STLA, F, and TSLA: Auto Stock Buy, Hold, or Sell?

Rising global demand for automobiles and economic growth in emerging markets are primary drivers for the auto manufacturing industry. Therefore, while quality auto stock Stellantis N.V. (STLA) could be a solid buy, Ford Motor Company (F) could be best kept on hold. However, Tesla, Inc. (TSLA) could be best avoided.

Anticipated enhancements in inventory management and strong consumer demand are poised to propel global auto sales to an estimated 86.80 million units in 2023, surpassing earlier forecasts. This upward trajectory is forecasted to persist in 2024, with sales projected to reach 90.20 million units, primarily credited to the improved performance of the supply chain. Notably, U.S. motor vehicle production is projected to reach approximately 11.7 million units by 2025.

Additionally, the worldwide automotive market is projected to reach $6.07 trillion by 2030, growing at a 6.9% CAGR. This growth is attributable to increasing customer interest in electric vehicles (EVs) and advancements in autonomous driving technology.

With advancements in battery technology, improved charging infrastructure, and an ever-expanding range of electric vehicle models, the automotive industry is gearing up to meet the evolving preferences of consumers and address the global imperative for reduced carbon emissions.

Moreover, rising fuel prices drive heightened consumer interest in electric vehicles (EVs). Last year, the U.S. electric vehicle (EV) market set a new record in 2022 with nearly 918,500 light EV sales, surpassing 2018 by over two and a half times.

Looking ahead, the U.S. electric vehicle market is projected to reach $137.43 billion in 2028, expanding at a CAGR of 25.4%.

However, economic uncertainties and fluctuations in global markets can impact consumer confidence and purchasing power. Also, the auto industry is highly competitive, with new entrants, both traditional and from other sectors, continually emerging. Intense competition can pressure profit margins and necessitate constant innovation and differentiation.

Stock to Buy:

Stellantis N.V. (STLA)

Headquartered in Hoofddorp, the Netherlands, STLA designs, manufactures, distributes, and sells automobiles and light commercial vehicles, engines, transmission systems, metallurgical products, mobility services, and production systems worldwide. It offers its products under the Abarth, Alfa Romeo, Chrysler, DS, Dodge, Jeep, Fiat, Maserati, Ram, Opel, Lancia, Vauxhall, Peugeot, Comau, and Teksid brands.

STLA’s trailing-12-month EBIT and net income margins of 12.46% and 10.40% are 66.9% and 130.1% higher than the industry averages of 7.47% and 4.52%.

On December 7, STLA and Ample entered into a binding agreement to collaborate on electric vehicle (EV) battery charging technology, focusing on Ample's Modular Battery Swapping solution. The partnership aims to enable a fully charged EV battery in less than five minutes through battery swapping, addressing range anxiety and enhancing energy efficiency.

On November 22, STLA and Dongfeng Motor (Hong Kong) International Co., a subsidiary of Dongfeng Motor Group Co. Ltd. (DNFGY), completed a transaction in which STLA repurchased 50 million common shares from Dongfeng for €934 million. The repurchased shares are set to be canceled.

The company pays an annual dividend of $1.48, which translates to a yield of 6.56% on the prevailing price level. It has a four-year average dividend of 9.44%.

STLA’s net revenues for the six months ended June 30, 2023, increased 11.8% year-over-year to €98.37 billion ($106.03 billion). Its net profit increased 37.2% year-over-year to €10.92 billion ($11.77 billion). Its adjusted operating income rose 11% year-over-year to €14.13 billion ($15.23 billion). The company’s EPS came in at €3.45, representing an increase of 39.7% year-over-year.

STLA’s revenue is expected to increase 13.1% year-over-year to $46.46 billion for the fiscal third quarter that ended September 2023. It has surpassed revenue estimates in all four trailing quarters, which is remarkable.

STLA’s shares have gained 58.8% year-to-date and 48.3% over the past year to close the last trading session at $22.55.

STLA’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted optimally.

It has an A grade for Value and a B for Stability and Sentiment. Within the 49 stocks in the B-rated Auto & Vehicle Manufacturers industry, it is ranked #6.

Beyond what is stated above, we’ve also rated STLA for Growth and Quality. Get all STLA ratings here.

Stock to Hold:

Ford Motor Company (F)

F develops, delivers, and services a range of Ford trucks, commercial cars and vans, sport utility vehicles, and Lincoln luxury vehicles worldwide. It operates through Ford Blue; Ford Model E; and Ford Pro; Ford Next; and Ford Credit segments.

F’s trailing-12-month Capex/Sales of 4.60% is 51.3% higher than the 3.04% industry average. However, the stock’s 10.41% trailing-12-month gross profit margin is 70.7% lower than the 35.47% industry average.

On December 7, F and Resideo Technologies announced the "EV-Home Power Partnership," a joint simulation project exploring vehicle-to-home (V2H) energy management. This initiative aims to assess the potential of electric vehicle batteries, specifically the F-150 Lightning, to enhance home energy management.

On October 25, 2023, F announced a tentative labor contract agreement with the UAW, covering U.S. operations. The agreement aims to restart multiple manufacturing plants and recall 20,000 employees, pending ratification by F’s UAW-represented employees.

F’s total revenues for the third quarter ended September 30, 2023, increased 11.2% year-over-year to $43.80 billion. Its adjusted net income increased 27.4% year-over-year to $1.34 billion. The company’s adjusted EPS came in at $0.39, representing an increase of 30% year-over-year.

Yet, its total liabilities equity came in at $268.07 billion, up 47.6% year-over-year to $2.46 billion as of December 31, 2022.

Analysts expect F’s EPS and revenue for the quarter ending December 31, 2023, to decrease 79% and 2.1% year-over-year to $0.11 and $40.90 billion, respectively.

While the stock has gained 6.4% over the past month, it has declined 20.3% over the past six months to close the last trading session at $10.82

F’s POWR Ratings reflect uncertainty. The stock has an overall rating of C, which translates to a Neutral in our proprietary rating system.

It has a C grade for Growth and Quality. It is ranked #37 out of 49 stocks in the same industry.

To access F’s ratings for Value, Momentum, Stability, and Sentiment, click here.

Stock to Sell:

Tesla, Inc. (TSLA)

TSLA designs, develops, manufactures, leases, and sells electric vehicles and energy generation and storage systems in the United States, China, and internationally. It operates in two segments: Automotive and Energy Generation and Storage.

TSLA’s trailing-12-month gross profit margin of 19.81% is 44.2% lower than the 35.47% industry average. Its 1.68% trailing-12-month levered FCF margin is 67.5% lower than the 5.18% industry average.

TSLA’s total revenues for the third quarter ended September 30, 2023, came in at $23.35 billion. Its total gross profit decreased 22.4% year-over-year to $4.18 billion. Its non-GAAP net income attributable to common stockholders decreased 36.6% year-over-year to $2.32 billion. The company’s non-GAAP EPS came in at $0.66, representing a decline of 37.1% year-over-year.

Street expects TSLA’s EPS for the quarter ending December 31, 2023, to decrease 38.2% year-over-year to $0.74. The company has failed to exceed the consensus revenue estimates in three of the trailing four quarters, which is disappointing.

Over the past three months, the stock has declined 3.5% to close the last trading session at $242.64.

TSLA’s POWR Ratings reflect its weak fundamentals. It has an overall rating of D, equating to a Sell in our proprietary rating system.

It has an F grade for Value and a D for Growth, Momentum, Stability, and Sentiment. It is ranked #39 in the same industry.

Click here to see TSLA’s Quality ratings.

What To Do Next?

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STLA shares were trading at $22.70 per share on Friday morning, up $0.15 (+0.67%). Year-to-date, STLA has gained 59.86%, versus a 21.51% rise in the benchmark S&P 500 index during the same period.

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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