General Motors vs. Volkswagen: Which Auto Manufacturer is a Better Buy?

Volkswagen AG (VWAGY) and General Motors Company (GM) are two well-established players in the auto manufacturers industry. VWAGY is a Germany-based automobile company that offers passenger cars, commercial vehicles, power engineering, and financial services. GM in Detroit, Mich., designs, manufactures, and sells cars, trucks, crossover vehicles, and related automobile parts worldwide. It also offers vehicle protection, maintenance, satellite radio, and automotive financing services.

While auto production is still suffering from the global semiconductor chip shortage, many auto manufacturers are striving to meet the demand for efficient and advanced products amid the economic recovery and rising discretionary spending. Furthermore, government and private initiatives to address the global chip shortage bode well for the auto industry. Indeed, the U.S. car and automobile manufacturing market is expected to increase 12.3% to $82.60 billion in 2021. Consequently, both VWAGY and GM should see increasing demand for their products.

But while GM's stock has declined 8.2% over the past month, VWAGY's has gained 4.2%. VWAGY is a clear winner with 58% gains versus GM’s negative returns in terms of their past six month’s performance. But, which of these stocks is a better pick now? Let’s find out.

Click here to check out our Automotive Industry Report for 2021

Latest Movements

To strengthen its expertise in the integration of automotive software as part of its ACCELERATE strategy, on July 30, 2021, VWAGY established a joint venture with TraceTronic, a leading developer of high-quality software solutions for future vehicles, under the name neocx that will create a continuous integration/continuous testing (CI/CT) factory. VWAGY is looking forward to growing its automotive software integration and the digital customer experience as core competencies.

On July 26, 2021, GM expanded access to  its fleet telematics solution, OnStar Vehicle Insights, to non-GM vehicles via a plug-in adapter. This expansion aims to help fleet managers save on business operations, monitor fleet vehicles, and keep drivers safe using only one telematics platform. GM has been seeing  high demand for this fleet telematics solution since its introduction and expects to gain expanded market reach in the near term.

GM recently announced that it would introduce new Super Cruise capabilities on six model-year-2022 vehicles in the first quarter of 2022. Super Cruise is the industry’s first true hands-free driver-assistance technology that allows drivers to ride hands-free and offers enhanced navigation display. GM is looking forward to providing a better user experience through its vehicle intelligence platform.

Recent Financial Results

VWAGY’s sales revenue for its fiscal second quarter, ended June 30, 2021, increased 63.8% year-over-year to €67.29 billion ($78.86 billion). The company’s gross profit increased year-over-year to €12.52 billion ($14.67 billion). Its operating profit has been reported at €6.55 billion ($7.76 billion), compared to a €2.39 billion ($2.84 billion) loss in the prior-year period. VWAGY’s net earnings came in at €5.04 billion ($5.98 billion), versus a €1.54 billion ($1.82 billion) loss in the year-ago period. VWAGY’s EPS has been reported at €9.70, compared to a €3.23 loss per share in the prior-year period. The company had €40.86 billion in cash and cash equivalents as of June 30, 2021.

For its fiscal second quarter, ended June 30, 2021, GM’s total net sales and revenues increased 103.6% year-over-year to $34.17 billion. The company’s operating income has been reported as $2.88 billion for the quarter, versus  a 1.21 billion loss  in the year-ago period. GM’s adjusted net income came in at $2.89 billion, compared to a $709 million loss in the prior-year period. Its adjusted EPS has been reported at $1.97, compared to a$0.50 loss per share  in the year-ago period. As of June 30, 2021, the company had $16.76 billion in cash and cash equivalents.

Past and Expected Financial Performance

VWAGY’s revenue and EBIT have grown at CAGRs of 3.2% and 18.8%, respectively, over the past three years. The company’s total assets have increased at a 5.5% CAGR over the past three years.

Analysts expect VWAGY’s revenue to increase 10.1% year-over-year in the current year and 6% next year. Its EPS is expected to increase 212.8% year-over-year in the current year and 2.7% next year.

In comparison, GM’s EBIT and total assets grew at CAGRs of 18.1% and 3.4%, respectively, over the past three years. The company’s revenue declined at a 1.1% CAGR  over the past three years.

Analysts expect GM’s revenue to increase 8.7% year-over-year in the current year and 16.5% next year. Its EPS is expected to increase 29.5% year-over-year in the current year and 10.2% next year.

Profitability

VWAGY’s trailing-12-month revenue is 2.2 times what GM generates. However, GM is more profitable with a 10.8% EBIT margin versus VWAGY’s 9.5%.

Also, GM’s ROE, ROA and ROTC values of 24.9%, 3.9%, and 5.5%, respectively,  compare favorably with VWAGY’s 13.9%, 3%, and 4.4%.

Valuation

In terms of non-GAAP forward P/E, GM is currently trading at 8.50x, which is 53.4% higher than VWAGY’s 5.54x. GM’s 0.56x trailing-12-month Price/Sales is 40% higher than VWAGY’s 0.40x.

In terms of trailing-12-month EV/EBITDA, GM’s 8.57x is 7.9% higher than VWAGY’s 7.94x.

POWR Ratings

While GM has an overall C grade, which translates to Neutral in our proprietary POWR Ratings system, VWAGY has an overall A grade, equating to Strong Buy. The POWR Ratings are calculated considering 118 distinct factors, each weighted to an optimal degree.

Both stocks have a B grade for Value, which is consistent with their lower-than-industry valuation ratios. VWAGY’s 0.41x forward Price/Sales is 67.6% lower than the 1.26x industry average. GM has a 0.59x forward Price/Sales, which is 53.3% lower than the industry average.

VWAGY has a B grade for Sentiment, which is consistent with analysts’ expectations that its revenue will grow 4.5% in the current quarter, ending September 30, 2021. However, GM’s C grade reflects analysts’ expectations that its EPS will decline 6.3% in the current quarter ending September 30, 2021.

Of the 58 stocks in the Auto & Vehicle Manufacturers industry, GM is ranked #28, while VWAGY is ranked #4.

Beyond what we’ve stated above, our POWR Ratings system has also rated both VWAGY and GM for Momentum, Growth, Stability, and Quality. Get all GM ratings here. Also, click here to see the additional POWR Ratings for VWAGY.

The Winner

Although the semiconductor chip shortage puts pressure on automobile companies worldwide, government and corporate investments in the semiconductor industry combined with rising demand for automobiles should benefit VWAGY and GM. However, a relatively lower valuation makes VWAGY a better buy here.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Auto & Vehicle Manufacturers industry.

Click here to check out our Automotive Industry Report for 2021

VWAGY shares were unchanged in after-hours trading Tuesday. Year-to-date, VWAGY has gained 69.30%, versus a 19.18% rise in the benchmark S&P 500 index during the same period.

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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