In the recent past, the automotive industry grappled with significant global disruptions, such as COVID-19, Asia-Pacific tensions, and the Russia-Ukraine war. Additionally, shortages spanning from microchips to labor reverberated across nearly every aspect of the automotive supply chain, impacting numerous touch points along the way.
However, as the automotive sector experiences a gradual easing of industry-wide challenges, it is positioned for significant growth in the foreseeable future. In this piece, I evaluated two automotive stocks, Ford Motor Company (F) and Tesla, Inc. (TSLA), to ascertain which of the two holds the potential to deliver better returns.
Emerging from a profoundly challenging era, the automotive sector is now witnessing a major global trend, an unwavering dedication to Electric Vehicle (EV) development. Vehicle manufacturers are intensifying their research and development (R&D) efforts, demonstrating unwavering determination to advance EV technology.
The rapid development and increasing sales of EVs, which rose 48% from January to March, reaching over 258,000 units, demonstrate manufacturers' strong confidence in the future of the market. EVs now represent 7.2% of U.S. new vehicle sales, up from 5.8% in the previous year.
Automakers are hastening the inclusion of advanced driver assistance systems in modern EVs to attract young drivers. These EVs are equipped with state-of-the-art technology and features reminiscent of smartphones, making them appealing to the younger generation.
They are also prioritizing personalized in-vehicle experiences by incorporating digital cockpits, biometrics, and voice-enabled services. Furthermore, they anticipate a transition from touch controls to haptic feedback and voice commands, aided by artificial intelligence-driven digital assistants, in the evolution of display screens.
In the fiscal first quarter, U.S. new-vehicle sales increased by 7.5% due to improved supplies and a slight reduction in sky-high prices. The easing of the global computer chip shortage also contributed to this growth, with automakers selling 3.59 million vehicles compared to 3.34 million in the previous year.
Additionally, forecasters are anticipating robust U.S. auto sales for the second quarter in comparison to the previous year. S&P Global Mobility predicts around 4.1 million units sold, representing a significant increase of 16.5%. This would result in first-half sales of approximately 7.7 million, reflecting a growth of about 12%.
The industry tailwinds should benefit both F and TSLA. In terms of price performance, TSLA is a clear winner with 12.6% gains compared to F’s 1.7% decline over the past month. Also, TSLA grew 59.2% over the past three months, while F climbed 11.3%.
Moreover, TSLA has surged 138.1% year-to-date to close its last trading session at $293.34 compared to F’s 28% gain over the same period to close its last trading session at $14.17.
But which stock is a better buy now? Let’s find out.
Recent Developments
On June 12, F inaugurated the Cologne Electric Vehicle Center in Germany, a cutting-edge production facility that will manufacture its latest electric passenger vehicles for millions of European customers. This technologically advanced site spans 125 hectares, boasting a new production line, battery assembly, and state-of-the-art automation.
With an impressive annual production capacity of over 250,000 EVs, the Cologne EV Center promises exceptional efficiency. Furthermore, it marks a significant milestone as F’s inaugural carbon-neutral assembly plant worldwide, aligning with the company's ambitious goal of achieving carbon neutrality across its entire European network.
On the other hand, on June 15, it was reported that Bank of America (BAC) analysts predict TSLA’s share of the U.S. electric vehicles market will decline to 18% by 2026. This indicates a substantial decrease from the 62% reported in 2022 and the peak of 78% in 2018.
The shift is anticipated due to the projected growth of established automakers such as F and General Motors Company (GM) in the U.S. EV market.
Recent Financial Results
During the first quarter that ended March 31, 2023, F’s revenues increased 20.3% year-over-year to $41.47 billion. Its adjusted EBIT grew 45.3% from the year-ago value to $3.38 billion. Moreover, the company’s adjusted net income and adjusted EPS rose 61.4% and 65.8% year-over-year to $2.53 billion and $0.63, respectively.
TSLA’s revenues for the first quarter ended March 31, 2023, increased 24.4% year-over-year to $23.33 billion. However, its adjusted EBITDA declined 15.1% over the prior-year quarter to $4.27 billion.
Furthermore, the company’s non-GAAP net income attributable to common stockholders decreased 21.5% year-over-year to $2.93 billion, while its non-GAAP EPS came in at $0.85, indicating a 20.6% decline year-over-year.
Past And Expected Financial Performance
F’s revenue increased at a CAGR of 3.3% over the past three years. Its EBITDA and normalized net income grew at CAGRs of 17.7% and 231.9%, respectively. However, the company’s total assets declined at a marginal CAGR over the same time frame.
F’s revenue is expected to grow 9.2% year-over-year to $40.60 billion in the fiscal third quarter ending September 2023. The company’s EPS for the ongoing quarter is expected to grow 32.7% from the previous year’s quarter to $0.40.
Over the past three years, TSLA’s revenue grew at a CAGR of 49%. Its EBITDA increased at a CAGR of 76.8%. Moreover, the company’s total assets rose at 32.6% CAGR during the same period.
Analysts expect TSLA’s revenue to increase 19.7% year-over-year to $25.69 billion for the fiscal third quarter ending September 2023. However, the company’s EPS for the same quarter is expected to decline 16.9% from the prior year’s period to $0.87.
Valuation
In terms of forward P/E, F is currently trading at 8.62x, 91.1% lower than TSLA, which is trading at 97.04x. Moreover, F’s forward EV/Sales multiple of 1.04 is 88% lower than TSLA’s 8.68. Additionally, F’s forward EV/EBITDA of 10.51x is 79.3% lower than TSLA’s 50.78x.
Thus, F is relatively affordable.
Profitability
F’s trailing-12-month revenue is 1.9 times what TSLA generates. However, TSLA is more profitable, with a trailing-12-month EBITDA margin of 19.37% compared to F’s 8.65%. Also, TSLA’s trailing-12-month net income margin of 13.66% compares with F’s 1.75%.
TSLA’s trailing-12-month ROCE and ROTC of 27.99% and 16.39% compare to F’s 6.03% and 2.66%, respectively.
POWR Ratings
F has an overall rating of B, which equates to Buy in our proprietary POWR Ratings system. Conversely, TSLA has an overall rating of C, translating to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. F has a B grade for Value, consistent with its lower-than-industry valuation. F’s forward non-GAAP P/E and forward EV/Sales of 7.57x and 1.04x compare to the industry averages of 15.74x and 1.19x, respectively.
On the other hand, TSLA has an F grade for Value, justified by its higher-than-industry valuation. TSLA has a forward non-GAAP P/E of 82.20x, which is 422.2% higher than the industry average of 15.74x. Moreover, the stock’s forward EV/Sales multiple of 8.68 is 630.3% higher than the industry average of 1.19x.
Moreover, F has an A grade for growth, in sync with its solid financial performance in the first quarter. On the contrary, TSLA has a C for Growth, justified by its mixed growth in the last reported quarter.
Of the 55 stocks in the Auto & Vehicle Manufacturers industry, F is ranked #25, while TSLA is ranked #38.
Beyond what we’ve stated above, we have also rated both stocks for Momentum, Stability, Quality, and Sentiment. Click here to view F’s ratings. Get all TSLA ratings here.
The Winner
The automotive industry is witnessing a resurgence in growth, fueled by improved supply chains and the easing of the global computer chip shortage. Additionally, the surging popularity of EVs and the integration of personalized in-vehicle experiences through advanced technologies are further propelling the sector’s growth.
Prominent automotive stocks F and TSLA are positioned to benefit from the industry’s promising growth prospects. However, considering TSLA’s relatively weak financial performance and higher valuation, its competitor, F, could be a better buy now.
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.
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TSLA shares were trading at $292.99 per share on Wednesday afternoon, down $0.35 (-0.12%). Year-to-date, TSLA has gained 137.86%, versus a 19.77% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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