In this article, I have evaluated prominent auto stocks, General Motors Company (GM) and Stellantis N.V. (STLA), to determine which could be a better buy. After thoroughly evaluating these stocks, I think STLA is a superior choice to GM 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 reach $28.70 billion by 2030, growing at a CAGR of 4.5%.
Additionally, the ever-increasing global transition to EVs further positions the automotive industry for exponential growth in the foreseeable future. Favorable government policies, automaker commitments to EVs, and rising climate change concerns would drive consumer demand for electric vehicles worldwide.
STLA has gained 19.9% over the past nine months compared to GM’s 17.7% decline. Also, STLA has gained 31.8% year-to-date compared to GM’s marginal decline.
Here are the reasons why I think STLA 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 28, 2023, STLA announced its partnership with Charge Enterprises, Inc., in which Charge has become an EV charging installation partner for STLA's 2,600+ U.S. dealer network. Charge becomes the fourth recommended partner for dealer EV readiness for Stellantis dealers across the United States, joining Future Energy, Vehya, and AGI.
On August 23, 2023, STLA, along with its U.S. dealership network announced that it was working with its 2,600-plus dealers focused on the transition to electric-vehicle sales and service.
The addition of AGI's electrical engineering, project management, fabrication, and maintenance capabilities will provide an additional significant resource for STLS’s dealers to help accelerate their electric-vehicle (EV) readiness.
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. However, its total cost and expenses increased 24.7% year-over-year to $41.96 billion.
On the contrary, for the first six months that ended June 30, 2023, STLA’s net revenues increased 11.8% year-over-year to €98.37 billion ($106.18 billion). Its non-GAAP operating income grew 30.4% from the year-ago value to €13.54 billion ($14.61 billion). Its non-GAAP profit before taxes increased 36.8% year-over-year to €13.61 billion ($14.69 billion).
In addition, the company’s non-GAAP net profit rose 37.2% year-over-year to €10.92 billion ($11.79 billion).
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 decline 15.6% in the current quarter ending September 2023, and 20.8% in the next quarter ending December 2023.
Conversely, Over the past three years, STLA’s revenue grew at a 50.3% CAGR. Analysts expect STLA’s revenue to increase by 7.8% this year and 19.2% in the third quarter ending September 2023. Its EPS is expected to gain 3.2% this year.
Valuation
GM’s forward EV/EBITDA multiple of 6.29 is higher than STLA’s 0.98. Additionally, GM’s forward EV/Sales multiple of 0.84x is higher than STLA’s 0.16x.
Thus, STLA is more affordable.
Profitability
GM's trailing-12-month gross profit margin of 12.73% is lower than STLA’s 20.33%. In addition, GM’s trailing-12-month net income margin of 6.05% is lower than STLA’s 10.40%.
Thus, STLA is more profitable.
POWR Ratings
GM has an overall rating of C, which equates to a Neutral in our proprietary POWR Ratings system. Conversely, STLA has an overall rating of A, translating to a Strong Buy. 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 C grade for Stability, which is justified by its 24-month beta of 1.48. On the other hand, STLA has a B grade for Stability, which is in sync with its 24-month beta of 1.21.
Moreover, GM has a C grade for Sentiment, which is consistent with its mixed analysts’ expectations. However, STLA’s B grade in Sentiment is in sync with its favorable analysts’ expectations.
Among the 58 stocks in the Auto & Vehicle Manufacturers industry, GM is ranked #27, while STLA is ranked #2.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Momentum, Value, and Quality. Get all GM ratings here. Click here to view STLA ratings.
The Winner
Increasing demand for high-end passenger vehicles, urbanization, and rising infrastructure spending in the economy are driving the automotive market growth. Industry players such as GM and STLA are well-positioned to benefit from these industry tailwinds.
However, STLA's discounted valuation multiples, low-risk beta, and promising growth prospects make it a better choice for September.
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.
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STLA shares were trading at $18.63 per share on Thursday morning, down $0.09 (-0.48%). Year-to-date, STLA has gained 31.20%, versus a 19.13% 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.
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