The US auto sales are expected to remain strong, with increased demand and the introduction of new electric vehicles expected to drive sales even higher. However, as macroeconomic uncertainties remain, I think it would be wise to wait for a better entry point in General Motors Company (GM). In addition, Tesla, Inc. (TSLA) is best avoided, considering its weak fundamentals.
Before delving deeper into the fundamentals of these stocks, let’s discuss what’s happening in the auto industry.
The auto industry’s growth is fueled by increased demand for electric vehicles (EVs), environmental awareness, and government incentives, which contribute to the industry’s sustainability. The revenue from the U.S. EV market is expected to reach $82.80 billion by 2024, with a significant CAGR of 18.2% until 2028.
However, the auto industry is expected to experience slower growth this year due to increased interest rates, high prices for new cars and light trucks, rising raw material costs, and supply chain disruptions, impacting consumer purchasing power.
Jessica Caldwell, head of insights at Edmunds, said, “There’s definitely pent-up demand out there, because people have been holding off purchases for a while. But given the credit situation, we don’t think the industry will see a ton of growth this year.”
While increased demand and new electric vehicles are positive factors for US auto sales, it is important to consider the potential impact of macroeconomic uncertainties on the industry. Therefore, waiting for a better entry point at GM can help mitigate some of the risks associated with these uncertainties. Additionally, TSLA should be avoided due to its weak fundamentals, which may further expose investors to potential downside risks.
Let’s delve deeper into the fundamentals of the stocks mentioned above.
Stock to Hold:
General Motors Company (GM)
GM designs, builds, and sells trucks, crossovers, cars, and automobile parts; and provides software-enabled services and subscriptions worldwide. The company operates through GM North America, GM International, Cruise, and GM Financial segments. It markets its vehicles primarily under the Buick, Cadillac, Chevrolet, GMC, Baojun, and Wuling brand names.
GM’s trailing-12-month CAPEX / Sales of 6.15% is 102.4% higher than the 3.04% industry average. However, its trailing-12-month gross profit margin of 12.31% is 65.2% lower than the industry average of 35.38%.
GM’s revenue for the fiscal third quarter that ended September 30, 2023, increased 5.4% year-over-year to $44.13 billion. Its adjusted automotive free cash flow rose 6.9% over the prior-year quarter to $4.91 billion. Its adjusted EPS came in at $2.28, representing an increased marginally year-over-year.
However, its net income attributable to stockholders decreased 7.3% year-over-year to $3.06 billion.
Analysts expect GM’s EPS and revenue for the year ending December 31, 2024, to increase 1.8% and 2.3% year-over-year to $7.65 and $172.14 billion, respectively. It surpassed the consensus EPS estimate in each of the trailing four quarters. Shares of GM has gained 16.3% over the past three months to close the last trading session at $35.26.
GM’s POWR Ratings reflect this uncertain outlook. The stock has an overall rating of C, equating to a Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
GM also has a C grade for Stability and Quality. It is ranked #31 out of 52 stocks in the Auto & Vehicle Manufacturers industry. Click here for the additional POWR Ratings for Growth, Value, Sentiment and Momentum for GM.
Stock to Sell:
Tesla, Inc. (TSLA)
TSLA designs, develops, manufactures, leases, and sells electric vehicles (EVs), and energy generation and storage systems internationally. The company operates through two segments: Automotive; and Energy Generation and Storage. It also offers non-warranty after-sales vehicles, used vehicles, retail merchandise, and vehicle insurance services.
TSLA’s trailing-12-month gross profit margin of 19.81% is 44% lower than the industry average of 35.38%. Its trailing-12-month levered FCF margin of 1.68% is 68.9% lower than the industry average of 5.40%.
During the third quarter that ended September 30, 2023, TSLA’s revenue from Automotive leasing decreased 21.2% year-over-year to $489 million. The company’s adjusted EBITDA came in at $3.76 billion, a decline of 24.4% from the previous year’s period.
In addition, the company’s non-GAAP net income and EPS attributable to common stockholders came in at $2.32 billion and $0.66, down 36.6% and 37.1% from the prior year’s quarter, respectively.
Street expects TSLA’s EPS to decline 4.6% year-over-year to $0.81 for the first quarter ending March 2024. The stock has lost 19.5% over the past six months to close the last trading session at $218.89.
TSLA’s has an overall D rating, equating to a Sell in our POWR Ratings system.
It also has an F grade for Value and a D for Growth, Stability, Sentiment and Momentum. It is ranked #39 in the same industry. Beyond what is stated above, we’ve also rated TSLA for Quality. Get all TSLA ratings here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
GM shares were trading at $35.36 per share on Tuesday afternoon, up $0.10 (+0.28%). Year-to-date, GM has declined -1.56%, versus a -0.23% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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