commercial vehicles and industrial applications while creating jobs in the clean technology sector. This initiative could position PCAR at the forefront of sustainable technology, ensuring a robust presence in the evolving market.
On May 2, PCAR and Toyota Motor North America, Inc. (Toyota) unveiled an expanded partnership to develop zero-emissions hydrogen fuel cell Kenworth and Peterbilt trucks. The alliance could enhance PCAR’s industry-leading eco-friendly vehicle lineup and increase market demand and operational efficiency gains.
For the third quarter that ended September 30, 2023, PCAR’s net sales and revenues from the Truck, Parts and Other segment increased 23.1% year-over-year to $8.23 billion, while its revenues from the Financial Services segment grew 24.8% from the year-ago value to $464.10 million.
Moreover, the company’s net income and net income per share rose 59.7% and 59.2% from the prior year’s period to $1.23 billion and $2.34, respectively.
For the fiscal year ending December 2023, analysts expect PCAR’s revenue to increase 22.1% year-over-year to $33.34 billion. The company’s EPS for the current year is expected to rise 56.9% from the prior year to $9.03. Moreover, the company topped the consensus revenue and EPS estimates in all four trailing four quarters.
Shares of PCAR have gained 38.5% year-to-date, closing the last trading session at $90.91.
PCAR’s robust prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
PCAR has a B grade for Growth, Sentiment, and Quality. It is ranked #16 out of 52 stocks within the Auto & Vehicle Manufacturers industry.
Click here to access the additional PCAR ratings (Momentum, Stability, and Value).
Stock #1: Volkswagen AG (VWAGY)
VWAGY, based in Wolfsburg, Germany, manufactures and sells automobiles under brand names such as Volkswagen, Audi, Lamborghini, Bentley, Ducati, Porsche, Volkswagen Truck & Bus, and Bugatti. The company's segments include Passenger Cars and Light Commercial Vehicles; Commercial Vehicles; Power Engineering; and Financial Services.
VWAGY maintained a robust trajectory, reporting increased sales volumes and revenues in the fiscal third quarter. The company has revised its fiscal year 2023 outlook, projecting deliveries between 9 and 9.5 million vehicles. Additionally, it anticipates Group sales revenue to be 10 to 15% higher than the previous year's figure.
Also, on June 21, VWAGY reported a strategic realignment, prioritizing profitability, enhanced cash flows, and reduced capital intensity. Each brand is initiating its inaugural performance program. The paradigm shift prioritizes sustainable value creation over traditional volume growth, marking a strategic evolution for future success.
For the fiscal third quarter, VWAGY’s sales revenue increased 11.6% year-over-year to €78.85 billion ($85.55 billion). Its operating result rose 14.9% from the year-ago value to €4.89 billion ($5.31 billion).
Furthermore, the company’s earnings after tax grew 103.6% from the prior year’s quarter to €4.35 billion ($4.72 billion), while cash inflow from operating activities increased 3% year-over-year to €5.53 billion ($6 billion).
The consensus revenue estimate of $338.32 billion for the fiscal year ending December 2023 indicates a 12.8% year-over-year improvement. Likewise, the consensus EPS estimate of $5.55 exhibits a 74.5% rise from the previous year. Furthermore, the company surpassed the consensus revenue estimate in three of the four trailing quarters.
Over the past five days, the stock has gained 6.5%, closing the last trading session at $13.01.
VWAGY’s strong outlook is apparent in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
VWAGY has an A grade for Value and Stability and a B for Growth and Sentiment. It has ranked #7 within the same industry.
Click here to access additional VWAGY ratings for Momentum and Quality.
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VWAGY shares were unchanged in premarket trading Friday. Year-to-date, VWAGY has declined -13.53%, versus a 19.04% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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