The automotive industry is currently going through an optimistic surge due to strong consumer demand for new vehicles, improving supply chain conditions, and a rapid shift toward Electric Vehicles (EVs), encouraged by government incentives. The integration of cutting-edge technologies into the auto industry is further enhancing its outlook.
Given the promising growth prospects in the sector, investors may consider buying, holding, or selling auto stocks like Nikola Corporation (NKLA), Tesla, Inc. (TSLA), and REV Group, Inc. (REVG). But before diving into the fundamentals of these stocks, let’s explore the industry landscape.
Despite inflationary challenges and supply chain disruptions, the auto industry is resilient, with rising sales and a sharp focus on growth. Due to heightened demand for the latest models and improved supply chains, U.S. new vehicle sales in September were 1.33 million units, with an annual sales rate of 15.67 million units,
Global consumer demand for EVs is on the rise, driven by supportive government policies, increased commitment from automakers to greener solutions, and concerns about climate change.
The International Energy Agency (IEA) forecasts a significant 35% year-over-year increase in EV sales for 2023, reaching a milestone of 14 million units. This rapid growth suggests that EVs are set to capture a larger share of the overall automotive market, potentially reaching 18% by the end of 2023.
Furthermore, according to a comprehensive report by MRFR/Market Research Future (MRFR), the global automotive market would reach $6.07 trillion, expanding at a CAGR of 6.9%.
Considering these favorable trends, let's examine the fundamentals of the three Auto & Vehicle Manufacturers stocks, starting with the third stock.
Stock to Avoid:
Stock #3: Nikola Corporation (NKLA)
NKLA operates as a technology innovator and integrator that works to develop energy and transportation solutions. It operates through two business units, Truck and Energy.
NKLA’s trailing-12-month gross profit margin of negative 222.12% is compared with the industry average of 30.14%. Moreover, its trailing-12-month ROCE, ROTC, and ROTA of negative 132.55%, 49.49%, and 74.31% are lower than the industry averages of 13.59%, 6.79%, and 5.04%, respectively.
NKLA’s total revenues for the fiscal second quarter that ended June 30, 2023, declined 15.3% year-over-year to $15.36 million, while its gross loss came at $27.63 million. Moreover, the company’s net loss grew 25.9% from the prior-year quarter to $217.83 million, while its non-GAAP net loss per share stood at $0.20.
Street expects NKLA’s revenue to decline 5.5% year-over-year to $22.92 million for the fiscal third quarter (ended September 2023), while its EPS is expected to stand at negative at $0.18. Moreover, NKLA failed to surpass consensus EPS estimates in three of the trailing four quarters, which is disappointing.
Over the past year, the stock has lost 63.8% to close the last trading session at $1.42. The stock has declined 34.3% year-to-date.
NKLA’s POWR Ratings reflect its poor prospects. It has an overall F grade, equating to a Strong Sell in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an F grade for Stability and Quality and a D for Value and Sentiment. It is ranked #49 within the 54-stock Auto & Vehicle Manufacturers industry.
Beyond what we have just highlighted, one can see NKLA’s other ratings (Growth and Momentum) here.
Stock to Hold:
Stock #2: Tesla, Inc. (TSLA)
One of the world’s leading automakers, TSLA, designs, develops, manufactures, leases, and sells electric vehicles, energy generation, and storage systems and offers services related to its products. It operates in two segments: Automotive; and Energy Generation and Storage.
TSLA’s trailing-12-month EBITDA margin of 17.86% is 62.3% higher than the 11.01% industry average. Its trailing-12-month net income margin of 12.97% is 195.1% higher than the industry average of 4.40%. However, its trailing-12-month gross profit margin of 21.49% is 39.3% lower than the 35.41% industry average.
TSLA’s total revenues increased 47.2% year-over-year to $24.93 billion in the fiscal second quarter of 2023. Moreover, the company’s non-GAAP net income and non-GAAP EPS attributable to common stockholders increased 20.2% and 19.7% from the prior-year period to $3.15 billion and $0.91, respectively. However, its income from operations stood at $2.40 billion, down 2.6% year-over-year.
Analysts expect TSLA’s revenue to increase 13.6% year-over-year to $24.37 billion for the third quarter ended September 30, 2023. On the other hand, the company’s EPS for the same quarter is expected to decline 27.3% from the previous-year period to $0.76.
TSLA’s shares have gained 112.5% year-to-date to close the last trading session at $261.16. However, it slumped 6.7% over the past three months.
TSLA’s POWR Ratings show its mixed fundamentals. The stock has an overall rating of C, which translates to Neutral in our proprietary rating system. It has a C grade for Growth, Momentum, and Sentiment. Within the same industry, it is ranked #39.
Click here to see the additional ratings for TSLA (Value, Stability, and Quality).
Stock to Buy:
Stock #1: REV Group, Inc. (REVG)
REVG designs, manufactures, and distributes specialty vehicles and related aftermarket parts and services. The company’s customized vehicle solutions cater to diverse applications, such as essential needs for public services, commercial infrastructure, and consumer leisure.
On September 13, the company’s board of directors declared a quarterly dividend of $0.05 per share of common stock, payable to shareholders on October 13, 2023. Its annualized dividend rate of $0.20 per share yields 1.24% on prevailing prices.
For the fiscal third quarter ended July 31, 2023, REVG’s net sales stood at $680 million, up 14.3% year-over-year. Its gross profit and operating income stood at $80.20 million and $25.70 million, up 18.3% and 49.4% from the year-ago quarter, respectively.
Its adjusted net income and adjusted net income per common share stood at $20.90 million and $0.35, up 46.2% and 45.8% from the same period last year, respectively.
REVG’s revenue and EPS for the fiscal year ending October 2023 are expected to increase 12% and 46.7% year-over-year to $2.61 billion and $1.17, respectively. The company surpassed the consensus EPS and revenue estimates in each of the trailing four quarters.
The stock has gained 32% over the past year and 38.7% over the past six months to close the last trading session at $15.98.
REVG’s POWR Ratings reflect a positive outlook. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has a B grade for Growth, Value, Stability, Sentiment, and Quality. REVG is ranked #2 within the Auto & Vehicle Manufacturers industry.
To see additional ratings for REVG (Momentum), click here.
What To Do Next?
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TSLA shares were trading at $258.56 per share on Thursday afternoon, down $2.60 (-1.00%). Year-to-date, TSLA has gained 109.90%, versus a 11.64% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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