The auto industry is thriving due to factors like improving inventories, price cuts, government incentives, and improved infrastructure. The industry is anticipated to perform well due to expected interest rate cuts, a shift to EVs and hybrids, rising disposable incomes, and stabilizing supply chains.
In this piece, I have discussed the reasons why it could be wise to consider buying fundamentally strong auto stocks Blue Bird Corporation (BLBD), Rolls-Royce Holdings plc (RYCEY), and Stellantis N.V. (STLA) instead of Tesla, Inc. (TSLA). Before diving deeper into the fundamentals of these stocks, let’s discuss why TSLA must be avoided and why the auto industry is well-positioned for growth.
In March, new vehicle sales in the U.S. surged to 1.46 million units, driven by enhanced supply and strong demand, marking a 15.5% increase from February and a 5.1% rise from March 2023. Moreover, S&P Global Mobility projects a light vehicle sales volume of 15.9 million units for 2024, reflecting a 3% increase from 2023.
The auto industry's growth will be fueled by the increasing adoption of EVs and hybrid cars, rising incomes, anticipated interest rate cuts, and technological advancements. The global automotive industry is projected to grow at a 6.8% CAGR, reaching $6.86 trillion by 2033.
TSLA failed to surpass the consensus EPS and revenue estimates in the fourth quarter. The EV maker’s shares declined 29% in the first quarter, highlighting investors’ disappointment over expectations of lower-than-expected vehicle volume growth this year, lower margins, and heightened competition. The company was the worst performer in the S&P 500 during the first quarter.
During the first quarter, TSLA reported vehicle deliveries of 386,810, a drop of 8.5% year-over-year, marking its first year-over-year decline since 2020. Vehicle production also took a hit as it declined around 1.7% year-over-year and 12.5% sequentially. TSLA’s delivery numbers were below analysts’ expectations of between 414,000 and 469,000.
The company anticipates that the vehicle production growth rate will be lower in 2024 than last year due to focusing on the launch of the next-generation vehicle at Gigafactory Texas, indicating that it would not reach Wall Street estimates of 2.19 million for 2024. TSLA’s recent troubles are also due to heightened competition in the world’s largest EV market, China.
TSLA currently trades at an expensive valuation. TSLA’s forward EV/Sales of 5.16x is 327.6% higher than the industry average of 1.21x. Its forward Price/Sales of 5.33x is 484.6% higher than the industry average of 0.91x. Additionally, its 58.20x forward EV/EBIT is 326.7% higher than the 13.64x industry average.
TSLA’s stock performance has been poor. It has declined 32.1% over the past six months and 35.6% over the past nine months to close the last trading session at $176.88.
Considering the uncertainty surrounding TSLA’s long-term prospects, investors could consider buying BLBD, RYCEY, and STLA. Now, let's analyze the fundamentals of these three Auto & Vehicle Manufacturers stock picks, starting with the third choice.
Stock #3: Blue Bird Corporation (BLBD)
BLBD designs, engineers, manufactures, and sells school buses and related parts in the United States, Canada, and internationally. It operates through two segments: Bus and Parts.
On January 16, 2024, BLBD received a order from the Los Angeles Unified School District for 180 electric school buses, which will help the district transition to zero-emission student transportation. Deliveries are expected to begin in October 2024.
In terms of the trailing-12-month Return on Common Equity, BLBD’s 184.56% is considerably higher than the 11.99% industry average. Likewise, its 34.79% trailing-12-month Return on Total Capital is 396.7% higher than the 7% industry average. Likewise, its 3.10x trailing-12-month asset turnover ratio is 289.9% higher than the 0.80x industry average.
For the fiscal first quarter ended December 30, 2023, BLBD’s net sales increased 34.8% year-over-year to $317.66 million. Likewise, BLBD’s non-GAAP net income and EPS came in at $29.66 million and $0.91, compared to a non-GAAP net loss and loss per share of $9.77 million and $0.30, respectively.
For the quarter ended March 31, 2024, BLBD’s EPS is expected to increase 79.6% year-over-year to $0.49. Its revenue for the quarter ending June 30, 2024, is expected to increase 7.8% year-over-year to $317.36 million. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 88.9% to close the last trading session at $35.91.
BLBD’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #12 out of 52 stocks in the Auto & Vehicle Manufacturers industry. It has a B grade for Growth, Sentiment, and Quality. To see BLBD’s Value, Momentum, and Stability ratings, click here.
Stock #2: Rolls-Royce Holdings plc (RYCEY)
Headquartered in London, the United Kingdom, RYCEY operates as an industrial technology company in the United Kingdom and internationally. The company operates in four segments: Civil Aerospace, Defence, Power Systems, and New Markets.
On February 29, 2024, RYCEY received an order from Latvia's AST for an 80 MW/160 MWh mtu EnergyPack QG battery storage system to enhance the country's power grid stability as it synchronizes with Europe in 2025. This sizable project marks a significant step towards energy security, with RYCEY showcasing its expertise in large-scale battery solutions.
In terms of the trailing-12-month EBIT margin, RYCEY’s 11.11% is 13.6% higher than the 9.78% industry average. Its 14.63% trailing-12-month net income margin is 149.1% higher than the 5.87% industry average. Additionally, its 99.48% trailing-12-month Return on Total Capital is significantly higher than the 7% industry average.
RYCEY’s revenue for the fiscal year ended December 31, 2023, increased 21.9% year-over-year to £16.49 billion ($20.89 billion). Its gross profit grew 31.3% from the year-ago value to £3.62 billion ($4.59 billion).
For the same period, its operating profit rose 132.3% over the prior-year quarter to £1.94 billion ($2.46 billion). The company’s profit for the year stood at £2.40 billion ($3.04 billion), compared to its loss for the previous year of £1.27 billion ($1.61 billion). In addition, its EPS came in at 28.85p.
Street expects RYCEY’s EPS and revenue for the fiscal year ending December 31, 2024, to increase 26.9% and 9.1% year-over-year to $0.22 and $21.29 billion, respectively. Over the past year, the stock has gained 181.8% to close the last trading session at $5.14.
RYCEY’s solid prospects are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Momentum, Stability, Sentiment, and Quality. Within the same industry, it is ranked #11. Beyond the grades mentioned, we have also rated RYCEY for Growth and Value. Get all ratings here.
Stock #1: Stellantis N.V. (STLA)
Headquartered in Hoofddorp, the Netherlands, STLA designs, engineers, manufactures, distributes, and sells automobiles and light commercial vehicles, engines, transmission systems, metallurgical products, mobility services, and production systems worldwide.
On April 10, 2024, STLA announced the launch of eDCT production at Mirafiori, part of a €240 million ($260.62 million) transformation to create Mirafiori Automotive Park 2030. They're investing an additional €100 million ($108.59 million) in the iconic Fiat 500e to enhance its affordability and production at Mirafiori, aligning with their sustainability goals and bolstering Italy's automotive industry.
In terms of the trailing-12-month EBITDA margin, STLA’s 14.62% is 33% higher than the 11% industry average. Likewise, its 9.81% trailing-12-month net income margin is 106.2% higher than the 4.76% industry average. Moreover, its 5.38% trailing-12-month Capex/Sales is 77.7% higher than the 3.03% industry average.
STLA’s net revenues for the fiscal year ended December 31, 2023, increased 5.5% year-over-year to €189.54 billion ($205.83 billion). Its net profit increased 11% year-over-year to €18.63 billion ($20.23 billion). Its adjusted operating income rose 1.4% year-over-year to €24.34 billion ($26.43 billion). The company’s adjusted EPS came in at €6.42, representing an increase of 7.2% year-over-year.
Analysts expect STLA’s revenue for the quarter ending September 30, 2024, to increase 8.4% year-over-year to $51.77 billion. Over the past year, the stock has gained 53.4% to close the last trading session at $27.08.
STLA’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Value and a B for Stability and Quality. It is ranked #10 in the Auto & Vehicle Manufacturers industry. To see STLA’s Growth, Momentum, and Sentiment ratings, click here.
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STLA shares were trading at $27.04 per share on Wednesday afternoon, down $0.21 (-0.77%). Year-to-date, STLA has gained 15.95%, versus a 8.32% 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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