Last year the U.S. auto industry posted its worst sales year in more than a decade as supply-chain snarls, severe chip crunch, and commodity inflation dented results for many automakers. According to the research firm Wards Intelligence, only 13.7 million vehicles were sold in 2022, marking an 8% decrease from 2021 and the lowest overall figure since 2011.
The sector’s downfall is evident from the Simplify Volt RoboCar Disruption and Tech ETF’s (VCAR) 55.1% decline over the past year. Moreover, among the barriers to electric vehicle (EV) adoption were the shortage of public fast-charging infrastructure, the rising cost of batteries due to key material shortages, and uncertainty over government subsidies.
Although many automakers are optimistic for a rebound this year, AFS President Joe McCabe believes that EV sales likely will not increase in a smooth, ever-ascending curve. Furthermore, rising odds of a recession this year will likely force automakers to cut prices and give up profits, further dampening the industry’s growth and returns.
“Ongoing supply chain challenges and recessionary fears will result in a cautious build-back for the market. US consumers are hunkering down, and recovery towards pre-pandemic vehicle demand levels feels like a hard sell. Inventory and incentive activity will be key barometers to gauge potential demand destruction,” said Chris Hopson, manager of North American light vehicle sales forecast at S&P Global Mobility.
Amid the economic uncertainty, the auto sector’s prospects look dull. Therefore, it could be wise to avoid fundamentally weak auto stocks XPeng Inc. (XPEV), Workhorse Group Inc. (WKHS), and Faraday Future Intelligent Electric Inc. (FFIE), which seem to be stuck in reverse.
XPeng Inc. (XPEV)
XPEV operates as a designer, developer, manufacturer, and seller of smart EVs in China. Its offerings include SUVs under the G3 name, four-door sports sedans under the P7 name, and smart EVs and family sedans under the P5 name. The company is headquartered in Guangzhou, China.
On November 4, 2022, the company’s subsidiary, Guangzhou Xiaopeng Automotive Financial Leasing Co., Ltd., announced the completion of RMB964 million ($142.06 million) debut issuance of auto leasing carbon-neutral asset-backed securities on the Shanghai Stock Exchange. This debt issuance is expected to increase XPEV’s debt burden.
In terms of forward EV/Sales, XPEV is trading at 1.28x, 6.1% higher than the industry average of 1.20x. Also, its forward Price/Sales multiple of 2.01 compares to the industry average of 0.93.
XPEV’s total operating expenses increased 11.5% year-over-year to RMB3.12 billion ($460.50 million) in the third quarter that ended September 30, 2022. The company’s operating loss widened 19.1% from the year-ago value to RMB2.18 billion ($298.29 million), while its non-GAAP net loss came in at RMB2.22 billion ($327.66 million), widening 49% year-over-year. Also, its loss per share widened 46.6% year-over-year to RMB1.29.
Analysts expect XPEV’s EPS for the fiscal years 2022 and 2023 to remain negative. Its revenue for the quarter that ended on December 31, 2022, is expected to decline 42.3% year-over-year to $774.28 million. Over the past year, the stock has lost 78.9% to close the last trading session at $9.40.
XPEV’s weak fundamentals are reflected in its POWR Ratings. It has an overall rating of F, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an F grade for Stability and Sentiment and a D for Growth and Quality. It is ranked #54 out of 63 stocks in the D-rated Auto & Vehicle Manufacturers industry. Click here to see the other ratings of XPEV for Value and Momentum.
Workhorse Group Inc. (WKHS)
WKHS is a tech-focused drone-integrated EV manufacturer that designs, manufactures, and sells zero-emission commercial vehicles in the United States. Its offerings include C-series electric delivery trucks, package delivery aircraft, HorseFly, and Metron telematics systems platform.
WKHS’ total operating expenses increased 205.5% year-over-year to $40.88 million for the third quarter that ended September 30, 2022. Its loss from operations widened 91.5% from the year-ago value to $48.85 million, while its net loss stood at $35.41 million. Also, its net loss per share came in at $0.22.
The stock’s forward EV/Sales and EV/ EBITDA multiples of 19.99 and 29.27 are significantly higher than the industry averages of 1.20 and 0.93, respectively. Also, its forward Price/Cash Flow multiple of 2.59 compares to the industry average of 2.22.
Street expects WKHS’ EPS for the fiscal years 2022 and 2023 to remain negative. The company failed to surpass the EPS estimates in each of the trailing four quarters. Over the past six months, the stock has lost 41.6% to close the last trading session at $2.12.
WKHS’ POWR Ratings reflect this weak outlook. It has an overall rating of F, which translates to a Strong Sell in our proprietary rating system.
It has an F grade for Value, Stability, and Sentiment and a D for Quality. It is ranked #55 out of 63 stocks in the same industry. To see the other ratings of WKHS for Growth and Momentum, click here.
Faraday Future Intelligent Electric Inc. (FFIE)
FFIE is engaged in the design, development, manufacturing, engineering, sale, and distribution of electric vehicles in the United States and internationally.
In the fiscal third quarter that ended September 30, 2022, FFIE’s loss from operations came in at $80.61 million. The company’s net loss and net loss per share amounted to $103.38 million and $0.31, respectively, for the same period. In addition, its total assets declined 40.4% to $540.68 million, compared to $907.43 million for the fiscal year that ended December 31, 2021.
Analysts expect FFIE's loss per share for the fiscal years 2022 and 2023 to remain negative. It missed the consensus EPS estimates in three of the trailing four quarters. The stock has declined 87.7% over the past year to close the last trading session at $0.61.
FFIE's POWR Ratings reflect this bleak outlook. The stock has an overall rating of F, which translates to a Strong Sell in our proprietary rating system. It has an F grade for Stability and Quality and a D for Value.
In the Auto & Vehicle Manufacturers industry, it is ranked #47 of 63 stocks. Click here to see the additional ratings of FFIE (Growth, Momentum, and Sentiment).
XPEV shares were trading at $10.18 per share on Monday afternoon, up $0.78 (+8.30%). Year-to-date, XPEV has gained 2.41%, versus a 5.04% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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