Last year, the auto industry faced hurdles like high inflation, interest rate hikes, and supply chain disruptions, impacting the sales of new vehicles. However, a rebound is anticipated this year as inflation eases and supply chain issues improve.
Amid this backdrop, it could be prudent to consider fundamentally strong auto stocks Tesla, Inc. (TSLA), Mercedes-Benz Group AG (MBGAF), Bayerische Motoren Werke Aktiengesellschaft (BMWYY), and Stellantis N.V. (STLA), given their high profitability.
Before diving deeper into the fundamentals of these stocks, let’s discuss why the auto industry is well-positioned for growth.
According to Cox Automotive, around 1.32 million new vehicles were likely sold in the U.S. in July, indicating a 15.3% increase over the past year. Higher inventory and better consumer sentiment boosted sales.
Cox Automotive expects new car sales in 2023 will increase 9.2% year-over-year to 15 million. It raised this year’s new car sales estimates for the second time. Cox’s Chief Economist Jonathan Smoke believes that with the jobs market remaining healthy, affordability of new cars becomes easier.
He said, “As we close the first half, the market is showing signs of being more balanced, with smaller, more predictable change in sales and less news about big price changes. A year from now, we might look back at this point as the beginning of a return to normal.”
The auto industry’s growth is also driven by the shift towards eco-friendly transportation due to heightened climate concerns, driving a surge in electric vehicle (EV) demand.
Automakers are heavily investing in EV research and bringing diverse models to meet environmentally-conscious consumer preferences. This trend underscores the industry's sustainability commitment, addressing the growing need for cleaner transportation solutions.
Likewise, the auto industry is experiencing significant changes due to the rapid expansion of public charging infrastructure and government incentives, driving the demand for electric vehicles (EVs).
In the United States, EV sales are projected to make up 40% or potentially even 50% of total passenger car sales by 2030. This shift toward EVs reflects growing environmental consciousness and policy support for sustainable transportation.
Let's take a closer look at their fundamentals.
Tesla, Inc. (TSLA)
TSLA designs, develops, manufactures, leases, and sells electric vehicles, and energy generation and storage systems in the United States, China, and internationally. It operates in two segments, Automotive, and Energy Generation and Storage.
In terms of the trailing-12-month EBITDA margin, TSLA’s 17.86% is 66.5% higher than the 10.73% industry average. Likewise, its 12.97% trailing-12-month net income margin is 210.5% higher than the 4.18% industry average. Additionally, its 1.18x trailing-12-month asset turnover ratio is 18.5% higher than the 1x industry average.
TSLA’s total revenues for the second quarter ended June 30, 2023, increased 47.2% year-over-year to $24.93 billion. Its non-GAAP net income attributable to common stockholders increased 20.2% year-over-year to $3.15 billion. Its adjusted EBITDA rose 22.7% year-over-year to $4.65 billion. The company’s non-GAAP EPS came in at $0.91, representing an increase of 19.7% year-over-year.
Street expects TSLA’s revenue for the quarter ending September 30, 2023, to increase 16% year-over-year to $24.89 billion. Its EPS for the quarter ending March 31, 2024, is expected to increase 17.8% year-over-year to $1. It surpassed the consensus EPS estimates in three of the four trailing quarters. The stock has gained 102.7% year-to-date to close the last trading session at $249.70.
TSLA’s POWR Ratings are consistent with its fundamentals. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #38 out of 56 stocks in the Auto & Vehicle Manufacturers industry. It has a B grade for Quality. Click here to see TSLA’s Growth, Value, Momentum, Stability, and Sentiment ratings.
Mercedes-Benz Group AG (MBGAF)
Headquartered in Stuttgart, Germany, MBGAF operates as an automotive company in Germany and internationally. The company develops, manufactures, and sells premium and luxury cars and vans under the Mercedes-AMG, Mercedes-Benz, Mercedes-Maybach, and Mercedes-EQ brands, as well as related spare parts and accessories.
On June 7, 2023, MBGAF signed a supply agreement with H2 Green Steel (H2GS) for approximately 50,000 tonnes of CO2-free steel. The supply agreement comes after MBGAF took an equity stake in H2GS in 2021. The agreement will help MBGAF bring CO2 free steel into series production, helping decarbonize its supply chain.
On June 9, 2023, MBGAF announced its DRIVE PILOT got California's approval for SAE Level 3 automated driving, making it the first carmaker to offer this on public freeways. It'll be available in 2024 S-Class and EQS Sedan models in the U.S., allowing drivers to do other tasks while the car drives.
In terms of the trailing-12-month EBIT margin, MBGAF’s 12.41% is 69.3% higher than the 7.33% industry average. Likewise, its 9.98% trailing-12-month net income margin is 138.8% higher than the 4.18% industry average. Likewise, its 18.69% trailing-12-month Return on Common Equity is 81.3% higher than the 10.31% industry average.
MBGAF’s revenues for the second quarter ended June 30, 2023, increased 4.9% year-over-year to €38.24 billion ($41.93 billion). Its adjusted EBIT rose 5.5% year-over-year to €5.21 billion ($5.71 billion). The company’s EPS rose 14.8% year-over-year to €3.34. Its profit attributable to shareholders of MBGAF increased 14.7% year-over-year to €3.56 billion ($3.90 billion).
For the quarter ending September 30, 2023, MBGAF’s EPS and revenue are expected to increase 3.1% and 8.6% year-over-year to $3.80 and $41.30 billion, respectively. Over the past nine months, the stock has gained 26.3% to close the last trading session at $77.34.
MBGAF’s positive outlook is reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has a B grade for Growth, Value, Momentum, Stability, and Quality. It is ranked #4 in the same industry. To see MBGAF’s rating for Sentiment, click here.
Bayerische Motoren Werke Aktiengesellschaft (BMWYY)
Headquartered in Munich, Germany, BMWYY engages in developing, manufacturing, and selling automobiles and motorcycles, and spare parts and accessories worldwide. It operates through Automotive, Motorcycles, and Financial Services segments.
In terms of the trailing-12-month EBIT margin, BMWYY’s 11.17% is 52.4% higher than the 7.33% industry average. Likewise, its 7.42% trailing-12-month net income margin is 77.6% higher than the 4.18% industry average. Likewise, its 6.39% trailing-12-month levered FCF margin is 40.9% higher than the 4.53% industry average.
For the six months ended June 30, 2023, BMWYY’s revenues increased 12.4% year-over-year to €74.07 billion ($81.23 billion). Its gross profit increased 29.4% year-over-year to €14.90 billion ($16.34 billion). The company’s net profit came in at €6.62 billion ($7.26 billion). Additionally, its earnings per share came in at €9.70.
For the fiscal period ending September 30, 2023, BMWYY’s EPS is expected to increase marginally year-over-year to $1.38. Its revenue for the same fiscal period is expected to increase 9.7% year-over-year to $39.78 billion. Over the past year, the stock has gained 41.2% to close the last trading session at $37.39.
BMWYY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Stability and a B for Value and Quality. Within the Auto & Vehicle Manufacturers industry, it is ranked #12. Beyond the grades mentioned, we have also rated BMWYY for Growth, Momentum, and Sentiment. Get all ratings here.
Stellantis N.V. (STLA)
Headquartered in Hoofddorp, the Netherlands, STLA designs, engineering, manufacturing, distribution, and sale of automobiles and light commercial vehicles, engines, transmission systems, metallurgical products, mobility services, and production systems worldwide.
On July 24, 2023, STLA and Samsung SDI announced that they had signed an MOU to establish a second battery plant in the U.S. under the existing StarPlus Energy joint venture, targeting to start production in 2027 with an annual production capacity of 34 GWh.
This supports Stellantis' aim to offer 25 new electric vehicles in North America by the decade's end and move towards carbon neutrality by 2038.
In terms of the trailing-12-month EBIT margin, STLA’s 12.46% is 70.1% higher than the 7.33% industry average. Likewise, its 10.40% trailing-12-month net income margin is 149% higher than the 4.18% industry average. Likewise, its 27.85% trailing-12-month Return on Common Equity is 170.1% higher than the 10.31% industry average.
STLA’s net revenues for the six months ended June 30, 2023, increased 11.8% year-over-year to €98.37 billion ($107.87 billion). Its net profit increased 37.2% year-over-year to €10.92 billion ($11.98 billion). Its adjusted operating income rose 11% year-over-year to €14.13 billion ($15.50 billion). The company’s income per share came in at €3.45, representing an increase of 39.7% year-over-year.
Analysts expect STLA’s revenue for the fiscal period ending September 30, 2023, to increase 19.2% year-over-year to $48.94 billion. Over the past nine months, the stock has gained 40.1% to close the last trading session at $19.34.
STLA’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Value and a B for Stability, Sentiment, and Quality. Within the same industry, it is ranked first. Get STLA’s Growth and Momentum ratings, here.
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TSLA shares were trading at $243.88 per share on Wednesday afternoon, down $5.82 (-2.33%). Year-to-date, TSLA has gained 97.99%, versus a 17.48% 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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