In this piece, I evaluated two auto stocks, Suzuki Motor Corporation (SZKMY) and Rivian Automotive, Inc. (RIVN), to determine which has better return potential. Based on a fundamental comparison of these stocks, I find SZKMY a better pick for the reasons explained throughout this article.
Auto sales suffered last year due to the challenges posed by high inflation, rising interest rates, and supply chain constraints. Sales of new vehicles last year dropped to their lowest level since 2011. However, sales of electric and plug-in hybrid vehicles in the U.S. remained strong as they closed in on the million mark, having sold 928,884 units.
Globally, electric car sales, which include battery electric vehicles (BEV) and plug-in hybrid electric vehicles (PHEV), rose 55% year-over-year to more than 10 million in 2022. Auto industry executives remain optimistic that auto sales will rebound this year. Cox Automotive forecasts new-vehicle sales for 2023 to increase 3% year-over-year to 14.20 million units. The IEA expects EV sales to reach worldwide sales of almost 14 million this year.
Due to the growing market for EVs, traditional automakers like SZKMY are making considerable investments to produce battery electric and plug-in hybrid electric vehicles and move away from internal combustion engine (ICE) vehicles. Many have targeted having a fully electrified vehicle portfolio by 2030. However, traditional automakers face intense competition from new-age auto manufacturers like RIVN.
SZKMY’s revenue in the fourth quarter came 2.7% higher than analyst estimates. On the other hand, RIVN’s revenue during the first quarter missed the consensus estimate by 1.4%. However, its loss per share came to $0.34 below analyst estimates.
For fiscal 2023, SZKMY expects its net sales to rise 5.6% year-over-year to ¥4.90 trillion ($34.54 billion). Its operating profit is expected to decline 5.9% year-over-year to ¥330 billion ($2.33 billion) due to increased investments to drive growth, strong yen, and increased raw material prices. Its profit attributable to owners of the parent is forecasted to decline 14.1% over the prior-year period to ¥190 billion ($1.34 billion).
During the first quarter, RIVN produced 9,395 and delivered 7,946 vehicles. The company said it remains on track to produce 50,000 vehicles this year. Its adjusted EBITDA loss for fiscal 2023 is expected to be $4.30 billion. Also, the company expects to incur capital expenditures of $2 billion.
Earlier this year, SZKMY introduced its eVX concept EV at the Auto Expo in India. The all-electric concept is expected to be the automaker’s first global strategic EV, aiming for market entry in 2025. The company will start introducing commercial mini-vehicle battery EVs in Japan this year. It also plans to introduce compact SUVs and passenger mini-vehicles, with six models to be launched by FY2030.
In Europe, SZKMY will introduce battery EVs in FY2024 and expand to SUVs and B-segment vehicles, with five models to be launched by FY2030. Similarly, in India, the company will introduce the EV concept showcased at the Auto Expo by FY2024 and launch six models by FY2030. It will also provide carbon-neutral ICE vehicles that run on biogas, CNG, and ethanol-mixed fuels.
When it comes to price performance, SZKMY is the clear winner. SZKMY stock has delivered positive returns in all time frames. In addition, SZKMY has gained 16.2% over the past year, compared to RIVN’s 49.7% decline.
Here are the reasons I think SZKMY could perform better in the near term:
Recent Financial Results
For the fiscal year ended March 31, 2023, SZKMY’s net sales increased 30.1% year-over-year to ¥4.64 trillion ($32.71 billion). Its gross profit rose 34.3% over the prior-year quarter to ¥1.15 trillion ($8.11 billion). The company’s profit increased 37.3% year-over-year to ¥274.28 billion ($1.93 billion).
In addition, its EPS came in at ¥455.19, representing an increase of 37.9% year-over-year. Also, its net cash provided by operating activities increased 29.5% year-over-year to ¥286.63 billion ($2.02 billion).
RIVN’s revenues for the first quarter ended March 31, 2023, rose 595.8% year-over-year to $661 million. Its gross loss widened 6.6% year-over-year to $535 million. The company’s net loss attributable to common stockholders narrowed 15.3% year-over-year to $1.35 billion. Also, its loss per share narrowed 18.1% year-over-year to $1.45.
Expected Financial Performance
Analysts expect SZKMY’s fiscal 2024 and 2025 revenue to increase 119.3% and 5.6% year-over-year to $35.74 billion and $37.75 billion, respectively. Its revenue for the quarter ending June 30, 2023, is expected to increase 7% year-over-year to $8.42 billion.
RIVN’s EPS for fiscal 2023 and 2024 is expected to remain negative. On the other hand, its fiscal 2023 and 2024 revenue is expected to increase 142.8% and 92.8% year-over-year to $4.03 billion and $7.76 billion. In addition, its EPS for the quarter ending June 30, 2023, is expected to remain negative. On the other hand, its revenue for the same quarter is expected to increase 162.9% year-over-year to $956.94 million.
Profitability
SZKMY’s trailing-12-month revenue is 15.7 times what RIVN generates. SZKMY is more profitable, with an EBITDA margin and gross profit margin of 11.37% and 24.77%, compared to RIVN’s negative 269.24% and 141.91%, respectively. Also, SZKMY’s asset turnover of 1.06x compares to RIVN’s 0.11x.
Valuation
In terms of forward EV/Sales, SZKMY is currently trading at 0.52x, 63.6% lower than RIVN’s 1.43x. SZKMY’s trailing-12-month Price/Sales ratio of 0.49x is 91.9% lower than RIVN’s 6.05x.
Thus, SZKMY is relatively more affordable.
POWR Ratings
SZKMY has an overall rating of A, which equates to a Strong Buy in our proprietary POWR Ratings system. On the other hand, RIVN has an overall rating of F, translating to a Strong Sell. 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. SZKMY has a B grade for Quality, in sync with its high profitability. RIVN’s poor profitability justifies its F grade for Quality.
SZKMY has a B grade for Value, consistent with its discounted valuation. On the other hand, RIVN has a D grade for Value, in sync with the company’s stretched valuation.
Of the 57 stocks in the Auto & Vehicle Manufacturers industry, SZKMY is ranked #7, while RIVN is ranked #48 in the same industry.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Momentum, Stability, and Sentiment. Click here to view SZKMY’s ratings. Get all the ratings of RIVN here.
The Winner
The shift from fossil fuel-burning vehicles to battery-powered vehicles is increasing. However, battery-electric vehicles (BEV) and plug-in hybrid electric vehicles (PHEV) still constitute a small part of global automobile sales.
Automaker SZKMY has a solid ICE portfolio, and despite being late to the EV trend, SZKMY has chalked out plans to introduce new EV models in Japan, Europe, and India. The company’s experience of more than a century will likely help it grow in the competitive EV market. Moreover, the company is increasing its investments to drive growth.
On the other hand, new-age electric truck and van maker RIVN expects to achieve gross profit by the end of 2024. The company burned $1.5 billion in cash during the first quarter. Although it expects to produce 50,000 vehicles this year, it needs to ramp up production significantly in order to reduce costs and narrow its losses.
Moreover, it faces stiff competition within its product segments from bigger and well-established rivals like Ford Motor Company (F) and Tesla, Inc. (TSLA).
Considering these factors, SZKMY could be a better investment choice than RIVN.
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.
What To Do Next?
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SZKMY shares were unchanged in premarket trading Thursday. Year-to-date, SZKMY has gained 10.48%, versus a 14.32% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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