The auto industry is experiencing relief as global supply chain pressures stemming from the pandemic have been alleviated. The lifting of lockdowns in China further restores supply chain conditions to pre-pandemic levels. These mark a significant development after the challenges of the past two years.
With the sector continuing to evolve and expand its horizons, I assessed two auto stocks, NIO Inc. (NIO) and Stellantis N.V. (STLA), to identify which holds the potential for superior returns this year. Before exploring the featured stocks, let's examine the current dynamics within the auto sector.
Last year, the auto industry staged a robust recovery, witnessing numerous companies achieve double-digit sales growth. This marked a return to stability for a sector that has faced turbulence since the pandemic's onset. The surge in automakers' results was driven by pent-up demand and improved vehicle availability on dealership lots.
S&P Global Mobility projects that full-year 2023 global light vehicle sales hit almost 86 million units, reflecting an 8.9% rise from 2022. The increase is fueled by new auto demand, boosted by ongoing output gains from restocking inventories as supply chains normalize.
Meanwhile, the momentum toward electrification has been accelerating, with the electric vehicle revolution fully underway. Notable advancements in battery technology are anticipated, promising enhanced EV range and efficiency. That said, currently, four out of ten Americans are seriously contemplating an EV for their next vehicle purchase.
In addition, vehicles are evolving into advanced connectivity hubs, featuring enhanced infotainment systems, vehicle-to-vehicle communication, and seamless integration with smart devices as standard features. In 2024, the focus on improved connectivity and Internet of Things (IoT) capabilities will reshape the driving experience.
Furthermore, technologies such as collision detection, lane-keeping assistance, and adaptive cruise control are at the forefront, continually elevating vehicle safety standards and setting new benchmarks for the protection of both drivers and passengers. Prioritizing advanced safety features positions the auto industry for immense growth.
S&P Global Mobility forecasts a 2.8% year-over-year increase in global new light vehicle sales for 2024. The ongoing recovery in light vehicle output contributes to inventory restocking as supply chains and demand further recover. This is buoyed by sustained pent-up consumer demand across various regions.
Both NIO and STLA are expected to capitalize on the industry’s developments. In terms of price performance, NIO has declined 27.9% over the past month, while STLA plummeted 9.6% during the same period. Moreover, NIO witnessed a 25% plunge over the past three months, while STLA climbed 12.4% over the same duration.
Additionally, NIO plummeted 48% over the past year, closing the last trading session at $6.07, whereas STLA surged 38.5% during the same period, closing the last trading session at $21.09.
But which Auto & Vehicle Manufacturers stock could be a better pick? Let's find out.
Recent Financial Results
In the fiscal 2023 third quarter that ended September 30, 2023, NIO’s gross profit reduced 12.2% year-over-year to $208.79 million. Its loss from operations increased 25.2% from the year-ago value to $663.91 million. Also, net loss and net loss per share attributable to ordinary shareholders worsened 10.8% and 5.5% from the prior year’s period to $624.55 million and $0.37, respectively.
For the fiscal 2023 third quarter that ended September 30, 2023, STLA’s net revenues from the North America segment rose 2.1% year-over-year to €21.52 billion ($23.42 billion). Moreover, net revenues from the Enlarged Europe segment grew 4.7% from the year-ago value to €14.12 billion ($15.37 billion). Furthermore, the company’s net revenues increased 7.2% year-over-year to €45.14 billion ($49.12 billion).
Past and Expected Financial Performance
Over the past three years, NIO’s revenue increased at a CAGR of 63.6%. Moreover, its tangible book value and total assets grew at a CAGR of 25.6% and 43.9%, respectively, over the same time frame.
The consensus revenue estimate of $7.75 billion for the fiscal year that ended December 2023 is expected to increase 8% year-over-year. However, the company is expected to report a loss per share of $1.48 for the period. Also, the company missed its consensus EPS estimate in all four trailing quarters.
STLA’s revenue and EBITDA rose at respective CAGRs of 50.3% and 81.9% over the past three years. Furthermore, its net income and EPS increased at a CAGR of 115.9% and 44.6%, respectively. Also, the company’s total assets grew at a 43.3% CAGR over the same time frame.
The consensus revenue estimate of $206.94 billion for the fiscal year that ended December 2023 is expected to increase 8.7% year-over-year. Likewise, the company’s consensus EPS estimate of $6.49 for the same period indicates a 17.5% increase from the prior year. Furthermore, the company topped the consensus revenue estimates in all four trailing quarters.
Valuation
In terms of trailing-12-month Price/Sales, STLA is trading at 0.32x, 77% lower than NIO, which is trading at 1.39x. In addition, STLA’s trailing-12-month EV/Sales of 0.19x is 86.7% lower than NIO’s 1.43x. Furthermore, STLA’s trailing-12-month Price/Book ratio of 0.79x compares with the NIO’s 5.01x.
Profitability
STLA’s trailing-12-month revenue is 27.7 times that of what NIO generates. Moreover, STLA is more profitable, with a trailing-12-month gross profit margin of 20.33% compared to NIO’s 4.47%. In addition, STLA’s trailing-12-month EBITDA margin and trailing-12-month net income margin of 14.94% and 10.40% compare with NIO’s negative 34.83% and negative 39.21%, respectively.
POWR Ratings
NIO has an overall rating of D, which equates to Sell in our proprietary POWR Ratings system. Conversely, STLA has an overall rating of B, translating to 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. NIO has a C grade for Value, justified by its moderate valuation. In terms of forward EV/Sales, the stock is trading at 1.38x, 14.4% higher than the industry average of 1.21x. Moreover, its forward Price/Sales of 1.43x compares with the 0.90x industry average.
On the contrary, STLA has an A grade for Value, consistent with its lower-than-industry valuation. In terms of forward EV/Sales and forward Price/Sales, the stock is trading at 0.19x and 0.31x, 84.1% and 65.6% lower than the industry averages of 1.21x and 0.90x, respectively.
Of the 52 stocks in the Auto & Vehicle Manufacturers industry, NIO is ranked #44, while STLA is ranked #12.
Beyond what we've stated above, we have also rated both stocks for Growth, Momentum, Stability, Sentiment, and Quality. Click here to view NIO’s ratings. Get all STLA ratings here.
The Winner
The automotive industry's robust growth is being fueled by pent-up demand, enhanced vehicle availability, and a renewed focus on advanced safety features, marking a stable post-pandemic recovery. Within this dynamic landscape, both NIO and STLA are poised to capitalize on industry tailwinds.
However, STLA's superior financial performance, discounted valuation, and enhanced profitability make it a more favorable investment choice compared to NIO in the current scenario.
Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong 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:
STLA shares were trading at $20.94 per share on Thursday morning, down $0.15 (-0.71%). Year-to-date, STLA has declined -10.21%, versus a 2.47% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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