Despite macroeconomic challenges, the auto industry is well-positioned to grow due to robust customer demand, the increasing shift to EVs, government incentives, and improved supply chains.
In this piece, I have discussed the reasons why fundamentally strong auto stocks Nissan Motor Co., Ltd. (NSANY), Renault SA (RNLSY), and Rolls-Royce Holdings plc (RYCEY), are beating NIO Inc. (NIO).
Before diving deeper into these stocks, let’s discuss why NIO must be avoided and why the auto industry is well-positioned for growth.
Driven by improved supply and robust demand, global auto sales are expected to hit 86.8 million units in 2023, slightly above earlier estimates, with a projected 90.2 million units in 2024, driven by supply chain improvements.
The growing adoption of eco-friendly modes of transportation is driving the auto industry’s growth. The shift to sustainable modes of transportation is leading to significant investments from automakers in research and development (R&D). Electric vehicles are expected to drive growth of the auto industry going forward.
The automotive industry is experiencing significant growth due to the global shift towards EVs. This trend is supported by favorable government policies, automaker commitments to EVs, and increasing climate change concerns, all of which are driving consumer demand for electric vehicles worldwide.
However, in the second quarter of 2023, NIO vehicle sales declined 24.9% year-over-year to RMB7.19 billion ($983.41 million). Vehicle deliveries fell 6.1% over the prior-year quarter and 24.2% sequentially to 23,520. The company missed its earnings and revenue estimates in the second quarter.
For the quarter ended June 30, 2023, NIO’s total revenues fell 14.8% year-over-year to RMB8.77 billion ($1.19 billion) while its adjusted loss from operations widened 132% year-over-year to RMB5.46 billion ($746.79 million). In addition, its adjusted net loss attributable to ordinary shareholders of NIO widened 140.2% year-over-year to RMB5.45 billion ($745.42 million).
Furthermore, its adjusted net loss per share attributable to ordinary shareholders widened 144.8% year-over-year to RMB3.28.
NIO currently trades at an expensive valuation. NIO’s forward EV/Sales of 1.83x is 63% higher than the industry average of 1.12x. Its forward Price/Sales of 1.76x is 115.1% higher than the industry average of 0.82x. Additionally, its 8.14x forward Price/Book is 250% higher than the 2.33x industry average.
NIO’s stock performance has been poor. It has declined 14.3% year-to-date and 52.3% over the past year to close the last trading session at $8.41.
NIO faces significant challenges in the market due to fierce competition from its rivals. Also, the uncertain macroeconomic outlook are likely to further strain its long-term prospects.
So, investors could look at NSANY, RNLSY, and RYCEY. Now, let’s analyze the fundamentals of these three Auto & Vehicle Manufacturers stocks, starting with the third choice.
Stock #3: Nissan Motor Co., Ltd. (NSANY)
Headquartered in Yokohama, Japan, NSANY manufactures and sells vehicles and automotive parts worldwide. It sells vehicles under the Nissan and Infiniti brands. The company offers vehicle and vehicle parts; engines, manual transmissions, and multiplier/reducer units; automotive parts; axles; and other related components.
On September 25, 2023, NSANY announced that all new models it launches in Europe will be fully electric, with the goal of achieving solely electric vehicle sales on the continent by 2030. NSANY plans to introduce cobalt-free technology to reduce EV battery costs by 65% by fiscal 2028 and launch a vehicle with its own all-solid-state batteries (ASSB), which is expected to significantly reduce charging times.
In terms of forward EV/Sales, NSANY’s 0.69x is 38.5% lower than the 1.12x industry average. Its 9x forward EV/EBITDA is 2% lower than the 9.18x industry average. Likewise, its 0.21x forward Price/Sales is 74.1% lower than the 0.82x industry average.
NSANY’s net sales for the first quarter ended June 30, 2023 increased 36.5% year-over-year to ¥2.92 trillion ($19.60 billion). The company’s operating income increased 98.1% year-over-year to ¥128.60 billion ($863.41 million).
Its net income attributable to owners of parent increased 123.9% year-over-year to ¥105.48 billion ($708.18 million). In addition, its EPS came in at ¥26.93, representing an increase of 123.7% year-over-year.
Analysts expect NSANY’s revenue for the quarter ending September 30, 2023, to increase 22.4% year-over-year to $21.09 billion. Its EPS for the fiscal year ending March 31, 2024, is expected to increase 65.4% year-over-year to $1.39. Over the past nine months, the stock has gained 44.6% to close the last trading session at $9.04.
NSANY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Growth and a B for Value. Within the Auto & Vehicle Manufacturers industry, it is ranked #16 out of 54 stocks. To see NSANY’s Momentum, Stability, Sentiment and Quality ratings, click here.
Stock #2: Renault SA (RNLSY)
Based in Boulogne-Billancourt, France, RNLSY engages in the design, manufacture, sale, repair, maintenance, and leasing of motor vehicles. It also engages in the design and production of parts and equipment used for manufacturing and operating vehicles. The company operates through Automotive, Sale Financing, and Mobility Services segments.
On July 11, 2023, RNLSY signed a joint venture agreement with Geely to create a powertrain technology company focused on hybrid and efficient ICE powertrains. Aramco may invest in the joint venture led by RNLSY and Geely, which will provide powertrain solutions to various automotive companies, including RNLSY Group, Geely Auto, Volvo Cars, and others, who will also source powertrains from it.
On 23 May 2023, RNLSY announced its partnership with Valeo to develop the Software Defined Vehicle (SDV) architecture, allowing vehicles to stay up-to-date without hardware changes. This collaboration streamlines development and enhances compatibility.
François Provost, RNLSY’s Chief Purchasing, Partnerships, and Public Affairs Officer, predicts that the partnership with Valeo would be an important step towards co-constructing their Software Defined Vehicle (SDV) and that it would strengthen Renault Group’s position in the automotive value chain of the future.
In terms of forward EV/EBITDA, RNLSY’s 7.77x is 15.4% lower than the 9.18x industry average. Its 1.03x forward EV/Sales is 7.9% lower than the 1.12x industry average. Likewise, its 0.19x forward Price/Sales is 76.6% lower than the 0.82x industry average.
RNLSY’s group revenues for the six months ended June 29, 2023, increased 27.3% year-over-year to €26.85 billion ($28.41 billion). Its operating income increased 127.1% year-over-year to €2.10 billion ($2.22 billion). The company’s net income, group share came in at €2.09 billion ($2.21 billion), compared to a net loss of €1.37 billion ($1.45 billion) in the year ago period.
Moreover, its free cash flow increased 85.7% year-over-year to €1.78 billion ($1.88 billion). Also, its income per share came in at €7.70.
Street expects RNLSY’s revenue for the quarter ending September 30, 2023, to increase 19% year-over-year to $11.48 billion. Over the past year, the stock has gained 50.2% to close the last trading session at $7.96.
RNLSY’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Growth and Value and a B for Stability. It is ranked #11 in the same industry. To see RNLSY’s Momentum, Sentiment, and Quality ratings, click here.
Stock #1: Rolls-Royce Holdings plc (RYCEY)
Headquartered in London, the United Kingdom, RYCEY operates as an industrial technology company in the United Kingdom and internationally. The company operates in four segments: Civil Aerospace, Defence, Power Systems, and New Markets.
On March 13, 2023, Rolls-Royce Submarines announced that it will provide reactors for Australia’s nuclear-powered submarines, creating thousands of jobs in the UK supply chain.
Steve Carlier, President at RYCEY Submarines Ltd said, “This is great news for Rolls-Royce and for the country as a whole with the creation of more UK jobs and an opportunity to showcase British innovation and expertise on the world stage.”
In terms of forward non-GAAP PEG, RYCEY’s 0.43x is 73.4% lower than the 1.63x industry average. Its 1.45x forward EV/Sales is 11.5% lower than the 1.63x industry average. Likewise, its 9.45x forward EV/EBITDA is 12.7% lower than the 10.83x industry average.
RYCEY’s revenue for the half year ended June 30, 2023, increased 30.9% year-over-year to £6.95 billion ($8.46 billion). Its gross profit rose 60.8% year-over-year to £1.52 billion ($1.85 billion). The company’s operating profit rose 438.4% year-over-year to £673 million ($819.59 million).
Its profit after taxation came in at £404 million ($492 million), compared to a loss after taxation of £188 million ($229 million) in the year ago period. Furthermore, its earnings per share came in at £4.90, compared to a loss per share of £2.24 in the year ago period.
RYCEY’s EPS and revenue for the fiscal year ending December 31, 2023, are expected to increase 314% and 17.6% year-over-year to $0.10 and $17.95 billion, respectively. Over the past year, the stock has gained 232.1% to close the last trading session at $2.61.
RYCEY’s POWR Ratings reflect solid prospects. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It is ranked #7 in the Auto & Vehicle Manufacturers industry. It has a B grade for Growth, Value, and Momentum. Click here to see RYCEY’s Stability, Sentiment, and Quality ratings.
What To Do Next?
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RYCEY shares were trading at $2.59 per share on Wednesday afternoon, down $0.02 (-0.77%). Year-to-date, RYCEY has gained 142.06%, versus a 12.22% 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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