Global demand for Electric Vehicles (EVs) is expected to drive significant growth in the auto industry. Amid this positive background, it would be wise of you to buy up three stocks, Toyota Motor Corporation (TM), Hino Motors, Ltd. (HINOY) and Ferrari N.V. (RACE), which are fundamentally stronger than Rivian Automotive, Inc. (RIVN).
Automotive company RIVN posted weak financials in the last reported quarter. Although narrowing its losses compared to the prior-year period, the company still posted a $1.37 billion net loss attributable to common stockholders and a net loss per share of $1.44.
Moreover, RIVN’s bleak profitability scenario is concerning. Its trailing-12-month EBIT margin and net income margin of negative 157.40% and 148.97% compare to the industry averages of 7.40% and 4.29%, respectively.
On the other hand, the overall auto industry shows strong prospects. The industry’s growth is driven by global demand for vehicles, the adoption of automation and robotics technology, increasing demand for electric and hybrid vehicles, and a focus on sustainability and energy efficiency.
Vehicle sales maintained momentum this year due to a demand overhaul from previous years. Global light vehicle sales are expected to grow by about 8% in 2023. For 2024, a balance between production and sales is forecasted to be attained.
On top of it, with an unprecedented rise in the adoption of EVs, the growth in vehicle sales is expected to continue. EVs are projected to account for 40% of global auto sales by 2030, which translates to roughly 40 million vehicles, with an additional 20 million hybrids.
Furthermore, the global automotive industry is forecasted to grow at a 3% CAGR to reach $3.58 trillion in 2031.
With such concrete prospects in mind about the Auto & Vehicle Manufacturers industry, let’s now dive into the stock fundamentals of the aforementioned stocks, starting with number three.
Stock #3: Toyota Motor Corporation (TM)
Headquartered in Toyota, Japan, TM designs, manufactures, assembles, and sells passenger vehicles, minivans and commercial vehicles, and related parts and accessories. It operates in Automotive; Financial Services; and All Other segments.
On November 9, TM’s Toyota Indiana announced a major milestone as it started production at its first-ever Lexus TX, an all-new, three-row luxury SUV. This should bolster the company’s revenue stream.
On October 31, TM declared a new investment of nearly $8 billion at its Toyota Battery Manufacturing North Carolina (TBMNC), adding capacity to support Battery Electric Vehicles (BEVs) and Plug-in Hybrid Electric Vehicles (PHEVs). This is expected to support TM’s multi-pathway approach to global vehicle electrification.
For the fiscal second quarter ended September 30, 2023, TM’s total sales revenues increased 24% year-over-year to ¥11.43 trillion ($75.69 billion), while its operating income increased 155.6% from the prior-year quarter to ¥1.44 trillion ($9.52 billion).
Its net income and earnings per share attributable to TM came in at ¥1.32 trillion ($8.74 billion) and ¥94.51, registering improvements of 186.3% and 197.9% from the year-ago values, respectively.
TM’s revenue is expected to increase 3.9% year-over-year to $287.41 billion for the fiscal year ending March 2024. Also, its EPS is expected to increase by 668.1% from the prior year to $20.49. Additionally, it surpassed revenue estimates in each of the trailing four quarters, which is impressive.
Shares of TM have gained 34.9% year-to-date and 30.8% over the past six months to close the last trading session at $184.22.
TM’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has an A grade for Sentiment and a B for Growth and Stability. It is ranked #25 out of 52 stocks in the B-rated Auto & Vehicle Manufacturers industry.
Beyond what is stated above, we’ve also rated TM for Value, Momentum, and Quality. Get all TM ratings here.
Stock #2: Hino Motors, Ltd. (HINOY)
HINOY, a subsidiary of TM, is a global manufacturer of large commercial vehicles, including trucks, buses, light commercial vehicles, and passenger vehicles. Headquartered in Hino, Japan, the company also produces automotive and industrial diesel engines, along with vehicle parts.
On October 27, HINOY announced initiatives for carbon neutrality, focusing on a "Multi-Pathway" approach with internal combustion and electric vehicles, aiming to reduce CO2 emissions throughout the vehicle lifecycle.
In the same month, HINOY announced that it would be reinstated to the Commercial Japan Partnership Technologies (CJPT) project, committing to contribute to CJPT's activities for achieving a carbon-neutral society through CASE technology diffusion.
Such moves reflect HINOY’s dedication to environmental goals and cooperative efforts, aiming to enhance and accelerate initiatives with partners despite previous misconduct, impacting its standing in collaborative projects.
During the fiscal period between April 1, 2023, and September 30, 2023, HINOY’s net sales came in at ¥755.39 billion ($5 billion), up 3% year-over-year, while its gross profit increased marginally year-over-year to ¥124.01 billion ($820.87 million). Its interest income increased 22.1% from the prior-year period to ¥1.06 billion ($7 million).
Street expects HINOY’s revenue to increase 66.3% year-over-year for the fiscal year ending March 2024 to $10.35 billion, while for the fiscal year ending March 2025, the revenue is projected to reach $11.61 billion, indicating a growth of 12.1% year-over-year.
The stock has declined 11.1% over the past six months to close the last trading session at $35.25.
HINOY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
HINOY also has a B grade for Value and Stability. It is ranked #24 out of 52 stocks in the same Industry. Click here for the additional POWR Ratings for Growth, Momentum, Sentiment, and Quality for HINOY.
Stock #1: Ferrari N.V. (RACE)
Headquartered in Maranello, Italy, RACE designs, engineers, manufactures, and sells luxury performance sports cars worldwide. It also provides spare parts, engines, after-sale services, repair, maintenance, and restoration services for cars and licenses its Ferrari brand to various producers and retailers of luxury and lifestyle goods.
On November 7, RACE declared its intention to continue its multi-year share buyback program of approximately €2 billion ($2.14 billion), expected to be executed by 2026. Such initiatives could bolster the company’s shareholder returns.
For the fiscal quarter that ended September 30, 2023, RACE’s net revenues increased 23.5% year-over-year to €1.54 billion ($1.65 billion), while its adjusted EBIT grew 41.5% from the year-ago quarter to €423 million ($452.41 million).
Also, the company’s adjusted net profit and adjusted EPS stood at €332 million ($355.08 million) and €1.82, up 45.6% and 48% year-over-year, respectively.
RACE’s revenue and EPS are expected to increase 14.5% and 29.5% year-over-year to $6.36 billion and $7.20 for the fiscal year ending December 2023. Moreover, the company topped the consensus EPS estimates in each of the trailing four quarters, which is impressive.
RACE’s shares have gained 66.7% over the past year to close the last trading session at $335.89. Over the past six months, the shares have gained 14.2%.
RACE’s POWR Ratings reflect a robust outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
It also has an A grade for Quality and a B for Growth, Stability, and Sentiment. It is ranked #18 within the industry.
To access additional ratings for RACE’s Value and Momentum, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
TM shares were trading at $186.47 per share on Friday afternoon, up $2.25 (+1.22%). Year-to-date, TM has gained 38.74%, versus a 16.22% 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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