In this article, I have evaluated prominent auto stocks, General Motors Company (GM) and Tesla, Inc. (TSLA), to determine which could be the better buy. After thoroughly evaluating these stocks, I think GM is a superior choice to TSLA for the reasons discussed in this article.
The rising demand for personal and commercial vehicles, the rise of new technologies like electric and self-driving cars, and the growing awareness of safety and environmental issues among consumers are expected to drive growth in the global automotive market.
The global automotive market is expected to grow to $28.70 billion by 2030 at a CAGR of 4.5%.
Additionally, following a challenging period, the automotive industry is embracing a significant worldwide shift, an unwavering commitment to Electric Vehicle (EV) advancement. Vehicle manufacturers are amplifying their research and development endeavors, showcasing resolute determination to propel the evolution of EV technology.
While GM has gained 1.9% over the past three months compared to TSLA’s 28.4% gain, GM’s decline of 16.2% over the past year is lower than TSLA’s 22% decline.
However, here are the reasons why I think GM might perform better in the near term:
Recent Developments
On August 8, 2023, GM announced that it would expand vehicle-to-home (V2H) bidirectional charging technology across its retail portfolio of Ultium-based electric vehicles by model year 2026.
The first vehicles to receive the technology include the previously announced 2024 Chevrolet Silverado EV RST, followed by the 2024 GMC Sierra EV Denali Edition 1, 2024 Chevrolet Blazer EV, 2024 Chevrolet Equinox EV, 2024 Cadillac LYRIQ and the upcoming Cadillac ESCALADE IQ.
Moreover, on June 29, GM announced that it had incorporated GM Defense Canada, in alignment with GM Defense International, which was established in 2022. As GM Defense expands and pursues additional international programs, the formation of GM Defense Canada will strengthen the business' ability to support efforts to modernize the Canadian Armed Forces.
Conversely, on August 16, TSLA endorsed a requirement for firms to integrate TSLA’s technology in EV charging stations for federal fund eligibility. Texas, the largest beneficiary of a $5 billion program to electrify U.S. highways, advances TSLA’s goal of establishing its tech as the U.S. charging norm, potentially boosting company growth.
Recent Financial Results
GM’s total revenues for the fiscal second quarter that ended June 30, 2023, increased 25.1% year-over-year to $44.75 billion, while its adjusted EBIT rose 38% year-over-year to $3.23 billion. Its net income attributable to stockholders rose 51.7% year-over-year to $2.57 billion, while its adjusted EPS came in at $1.91, representing a 67.5% increase year-over-year.
On the contrary, TSLA’s total revenues increased 47.2% year-over-year to $24.93 billion in the fiscal second quarter that ended June 30, 2023. However, its total operating expenses increased 20.6% year-over-year to $2.13 billion.
Additionally, the company’s non-GAAP net income and non-GAAP EPS attributable to common stockholders increased 20.2% and 19.7% year-over-year to $3.15 billion and $0.91, respectively.
Past And Expected Financial Performance
GM’s revenue has increased at a CAGR of 13.6% over the past three years. Its revenue is expected to increase 9.6% this year and 4.4% in the third quarter ending September 2023. Its EPS is expected to be $7.73 this year and $1.90 in the current quarter ending September 2023, and $1.68 in the next quarter ending December 2023.
Conversely, Over the past three years, TSLA’s revenue grew at a 54.1% CAGR. Analysts expect TSLA’s revenue to increase by 22.9% this year and 16% in the third quarter ending September 2023. Its EPS is expected to be $3.45 this year and $0.81 in the current quarter ending September 2023, and $0.91 in the next quarter ending December 2023.
Valuation
GM’s forward P/S multiple of 0.27 is lower than TSLA’s 7.31. Additionally, GM’s forward EV/Sales multiple of 0.84x is lower than TSLA’s 6.65x.
Thus, GM is more affordable.
Profitability
GM's trailing-12-month CAPEX/Sales of 13.36% is higher than TSLA’s 8.29%. In addition, GM’s trailing-12-month cash per share of 12.77x is higher than TSLA’s 4.82x.
Thus, GM is more profitable.
POWR Ratings
GM has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. Conversely, TSLA has an overall rating of C, translating to a Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. GM has a B grade for Value. Its forward EV/Sales of 0.84x is 29.4% lower than the industry average of 1.18x. Its forward EV/EBIT multiple of 10.83 is 20.1% lower than the industry average of 13.55x.
On the other hand, TSLA has an F grade in Value. Its forward EV/Sales of 6.65x is 462% higher than the industry average of 1.18x. Its forward EV/EBIT multiple of 62.84 is 363.9% higher than the industry average of 13.55x.
Among the 55 stocks in the Auto & Vehicle Manufacturers industry, GM is ranked #26, while TSLA is ranked #39.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Momentum, Stability, Sentiment, and Quality. Get all GM ratings here. Click here to view TSLA ratings.
The Winner
The rising per capita income of the population is increasing the demand for vehicles in the global market. Also, urbanization and rising infrastructure spending in the economy are driving growth in the automotive market. Industry players such as GM and TSLA are well-positioned to benefit from these industry tailwinds.
However, GM’s higher profitability and lower valuation multiples make it the better buy than TSLA.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Auto & Vehicle Manufacturers here.
What To Do Next?
Get your hands on this special report with 3 low priced companies with tremendous upside potential even in today’s volatile markets:
3 Stocks to DOUBLE This Year >
GM shares rose $0.12 (+0.36%) in premarket trading Tuesday. Year-to-date, GM has declined -0.59%, versus a 15.75% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
Is General Motors (GM) a Better Buy Than Tesla (TSLA) Right Now? StockNews.com
