In this piece, I have evaluated two automobile stocks, Volkswagen AG (VWAGY) and NIO Inc. (NIO), to determine which is a better investment. While investors could consider VWAGY, they should avoid NIO.
Despite challenges such as high interest rates and inflation, the automobile sector grew strongly last year. The sector’s growth was driven by the robust demand for electric vehicles, which has been fueled by environmental concerns, the expansion of public charging infrastructure, government incentives, and price cuts.
While NIO’s fleet consists only of EVs, VWAGY is taking rapid strides towards electrifying its fleet. VWAGY aims to be carbon neutral by 2050 and aims to produce at least 30 EV models by 2025. BloombergNEF predicts a 21% rise in global passenger EV sales, reaching 16.7 million units in 2024, with 70% of them being fully electric.
Manufacturer promotions, rising disposable incomes, expected interest rate cuts, and technological advancements are boosting the industry’s prospects. As a result, the global automotive industry is projected to grow at a 6.8% CAGR, reaching $6.86 trillion by 2033.
New vehicle sales in the U.S. surged to 1.44 million units in March, marking an increase of 14.4% sequentially and 4.1% year-over-year. Meanwhile, global light vehicle sales are projected to reach 89.1 million units this year, reflecting a 3% rise from the previous year.
In terms of price performance, VWGAY is the clear winner. VWAGY’s stock has gained 23.1% over the past three months compared to NIO’s 47.2% decline. Similarly, VWAGY’s stock has risen 21.6% over the past six months, compared to NIO’s 47.9% decline.
Here are the reasons I think VWAGY could perform better in the near term:
Recent Financial Results
For the fiscal year that ended December 31, 2023, VWAGY’s sales revenue increased 15.5% year-over-year to €322.28 billion ($347.97 billion). Its operating result stood at €22.58 billion ($24.38 billion), up 2.1% from the year-ago value. Also, the company’s earnings after tax attributable to VWAGY shareholders and EPS rose 7.6% each over the prior-year quarter to €16.01 billion ($24.38 billion) and €31.98, respectively.
NIO’s total revenues for the fourth quarter ended December 31, 2023, rose 5.4% year-over-year to RMB17.10 billion ($2.36 billion) while its adjusted loss from operations widened 19.3% year-over-year to RMB4.24 billion ($585.94 million).
In addition, adjusted net loss attributable to ordinary shareholders of NIO narrowed 21.9% year-over-year to RMB3.95 billion ($545.87 million). Its adjusted net loss per share attributable to ordinary shareholders widened 25.7% year-over-year to RMB2.28.
Expected Financial Performance
VWAGY’s EPS for fiscal 2024 is expected to increase 67.4% year-over-year to $5.84. Likewise, its revenue for fiscal 2024 and 2025 are expected to increase 0.2% and 3% year-over-year to $353.28 billion and $363.74 billion, respectively.
For fiscal 2024 and 2025, NIO’s EPS is expected to remain negative. On the other hand, its revenue for fiscal 2024 and 2025 are expected to increase 26% and 39% year-over-year to $9.74 billion and $13.54 billion, respectively.
Profitability
VWAGY trailing-12-month revenue is 45.38 times what NIO generates. VWAGY is more profitable, with an EBIT margin and EBITDA margin of 7.64% and 10.79%, compared to NIO’s negative 40.73% and 35.61%, respectively. Also, VWAGY’s gross profit margin of 18.20% compares to NIO’s 5.49%.
Valuation
In terms of trailing-12-month Price/Sales, NIO’s 0.97x is 410.5% higher than VWAGY’s 0.19x. Likewise, NIO’s trailing-12-month EV/Sales ratio of 0.99x is 22.2% higher than VWAGY’s 0.81x.
Thus, VWAGY is relatively more affordable.
POWR Ratings
VWAGY has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. On the other hand, NIO has an overall rating of D, translating to a 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. VWAGY has an A grade for Value, in sync with its discounted valuation. NIO’s mixed valuation justifies its C grade for Value.
VWAGY has an A grade for Stability, consistent with its 1.28 beta. On the other hand, NIO’s 1.94 beta justifies its D grade for Stability.
Of the 52 stocks in the Auto & Vehicle Manufacturers industry, VWAGY is ranked #8, while NIO is ranked #45 in the same industry.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Momentum, Sentiment, and Quality. Get all the ratings of VWAGY here. Click here to view NIO’s ratings.
The Winner
The automobile industry is poised for steady growth given the shifting preference towards electric vehicles, strong consumer spending, favorable government regulations and incentives, expectations of interest rate cuts, etc.
VWAGY ended fiscal 2023 on a strong note and expects a solid fiscal 2024by ramping up new vehicles, reduce costs, and utilize synergies within the group. The company expects deliveries to rise 3% in 2024 over the previous year.
NIO, on the other hand, revised its first-quarter 2024 vehicle delivery outlook to around 30,000 vehicles, down from the earlier estimate of 31,000 to 33,000 vehicles. The company is facing a slowdown in demand in China. It is subject to price wars and intense competition in a market where consumer spending has been sluggish.
Considering these factors, investing in VWAGY might be a wise choice.
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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VWAGY shares were trading at $16.35 per share on Thursday afternoon, up $0.45 (+2.83%). Year-to-date, VWAGY has gained 25.96%, versus a 10.26% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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