In this piece, I have evaluated two auto manufacturing stocks, Faraday Future Intelligent Electric Inc. (FFIE) and General Motors Company (GM), to determine a better investment. Based on the fundamental comparison of these stocks, I believe GM is the better buy for the reasons explained throughout this article.
Automakers are gradually prioritizing electric vehicles (EVs) over internal combustion engine (ICE) vehicles as they adapt to changing market demands. This shift is largely influenced by stringent government regulations and incentives aimed at promoting the adoption of EVs, which have effectively boosted the sales of these vehicles.
Moreover, the electric vehicle (EV) industry is at the heart of the worldwide push towards a more sustainable future. As countries work towards reducing their carbon footprints, the demand for EVs is expected to increase aggressively.
Alex Black, chief marketing officer at EpicVIN, said, “Electric vehicles are becoming more popular in terms of car buying trends, there is a growing consumer desire for effective eco-friendly mobility.
GM is a clear winner in terms of price performance, with 28.2% returns over the past year compared to FFIE’s 96% decline. GM has gained 20.1% year-to-date, while FFIE plunged 21.3%. Also, GM’s 10.2% gains over the past month are higher than FFIE’s decline of 27.8%.
Here are the reasons why we think GM could perform better in the near term:
Latest Developments
On June 27, 2023, FFIE announced an additional funding commitment of $90 million plus the acceleration of an existing commitment of $15 million. These commitments come from the company’s secured and unsecured facilities.
On June 16, FFIE approved a proposal, to be submitted to stockholders for approval at a special meeting of stockholders, to authorize the Board to effect a reverse stock split of the company’s common stock.
On the contrary, on June 26, GM and Element 25 Limited announced an agreement for Element 25 to supply up to 32,500 metric tons of manganese sulfate annually to support the annual production of more than 1 million GM EVs in North America.
Under the agreement, GM will provide Element 25 with a $85 million loan to partially fund the construction of a new facility in the state of Louisiana for production of battery-grade manganese sulfate, a key component in lithium-ion battery cathodes, starting in 2025.
Moreover, on June 8, GM announced a collaboration with Tesla Inc (TSLA) to integrate the North American Charging Standard (NACS) connector design into its EVs beginning in 2025. Additionally, the collaboration will expand access to charging for GM EV drivers at 12,000 Tesla Superchargers and grow throughout North America.
This agreement complements GM's ongoing investments in charging, reinforcing the company's focus on expanding charging access across home, workplace, and public spaces, and builds on the more than 134,000 chargers available to GM EV drivers today through the company's Ultium Charge 360 initiative and mobile apps.
Recent Financial Results
During the first quarter that ended March 31, 2023, FFIE reported a loss from operations of $83,03 million. Its net loss per share amounted to $0.07. Moreover, the company’s cash and restricted cash at the end of the period amounted to $33.27 million, compared to $277.39 million in the year-ago quarter end.
On the other hand, GM’s revenue for the first quarter ended March 31, 2023, increased 11.1% year-over-year to $39.99 billion. Its adjusted EPS came in at $2.21, representing an increase of 5.7% over the prior-year quarter. The company’s automotive operating cash flow increased 36.5% year-over-year to $2.23 billion.
Also, its adjusted net income attributable to common stockholders increased marginally year-over-year to $3.10 billion.
Past And Expected Financial Performance
Over the past three years, FFIE’s total assets rose at a CAGR of 17.4%. Analysts expect FFIE’s EPS to amount to negative 0.11 in the to-be-announced and current quarters and negative $0.35 in the current year.
On the other hand, GM’s revenue and EPS grew at a CAGR of 6% and 25.7% over the past three years. Analysts expect the company’s EPS to come in at $1.76 in the to-be-announced quarter, $1.59 in the current quarter, and $6.95 in the current year.
Moreover, GM’s revenue is expected to grow 17.1% in the to-be-announced quarter and 5.9% in the current year.
Profitability
GM is more profitable, with a trailing-12-month cash from operations of $17.03 billion compared to FFIE’s $363.67 million.
Furthermore, GM’s trailing-12-month ROCE, ROTA, and ROTC of 14.09%, 3.52%, and 4.08% are favorably higher than FFIE’s negative 119.17%, 68.22%, and 51.78%, respectively.
Dividend-Paying History
GM’s forward annual dividend of $0.36 translates to a dividend yield of 0.91% on the current price level. The company’s four-year average dividend yield is 1.69%.
However, FFIE does not pay any dividends.
Valuation
In terms of forward EV/Sales, FFIE is currently trading at 9.99x, higher than GM, which is trading at 0.92x. FFIE’s forward P/S multiple of 7.65 is higher than GM’s 0.33.
Thus, GM is relatively affordable.
POWR Ratings
FFIE has an overall rating of F, which equates to a Strong Sell in our proprietary POWR Ratings system. Conversely, GM has an overall rating of B, translating to a 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 grade of B for Sentiment, in sync with favorable analysts' estimates. FFIE, on the other hand, has a D for Sentiment, which is justified by the negative analysts’ sentiments.
GM has a B grade for Value. Its forward EV/Sales and P/S multiples of 0.92 and 0.33 are 22.7% and 61.9% lower than the industry averages of 1.19 and 0.88.
On the contrary, FFIE has a D in Value. Its forward EV/Sales and P/S multiples of 9.99 and 7.65 are 738.1% and 771% higher than the industry averages of 1.19 and 0.88.
Of the 58 stocks in the Auto & Vehicle Manufacturers industry, FFIE is ranked #47, while GM is ranked #20.
Beyond what we’ve stated above, we have also rated both stocks for Stability, Momentum, Quality, and Growth. Click here to view FFIE ratings. Get all GM ratings here.
The Winner
Driven by the increasing adoption of EVs by consumers and the implementation of various government initiatives aimed at promoting their usage, the electric vehicle (EV) market has experienced significant growth in recent years and is projected to continue expanding in the next decade. Leading auto companies FFIE and GM are expected to benefit significantly from the industry’s bright growth prospects.
However, FFIE’s low profitability, elevated valuation multiples, and bleak growth prospects make its competitor GM a better buy now.
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?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
GM shares fell $40.41 (-100.00%) in premarket trading Thursday. Year-to-date, GM has gained 20.74%, versus a 17.51% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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