Governments worldwide are pursuing policy measures and investing billions of dollars for the electrification of vehicles to reduce carbon emissions. While the electric vehicles (EVs) industry is currently struggling to meet rising demand due in-part to an ongoing semiconductor shortage, it looks well positioned for a solid growth in the long run with continued government and private initiatives to address climate change concerns. Indeed, the global EV market is expected to grow at a 41.5% CAGR over the next six years, according to a report by Million Insights.
Investors’ interest in the autonomous driving and EV space is evidenced by Global X Autonomous & Electric Vehicles ETF’s (DRIV) 29.2% gains over the past six months versus SPDR S&P 500 ETF Trust’s (SPY) 14.8% returns.
Given the industry’s solid growth prospects, many new entrants are vying for a share in the market. But it could be difficult for many if not most of them to compete with established auto industry players in this respect. So, we believe it could be wise to bet now on traditional automakers Volkswagen AG (VWAGY), Honda Motor Co., Ltd. (HMC), and AB Volvo (VLVLY). They have entered the EV space and are expected to perform better than many pure-play EV companies in the near term.
Click here to checkout our Electric Vehicle Industry Report for 2021
Volkswagen AG (VWAGY)
Based in Germany VWAGY manufactures and sells vehicles. It operates through four segments—Passenger Cars, Commercial vehicles, Power Engineering and Financial Services. The company’s brand portfolio includes Volkswagen, Audi, Bentley, Bugatti, Lamborghini, Porsche, and Skoda.
Its revenue increased 13.3% year-over-year to $62.40 billion for the first quarter, ended March 31.The company’s operating income increased 432.3% from the prior-year quarter to $4.81 billion. And its earnings after tax came in at $3.41 billion, representing a560.4% increase from the same period last year.
Analysts expect VWAGY’s EPS to increase 207.3% year-over-year to $6.17 in its fiscal year 2021. Its revenue is expected to be $71.31 billion for the current quarter ending June 30, which represents a 46.6% year-over-year rise.
Last month, VWAGY began the construction of its all-new MEB plant at Volkswagen Anhui following the successful completion of its Anting (SAIC VW) and Foshan (FAW-VW) plants. Due for completion in mid-2022, the move could help the company grab a larger share in the EV market. The stock has gained 110.5% over the past year and closed yesterday’s trading session at $30.69.
VWAGY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has an A grade for Growth, and a B grade for Value and Momentum. In addition to the POWR ratings grades we.ve just highlighted, we’ve also graded it for Stability, Sentiment and Quality. Click here to access all VWAGY’s ratings.
VWAGY is ranked #5 of 53 stocks in the B-rated Auto & Vehicles Manufacturers industry.
Click here to check out our Automotive Industry Report for 2021
Honda Motor Co., Ltd. (HMC)
Headquartered in Tokyo, Japan, HMC is one of the top players in the automobile space. It develops, manufactures and distributes motorcycles, automobiles and power products, among others. The company operates through four segments—Automobile, Motorcycle, Financial Services, and Power Product and Other Businesses.
HMC’s sales revenue came in at 3,771.57 billion yen ($34.55 billion) for its fiscal third quarter, ended December 31,compared to 3,747.59 billion yen ($34.33 billion) in the prior-year period. The company’s revenue from the automobile business segment increased 2.5% year-over-year to $2,638.10 billion yen ($24.17 billion). This increase can be attributed primarily to an increase in sales in Japan and the U.S.
Analysts expect HMC’s EPS to increase 37.1% year-over-year to $3.26 in its fiscal year 2022. It surpassed the Street’s EPS estimates in three of the trailing four quarters. The company’s revenue is expected to be $32.24 billion for the quarter ending June 30, 2021, which represents a 60.4% year-over-year increase.
Last month, HMC and Verizon Communications Inc. (VZ) agreed to study how 5G connectivity coupled with edge computing could allow for faster communication between cars, pedestrians and infrastructure. Because 5G plays an important role in this, it highlights the need for a larger number of 5G cell tower sites in the United States. So, HMC could benefit significantly from the increased demand. The stock has gained 31.4% over the past year and closed yesterday’s trading session at $29.85.
HMC’s POWR ratings reflect this promising outlook. The stock has an overall A rating, which equates to Strong Buy in our POWR Ratings system.
The stock has an A grade for Value, and a B grade for Stability, Sentiment, Momentum and Growth also. In addition to the POWR Rating grades we’ve just highlighted, one can see HMC’s rating for Quality here.
HMC is ranked #2 in the same industry.
AB Volvo (VLVLY)
VLVLY is one of the world's largest makers of trucks, buses, construction equipment, and marine and industrial engines. It operates through several segments, including Trucks, Construction Equipment, Buses, Volvo Penta, and Financial Services.
The company’s $94 billion in net sales for the first quarter, ended March 31, represents a 2.8% year-over-year rise. Its gross profit has increased 9.3% from the prior-year quarter to $23.70 billion, while its net income for the quarter came in at $9 million, up 88.9% year-over-year. Its EPS also increased 89.1% year-over-year to $4.40. Analysts expect VLVLY’s revenue to come in at $10.56 billion for the current quarter, ending June 30, which represents a 30% year-over-year increase.
On April 29, VLVLY and Daimler AG (DDAIF) announced their pioneering roadmap for a new fuel-cell joint venture, cellcentric. Preparations for pre-series production have already started at a new site in Esslingen near Stuttgart. These two industry-leading companies are also expected to set up around 300 high-performance hydrogen refueling stations suitable for heavy-duty vehicles by 2025. This could significantly expand VLVLY’s market reach. The stock has gained 103.7% over the past year to close yesterday’s trading session at $25.40.
It’s no surprise that VLVLY has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock has an A grade for Growth, and a B grade for Stability, Quality, Sentiment and Value. Click here to see VLVLY’s POWR Rating for Momentum also.
VLVLY is ranked #3 in the same industry.
Click here to checkout our Electric Vehicle Industry Report for 2021
VWAGY shares were trading at $31.19 per share on Thursday afternoon, up $0.50 (+1.63%). Year-to-date, VWAGY has gained 49.59%, versus a 10.19% rise in the benchmark S&P 500 index during the same period.
About the Author: Ananyo Guha Niyogi
Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand.
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