The ongoing chip shortage, production challenges, and growing competition in the electric vehicle (EV) industry have marred EV giant Tesla, Inc.’s (TSLA) growth prospects. Despite the company’s fundamental weakness, the stock is trading at a premium valuation.
In terms of forward EV/Sales, TSLA’s 10.97x is 857.5% higher than the industry average of 1.15x. Though increased vehicle production improved TSLA’s second quarter financials from the prior-year period, the results were weaker than in the first quarter.
While the stock gained 32.3% over the past month, the company doesn’t look well-positioned to survive the current market and economic uncertainties.
Although high inflation, shortage of raw materials and semiconductor chips, and rising interest rates weigh heavily on auto production and demand, the rising interest and investments in EVs should drive the industry’s growth. The global EV market is expected to grow at an 18.2% CAGR to $823.75 billion by 2030.
We believe auto stocks Honda Motor Co., Ltd. (HMC), Mazda Motor Corporation (MZDAY), Subaru Corporation (FUJHY), Isuzu Motors Limited (ISUZY), and Mercedes-Benz Group AG (DDAIF) are better investments than TSLA to capitalize on the industry’s growth prospects, given their sound financials and lower-than-industry valuations.
Honda Motor Co., Ltd. (HMC)
Based in Tokyo, Japan, HMC develops, manufactures, and distributes motorcycles, automobiles, and power products. It also sells spare parts and provides after-sales services directly through retail dealers, independent distributors, and licensees.
On July 21, 2022, HMC held the world online premiere of its all-new Civic Type R, unveiling its exterior and interior designs and announcing advancements to the vehicle’s dynamic performance.
The 2.0-liter VTEC Turbo engine was further refined to achieve higher output and responsiveness to the upper limit. Scheduled to go on sale in Japan in September 2022, this model should witness high demand in the coming months.
For the fiscal 2022 fourth quarter ended March 31, 2022, HMC’s sales revenue increased 10.5% year-over-year to ¥3.88 trillion ($29.09 billion). As of March 31, 2022, the company had ¥3.68 trillion ($27.58 billion) in cash and cash equivalents.
Analysts expect an EPS estimate of $3.47 for fiscal 2023 ending March 31, 2023, indicating a rise of 26.6% from the prior-year period. It surpassed Street EPS estimates in three of the trailing four quarters. The consensus revenue estimate of $125.11 billion for the same fiscal year represents a 360.4% year-over-year improvement.
The stock’s 8.20x forward EV/EBITDA is 6.3% lower than the 8.75x industry average. In terms of forward Price/Cash Flow, HMC is trading at 3.55x, 63.6% lower than the 9.74x industry average. Over the past month, the stock has gained 7.5% to close the last trading session at $26.02.
HMC’s POWR Ratings reflect this promising outlook. It has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an A grade for Value and a B for Stability, Sentiment, and Quality. Click here to see the additional ratings for HMC’s Growth and Momentum. HMC is ranked #3 of 64 stocks in the Auto & Vehicle Manufacturers industry.
Mazda Motor Corporation (MZDAY)
Headquartered in Hiroshima, Japan, MZDAY manufactures and sells passenger cars, commercial vehicles, and related automobile parts internationally.
Its principal products include four-wheeled vehicles, gasoline reciprocating engines, diesel engines, and automatic and manual transmissions for vehicles. It also distributes used automobiles and special purpose vehicles, automobile delivery inspection, and bodywork.
On March 8, 2022, MZDAY’s Mazda Motor Europe business unveiled its new crossover SUV, the CX-60, the first of Mazda’s Large Product group models, offering enhanced driving pleasure and environmental and safety performance. This two-row, mid-sized SUV is equipped with e-Skyactiv PHEV, MZDAY’s first plug-in hybrid system featuring a 2.5L in-line four-cylinder gasoline engine and an electric motor.
MZDAY had expected to begin producing the CX-60 at Hofu Plant No. 2 in Yamaguchi prefecture on March 11, 2022. It plans to introduce four models from our Large Product group to the in-high-demand global SUV market by the end of 2023. This should help MZDAY generate high demand and further growth.
MZDAY’S net sales for its fiscal 2022 full year ended March 31, 2022, increased 8.3% year-over-year to ¥3.12 trillion ($23.43 billion). The company’s gross profit came in at ¥687.70 billion ($5.16 billion), up 12.1% from the prior-year period. Its operating income came in at ¥104.23 billion ($782.54 million) for the quarter, indicating a 1081.7% rise from the year-ago period.
MZDAY’s net income came in at ¥82.35 billion ($618.26 million), compared to a loss of ¥32.05 billion in the prior-year period. The company had ¥740.39 billion ($55.59 million) in cash and equivalents as of March 31, 2022.
Analysts expect the company’s revenue to come in at $28.38 billion for its fiscal 2023 ending March 31, 2023, representing a 56.9% rise from the prior-year period.
The stock’s 2.90x forward EV/EBITDA is 66.9% lower than the 8.75x industry average. In terms of forward Price/Sales, MZDAY is trading at 0.19x, 79.4% lower than the 0.94x industry average. Over the past week, the stock has gained 10.8% to close the last trading session at $4.32.
MZDAY’s POWR Ratings reflect its solid prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system.
It has an A grade for Value and a B for Quality. In addition to the POWR Ratings grades we have just highlighted, one can see MZDAY’s Growth, Stability, Sentiment, and Momentum ratings here. MZDAY is ranked #7 in the Auto & Vehicle Manufacturers industry.
Subaru Corporation (FUJHY)
Headquartered in Tokyo, Japan, FUJHY manufactures and sells automobiles and aerospace products worldwide. It manufactures, sells, and repairs passenger cars and their components, airplanes, aerospace-related machinery, and related components, and rents and manages real estate properties.
It is also involved in the shipping, land freight, warehousing of vehicles, inspection, service, and maintenance of aircraft, and IT system development and operation services.
On June 30, 2022, FUJHY delivered the New Utility Helicopter (UH-2) for Japan Ground Self-Defense Force (JGSDF) at its Aerospace Company Utsunomiya Plant, Tochigi Prefecture, Japan. UH-2 leveraged the SUBARU BELL 412EPX, the latest civilian helicopter on the same platform, remodeled for Japan Ministry of Defense specifications. This will help FUJHY nurture its relationship with JGSDF in the long run.
FUJHY’s revenue for its fiscal 2023 first quarter ended March 31, 2022, increased 31.3% year-over-year to ¥834.10 billion ($6.26 billion). The company’s gross profit came in at ¥140.10 billion ($1.05 billion), indicating a 10.2% rise from the prior-year period. Its net income came in at ¥36.98 billion ($277.33 million) for the quarter, up 25.2% from the year-ago period.
FUJHY’s net profit came in at ¥27.28 billion ($204.60 billion), representing a 45% rise from the prior-year period. Its EPS rose 47% year-over-year to ¥35.48. As of March 31, 2022, the company had ¥991.31 billion ($7.43 million) in cash and cash equivalents.
The consensus EPS estimate of $1.16 for fiscal 2023 ending March 31, 2022, indicates a 225.9% year-over-year improvement. Analysts expect FUJHY’s revenue to be $26.85 billion for the same fiscal year, representing a 129.9% rise from the prior-year period.
The stock’s 2.83x forward EV/EBITDA is 67.3% lower than the 8.64x industry average. In terms of forward Price/Cash Flow, FUJHY is trading at 5.37x, 44% lower than the 9.59x industry average. Over the past month, the stock has gained 2.8% to close the last trading session at $8.85.
FUJHY’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
It has a B grade for Growth, Value, Stability, and Quality. Click here to see the additional ratings for FUJHY’s Sentiment and Momentum. FUJHY is ranked #8 in the same industry.
Isuzu Motors Limited (ISUZY)
ISUZY is a Japan-based company that manufactures and sells automobiles, components, and industrial engines and provides logistics-related services. It sells commercial vehicles, light commercial vehicles, light and heavy-duty trucks, sport utility vehicles, diesel engines, and components worldwide.
ISUZY announced on July 19, 2022, that it would collaborate with Toyota Motor Corporation (TM) and its Hino Motors, Ltd. (HINOY) and Commercial Japan Partnership Technologies Corporation (CJPT) brands to jointly plan and develop light-duty fuel cell (FC) electric trucks for the mass-market.
FC technology, which runs on high energy density hydrogen and has zero CO2 emissions while driving, is considered effective in fulfilling light-duty trucks’ daily operations. This is expected to contribute to the realization of a hydrogen society and carbon neutrality by expanding the options available for customer use and increasing the demand for hydrogen.
For its fiscal 2022 full year ended March 31, 2022, ISUZY’s net sales revenue increased 31.8% year-over-year to ¥2.51 trillion ($18.86 billion). The company’s gross profit came in at ¥458.19 billion ($3.44 billion), up 51.2% from the prior-year period. Its operating profit came in at ¥187.20 billion ($1.40 billion) for the quarter, representing a 95.5% year-over-year improvement.
ISUZY’s net income came in at ¥126.19 billion ($946.69 billion), up 195.5% from the prior-year period. Its EPS increased 181.3% year-over-year to ¥162.87. As of March 31, 2022, the company had cash and cash equivalents of ¥341.71 billion ($2.56 billion). Analysts expect the company’s revenue to be $21.96 billion for fiscal 2023 ending March 31, 2023, representing a 155.4% rise from the prior-year period.
The stock’s 5.07x forward EV/EBITDA is 41.3% lower than the 8.64x industry average. In terms of forward Price/Cash Flow, ISUZY is trading at 0.39x, 58.9% lower than the 0.95x industry average. Over the past month, the stock has gained 3.9% to close the last trading session at $11.19.
ISUZY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system.
It has an A grade for Value and a B for Stability, Sentiment, and Quality. Click here to see the additional ratings for ISUZY (Growth and Momentum). ISUZY is ranked #6 in the Auto & Vehicle Manufacturers industry.
Mercedes-Benz Group AG (DDAIF)
Headquartered in Germany, DDAIF is an automotive engineering company that develops, produces, and distributes cars, trucks, and vans. The company operates through Mercedes-Benz Cars; Daimler Trucks; Mercedes-Benz Vans; Daimler Buses; and Daimler Financial Services. It also sells related spare parts and accessories.
On May 17, 2022, DDAIF announced to work with Sila Nanotechnologies Inc., a next-generation battery materials company, to incorporate Sila’s silicon anode chemistry in batteries which are optionally available for the first time in the upcoming electric Mercedes-Benz G-Class.
Sila’s technology enables a 20-40% increase in energy density, reaching more than 800 Wh/l at the cell level, and helps DDAIF increase the range of its future vehicles significantly.
For its fiscal 2022 second quarter ended June 30, 2022, DDAIF’s revenue grew 6.8% year-over-year to €36.44 billion ($37.13 billion). The company’s gross profit came in at €8.50 billion ($8.66 billion), indicating a 7.6% rise from the year-ago period.
Its profit from continuing operations came in at €3.20 billion ($3.26 billion) for the quarter, representing a 1.9% year-over-year improvement. As of June 30, 2022, the company had €14.33 billion ($14.60 billion) in cash and cash equivalents.
The stock’s 6.79x forward EV/EBITDA is 21.4% lower than the 8.64x industry average. In terms of forward Price/Cash Flow, DDAIF is trading at 3.88x, 59.6% lower than the 9.59x industry average. Over the past month, the stock has gained 1.4% to close the last trading session at $58.70.
DDAIF’s POWR Ratings reflect its solid prospects. It has an overall A rating, which equates to Strong Buy in our proprietary rating system.
The stock has a B grade for Value and Quality. In addition to the POWR Ratings grades we have just highlighted, one can see the ratings for DDAIF’s Growth, Stability, Sentiment, and Momentum here. DDAIF is ranked #4 in the same industry.
HMC shares were trading at $25.88 per share on Wednesday afternoon, down $0.14 (-0.54%). Year-to-date, HMC has declined -7.74%, versus a -12.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More…
