The automotive industry has faced rapid changes in its operations in the modern world. The auto industry in 2023 is expected to be shaped by factors like increased integration of digital technology, the emergence of fuel cell electric vehicles (EVs), and self-driving vehicles.

Automobile manufacturers are moving increasingly towards clean energy and sustainable technologies. In the first half of 2022, global EV sales were up 62% year-over-year. Moreover, the global EV market is expected to surpass $980 billion by 2028, growing at a CAGR of 24.5% between 2022 to 2028.

Given this backdrop, fundamentally strong auto stocks General Motors Company (GM) and Honda Motor Co., Ltd. (HMC) might be solid buys now.

However, given the multi-decade-high inflation, interest rate hikes by the Fed, and geopolitical turmoil, fundamentally weak stocks XPeng Inc. (XPEV) and Mullen Automotive, Inc. (MULN) could be best avoided.

Stocks to Buy:

General Motors Company (GM)

GM designs, builds, and sells trucks, crossovers, cars, automobile parts, and accessories in several parts of the world. Its segments are GM North America; GM International; Cruise; and GM Financial.

On November 17, GM and Vale Canada Limited, a subsidiary of Vale S.A. (VALE), announced the signing of a term sheet for the long-term supply of battery-grade nickel sulfate from VALE’s proposed plant at Bécancour, Québec. Securing the supply of the material is expected to support GM’s EV production needs in North America.

On October 24, GM declared a $0.09 per share cash dividend for the fourth quarter of 2022, payable to common stockholders on Thursday, December 15, 2022. This reflects the shareholder return ability of the company.

GM’s revenue came in at $41.89 billion for the third quarter ended September 30, up 56.4% year-over-year. Its adjusted EBIT came in at $4.29 billion, up 46.7% from the prior-year period. In addition, its adjusted EPS came in at $2.25, up 48% year-over-year.

Analysts expect GM’s EPS for the fiscal fourth quarter ending December 2022 to increase 23.7% year-over-year to $1.67. Its revenue is expected to increase 21.6% year-over-year to $40.84 billion in the same quarter. Additionally, GM has surpassed EPS estimates in three of the four trailing quarters, which is impressive.

GM has gained 11.6% over the past six months to close the last trading session at $39.52. However, it has gained 12.9% in the past month.

GM’s POWR Ratings reflect this promising outlook. The company has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

GM has an A grade for Growth and a B for Value and Sentiment. Within the Auto & Vehicle Manufacturers industry, GM is ranked #20 out of 70 stocks.

Click here for the additional POWR Ratings for GM (Momentum, Stability, and Quality).

Honda Motor Co., Ltd. (HMC)

HMC, headquartered in Tokyo, Japan, designs, manufactures, and sells motorcycles, automobiles, power, and other products. It operates in four segments: Motorcycle Business; Automobile Business; Financial Services Business; and Life Creation and Other Businesses.

On November 17, HMC announced that it would begin the sale of the all-new SUV, the ZR-V, on April 21, 2023, at dealerships across Japan. This new SUV is expected to add to the company’s revenue stream.

Last month, together with LG Energy Solution, HMC announced the location of their new joint venture (JV) battery plant to be in Fayette County, Ohio, where the two companies are anticipated to invest $3.5 billion. The companies’ overall investment is projected to reach $4.4 billion. Such a step is expected to power HMC’s brand-new EV models.

HMC’s sales revenue came in at ¥4.26 trillion ($30.09 billion) for the fiscal second quarter that ended September 30, up 25% year-over-year. The company’s operating profit amounted to ¥231.24 billion ($1.63 billion), increasing 16.2% year-over-year, while the profit for the period attributable to owners of the parent company amounted to ¥189.30 billion ($1.34 billion), which increased 13.6% year-over-year for the same quarter.

Analysts expect HMC’s revenue to rise 10.5% year-over-year to $134.85 billion in the fiscal year ending March 2024. In addition, its EPS is expected to increase 54.1% from the prior-year period to $3.01 in the same period. Additionally, it surpassed revenue estimates in all four trailing quarters.

HMC has increased 7.5% over the past month to close its last trading session at $23.65. it has gained marginally over the past five days.

The promising outlook is reflected in HMC’s POWR Ratings. HMC’s overall A rating translates to a Strong Buy in our proprietary rating system. 

It has an A grade for Value and a B for Quality and Stability. In the same industry, it is ranked #5.

Click here to see HMC’s additional POWR Ratings for Growth, Momentum, and Sentiment.

Stocks to Avoid:

XPeng Inc. (XPEV)

XPEV operates as a designer, developer, manufacturer, and seller of smart EVs in China. Its offerings include SUVs under the G3 name, four-door sports sedans under the P7 name, and family sedans under the P5 name. The company is headquartered in Guangzhou, China.

On November 4, the company announced that its subsidiary, Guangzhou Xiaopeng Automotive Financial Leasing Co., Ltd., had concluded its debut issuance of RMB964 million (about $133.50 million) automobile leasing carbon-neutral asset-backed securities (ABS) on the Shanghai Stock Exchange.

For the fiscal second quarter ended June 30, XPEV’s non-GAAP loss from operations increased 37.9% year-over-year to $276.84 million. Non-GAAP net loss rose 124.8% from the prior-year period to $367.93 million, while non-GAAP net loss per ADS came in at $0.43, up 108.7% year-over-year.

The consensus EPS estimate of a negative $1.05 for the fiscal year ending December 2022 indicates a decline of 22.5% year-over-year. Also, the consensus EPS estimate for the fiscal fourth quarter ending December 2022 of a negative $0.26 reflects a decline of 17.6% from the prior-year quarter.

XPEV’s stock has lost 85.5% year-to-date to close its last trading session at $7.32. It has lost 65.5% over the past three months.

XPEV’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, which equates to a Strong Sell in our proprietary rating system.

XPEV has an F grade for Stability and Quality and a D for Sentiment. In the same industry, it is ranked 50.

Click here to see the additional POWR Ratings for XPEV (Growth, Value, and Momentum).

Mullen Automotive, Inc. (MULN)

MULN manufactures and distributes EVs. It also operates CarHub, a digital platform that leverages AI to offer an interactive solution for buying, selling, and owning a car. The company also offers battery technology and emergency point-of-care solutions.

On November 2, MULN announced that it had eliminated $13 million in company debt. The company’s overall indebtedness estimate is less than $10 million.

MULN’s losses from operations widened 184.5% year-over-year to $18.22 million for the three months that ended June 30, 2022. The company’s net loss widened 289.9% year-over-year to $59.47 million. Moreover, its net loss per share came in at $0.16.

Over the past year, the stock has lost 97.4% to close the last trading session at $0.26. It has lost 31.6% over the past month.

MULN has an overall F rating, equating to a Strong Sell in our POWR Rating system.

The stock also has an F grade for Value and Stability and a D grade for Sentiment and Quality. MULN is ranked #57 in the same industry.

Click here to access MULN’s ratings for Growth and Momentum.

GM shares were trading at $39.89 per share on Tuesday afternoon, up $0.37 (+0.94%). Year-to-date, GM has declined -31.81%, versus a -15.03% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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