The automobile industry stands on the threshold of remarkable resilience and growth, buoyed by considerable technological progression and the surging demand for Electric Vehicles (EVs).
Therefore, in this piece, I have evaluated automotive stocks Tesla, Inc. (TSLA) and REV Group, Inc. (REVG) to determine the better investment to capitalize on the industry tailwinds. As apparent in the detailed fundamental comparison below, REVG could deliver better returns than TSLA in the near- to mid-term.
Before moving further into an in-depth fundamental comparison of the stocks mentioned above, it is prudent that we first discuss the prospective diversification and dynamic growth trends within the automobile industry.
Last year, high inflation, the Fed’s incessant rate hikes, and a bottlenecked supply chain significantly strained the automotive sector. Nevertheless, recent findings suggest that the industry has rallied impressively and is now predicted to flourish considerably in the years ahead.
A shared projection from research bodies J.D. Power and GlobalData anticipates the total sales of new vehicles in July 2023 to reach 1,320,982 units, marking a robust 21.5% year-over-year surge.
EV sales within the United States established a fresh benchmark last quarter and are on track to break the 1 million mark in 2023. Achieving this impressive figure would represent a landmark accomplishment for the rapidly evolving industry.
Future expansion of EV sales is expected to be fueled by multiple drivers, including further price reductions, bolstering from government funding, swift enhancement of charging infrastructure, and enticing tax credits. With the convergence of these dynamic catalysts, the global automotive market is poised to reach $6.07 trillion by 2030, growing at a CAGR of 6.9%.
Meanwhile, inflation and increasing interest rates have compelled more Americans to retain their existing vehicles. This trend towards aging fleets could prove advantageous for aftermarket auto parts providers.
Additionally, as advanced technology continues to integrate more deeply into the industry, the global automotive aftermarket industry is anticipated to reach $741.84 billion by 2030, growing at a CAGR of 4.7%.
REVG’s Fire & Emergency, Commercial, and Recreation segments observed 15.6%, 56.4%, and 6.5% year-over-year surge to $283.10 million, $141.90 million, and $256.60 million, respectively, subsequently amplifying the overall sales of the firm for the quarter ended April 30, 2023. Consequently, REVG has elevated the full-year outlook for consolidated revenue to $2.45-$2.55 billion, while the adjusted EBITDA is anticipated to fall between $120 million and $135 million.
TSLA recorded an unprecedented 466,140 unit deliveries in the fiscal second quarter ended June 30, 2023. However, a significant contraction was noted in the company's automotive gross margin, a dip to 19.2% compared to the prior year’s figure of 27.9%, while its overall gross margin also narrowed down to 18.2% from the previous year's 25%.
TSLA has lost 10% over the past year versus REVG’s 11.1% gains. Also, TSLA gained 0.4% intraday to close the last trading session at $267.43, while REVG returned 2.5% to complete the previous trading session at $12.93.
Here are the reasons why REVG could be a better buy in the near term:
Latest Developments
On July 19, TSLA unveiled forthcoming expansive modifications to its Berlin-based factory, with changes comprising extensions to its battery cell production, indicating ramp-up plans remain underway despite a recent shift in focus to scaling up in the United States.
The company is anticipated to produce lithium-ion cells globally for use in EVs and energy storage systems, with the factory expansion incorporating cell testing, novel material mixing zones, and other necessary processes and components for anode and cathode production. Furthermore, TSLA aims to boost capacity to a notable 100-gigawatt hour of battery production, coupled with an increased vehicle production of 1 million cars annually.
On May 25, REVG’s subsidiary, ElDorado National (California) or ENC, secured an order for 19 Axess EVO-FC hydrogen fuel cell buses from California public transit provider Foothill Transit. This would help transit authorities across the country operate more sustainably and should also bode well for the company.
Recent Financial Results
TSLA’s total revenues for the fiscal second quarter that ended June 30, 2023, increased 47.2% year-over-year to $24.93 billion. The company’s non-GAAP net income attributable to common stockholders increased 20.2% year-over-year to $3.15 billion, while its non-GAAP EPS came in at $0.91, representing an increase of 19.7% year-over-year.
However, for the six months that ended June 30, 2023, TSLA’s net cash provided by operating activities declined 12.1% year-over-year to $5.58 billion. Its net cash used in investing activities stood at $6.02 billion, up 97.2% year-over-year. Also, its cash and cash equivalents and restricted cash declined 15.9% year-over-year to $15.88 billion.
During the fiscal second quarter that ended April 30, 2023, REVG’s net sales increased 18.2% year-over-year to $681.20 million. During the same quarter, the company’s adjusted EBITDA and adjusted net income came in at $41.90 million and $20.80 million, up 76.1% and 96.2% year-over-year, respectively. Also, its adjusted net income per common share grew 105.9% from the prior-year quarter to $0.35.
REVG’s total current assets stood at $924.40 million as of April 30, 2023, compared to $888.40 million as of October 31, 2022.
Past and Expected Financial Performance
TSLA’s revenue has grown at 54.1% CAGR over the past three years, while REVG’s grew at 1.9% CAGR over the same period. Also, TSLA’s EBITDA and EBIT stood at 69.6% and 118.2% CAGRs over the past three years, while REVG’s grew at 21% and 95.7% CAGRs, respectively, over the same period.
TSLA’s revenue for the fiscal third quarter ending September 2023 and the year ending December 2023 are expected to increase 16% and 22.9% year-over-year to $24.89 billion and $100.12 billion, respectively.
For the same periods, Street expects TSLA’s consensus EPS estimates to decline 22.8% and 15.3% year-over-year to $0.81 and $3.45, respectively. The company failed to surpass the consensus revenue estimates in three of the trailing four quarters, which is disappointing.
REVG’s revenue for the fiscal third quarter ending July 2023 is expected to increase 5.4% year-over-year to $627.17 million, while its EPS is expected to come at $0.23. For the fiscal year ending October 2023, Street expects its revenue and EPS to increase 8.4% and 20% year-over-year to $2.53 billion and $0.96, respectively. The company surpassed the consensus EPS and revenue estimates in each of the trailing four quarters.
Profitability
REVG has a trailing-12-month gross profit margin of 11.08% compares to TSLA’s 21.49%. However, REVG’s trailing-12-month asset turnover of 1.85x compares to TSLA’s 1.18x.
Valuation
In terms of forward EV/Sales, REVG is trading at 0.40x, 95.2% lower than TSLA, which is currently trading at 8.29x. REVG’s forward EV/EBITDA multiple of 7.98 is 82.8% lower than TSLA’s 46.36.
POWR Ratings
REVG has an overall rating of A, translating to a Strong Buy in our POWR Ratings system. On the other hand, TSLA has an overall C rating, which equates to a Neutral. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories.
REVG’s B grade for Value is justified as the stock’s forward EV/Sales of 0.40x, 78% lower than the industry average of 1.81x. Its forward EV/EBITDA multiple of 7.98 is 28.6% lower than the 11.17 industry average.
TSLA’s Value grade of F is evident as the stock’s forward EV/Sales multiple of 8.29 is 589.8% higher than the industry average of 1.20, and its forward EV/EBITDA of 46.36x is 363.5% higher than the industry average of 10x.
Moreover, REVG’s A grade for Growth is justified by its robust financials, whereas TSLA’s C grade for Growth is evident from its mixed financials reported in the last reported quarter.
Furthermore, REVG’s Sentiment grade of B is in sync with favorable analyst estimates, while TSLA’s Sentiment grade of C is evident from its mixed analyst estimates.
Within the Auto & Vehicle Manufacturers industry, REVG is ranked #4, while TSLA is ranked #39 out of 55 stocks.
Beyond what we’ve stated above, we have also rated both stocks for Momentum, Stability, and Quality. Get all ratings of REVG here. To view TSLA’s ratings, click here.
The Winner
The automotive industry is anticipated to keep growing, driven by a surge in the adoption of EVs and strong governmental support. Given the favorable industry backdrop, both REVG and TSLA are poised to benefit.
However, since late last year, TSLA's price-cut strategies across various markets, including the U.S. and China, have sparked concerns regarding the company's financial stability and profitability prospects. Moreover, these concerns have escalated due to ongoing investigations by the U.S. safety regulators following numerous accidents involving TSLA models.
Given this backdrop, one might want to consider REVG a potentially wiser choice compared to TSLA now, given REVG’s impressive profitability, attractive valuation, and promising top-and-bottom-line estimates.
Further strengthening this standpoint is the fact that, on June 1, REVG's board of directors sanctioned the repurchase of up to $175 million of the company’s outstanding common stock.
Also, the company declared a quarterly dividend of $0.05 per share of common stock, paid to shareholders on July 14, 2023. Its annualized dividend rate of $0.20 per share yields 1.58% on prevailing prices. REVG’s four-year average dividend yield is 1.54%.
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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TSLA shares fell $267.43 (-100.00%) in premarket trading Tuesday. Year-to-date, TSLA has gained 115.62%, versus a 20.10% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
Tesla (TSLA) vs. REV Group (REVG): Which Auto Stock Is a Quality Buy for August? StockNews.com
