The dynamic auto industry sits poised at the brink of remarkable resilience and expansion, propelled by surging demand, technological advancements, and an escalating transition to Electric Vehicles (EVs).
Therefore, in this piece, I have evaluated automotive stocks NIO Inc. (NIO) and Oshkosh Corporation (OSK) to determine the better investment to leverage sector tailwinds. Based on a comprehensive fundamental comparison outlined below, OSK could deliver better returns than NIO in the upcoming months.
The automotive industry underwent significant stress amid a plethora of challenges last year. However, recent data indicates that the sector has effectively rebounded and is forecasted to experience substantial growth in the forthcoming years.
For July, total new vehicle sales rose 15% over the previous year on top of a 23% increase in June. The seasonally adjusted annual rate (SAAR) in June and July was 15.7 million. The strength in July sales was again supported by strong sales growth to fleets, up 35% year-to-year.
According to the International Energy Agency’s (IEA) report, global EV sales are projected to experience significant growth of 35% in global EV sales in 2023 compared to the record-setting sales in 2022. Additionally, it anticipates the potential for EVs to compose 35% of all new vehicle sales worldwide by 2030.
The projected rise in EV sales is expected to be fueled by drivers, including price reductions, bolstering from government funding, technological advancements, swift enhancement of charging infrastructure, and attractive tax credits.
The confluence of these influential factors conveys the possibility for the global automotive market to reach $6.07 trillion by 2030, growing at a CAGR of 6.9%.
Shanghai-based EV manufacturer NIO reported a record delivery of 20,462 vehicles in July, surpassing its previous high of 15,815 registered last December. This surge hints at the pent-up demand for EVs. Despite this, it encountered a substantial price correction during the initial weeks of August, which eroded a considerable portion of the gains the company had previously amassed, thereby stirring renewed scrutiny over the instability of the EV market.
The first strike in China's ongoing price war was launched by Tesla, Inc. (TSLA) last October. The U.S. carmaker’s price-cut strategies are designed to ward off its Chinese counterparts in the EV sector. This has incited numerous rival manufacturers, both within the EV industry and conventional car makers, to make price cuts to maintain their market share. This could impact NIO's profit margins in the future.
OSK, recognized for manufacturing and selling diverse vehicle bodies and specialized vehicles, finds support through frequent business victories and a robust offering of innovative products poised to drive its prospects. At the end of the June quarter, the company boasted a consolidated backlog of $15 billion, assuring strong visibility extending into 2024.
NIO has lost 40.7% over the past year versus OSK’s 18.5% gains. Also, NIO gained marginally intraday to close the last trading session at $10.84, while OSK returned 1.2% to complete the previous trading session at $99.02.
Here are the reasons why OSK could be a better buy than NIO in the near term:
Latest Developments
Recently, NIO has resumed production of its ES6 model after a temporary halt at its F1 plant in Hefei from July 29 to August 2. The factory operates at full capacity, producing at least 300 ES6 vehicles daily. Certain workshops have transitioned to double-shift production schedules to accommodate the burgeoning demand. This surge in production comes as a response to the brief pause.
On August 1, OSK acquired the AeroTech business from JBT Corporation. The collaboration is expected to drive strong growth in the attractive airport ground support, gate equipment, and associated airport services markets. Following the acquisition, OSK envisages its Vocational segment’s revenue to surpass $3 billion at attractive double-digit operating margins.
On June 01, OSK’s defense segment announced the milestone achievement of producing the 20,000th Joint Light Tactical Vehicle (JLTV). This achievement reflects the company’s outstanding capabilities and unwavering dedication to serving the U.S. Armed Forces by providing the most proficient tactical wheeled vehicles.
Recent Financial Results
For the fiscal first quarter that ended March 31, 2023, NIO’s total revenues stood at RMB10.68 billion ($1.48 billion), while its gross profit declined 88.8% year-over-year to RMB162.29 million ($22.45 million). Its adjusted loss from operations widened 163.6% year-over-year to RMB4.52 billion ($625.63 million).
Its non-GAAP net loss came in at RMB4.15 billion ($574.17 million), up 216.9% from the prior-year quarter. In addition, its non-GAAP loss per ordinary share stood at RMB2.51, up 217.7% year-over-year.
During the fiscal second quarter that ended June 30, 2023, OSK’s net sales increased 16.8% year-over-year to $2.41 billion. The company’s gross and operating income stood at $424.50 million and $234.90 million, up 71.9% and 207.9% year-over-year, respectively.
Its adjusted net income and earnings per common share grew 449.8% and 449% from the prior-year quarter to $176.50 million and $2.69, respectively.
Past and Expected Financial Performance
NIO’s revenue has grown at 87.7% CAGR over the past three years, while OSK’s grew at 0.1% CAGR over the same period.
Analysts expect NIO’s EPS for the fiscal fourth quarter ending December 2023 to decline 28.3% year-over-year to negative $0.66. Its revenue for the same quarter is expected to come at $3.08 billion. The company failed to surpass the consensus EPS estimates in each of the trailing four quarters, which is disappointing.
OSK’s revenue and EPS for the fiscal fourth quarter ending December 2023 are expected to increase 8.5% and 8.3% year-over-year to $2.39 billion and $1.73, respectively. The company surpassed the consensus revenue estimates in three of the trailing four quarters, which is impressive.
Profitability
OSK has a trailing-12-month gross profit margin of 15.21% compared to NIO’s 7.80%. Also, OSK’s trailing-12-month ROTC of 11.20% compares with NIO’s negative 20.77%.
Therefore, OSK is more profitable.
Valuation
In terms of forward EV/Sales, OSK is trading at 0.70x, 67.9% lower than NIO, which is currently trading at 2.18x. OSK’s forward Price/Sales multiple of 0.68 is 68.9% lower than NIO’s 2.19.
POWR Ratings
OSK has an overall rating of B, translating to a Buy in our POWR Ratings system. On the other hand, NIO has an overall F rating, which equates to a Strong Sell. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories.
OSK’s A grade for Value is justified as the stock’s forward EV/Sales of 0.70x, 59.4% lower than the industry average of 1.73x. Its forward Price/Sales multiple of 0.68 is 50.4% lower than the 1.37 industry average.
NIO’s Value grade of D is evident as the stock’s forward EV/Sales multiple of 2.18 is 86.6% higher than the industry average of 1.17, and its forward Price/Sales of 2.19x is 153.2% higher than the industry average of 0.86x.
Moreover, OSK’s B grade for Growth is justified by its robust financials, whereas NIO’s D grade for Growth is evident from its poor financials reported in the last reported quarter.
Within the Auto & Vehicle Manufacturers industry, OSK is ranked #21, while NIO is ranked #53 out of 56 stocks.
Beyond what we’ve stated above, we have also rated both stocks for Momentum, Stability, Sentiment, and Quality. Get all ratings of OSK here. To view NIO’s ratings, click here.
The Winner
The automotive industry is forecasted to continue its trajectory of growth, primarily boosted by widespread acceptance of EVs and governmental support. Given the favorable industry backdrop, both OSK and NIO are set to reap the rewards.
Yet, one might want to consider OSK a potentially wiser choice than NIO now, given OSK’s commendable profitability record, appealing market valuation, and promising top-and-bottom-line estimates.
Further strengthening this standpoint is that, on August 1, OSK's board of directors declared a quarterly dividend of $0.41 per share of common stock, payable to the shareholders on August 31. Its annualized dividend rate of $1.64 per share yields 1.66% on prevailing prices. OSK’s four-year average dividend yield is 1.49%.
The company’s dividend payouts have grown at a CAGR of 10.1% over the past three years and 10.8% over the past five years.
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 industry here.
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NIO shares were trading at $10.67 per share on Thursday morning, down $0.17 (-1.57%). Year-to-date, NIO has gained 9.44%, versus a 15.88% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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