Despite macroeconomic challenges, the auto industry is poised for growth thanks to strong customer demand, the shift to Electric Vehicles (EVs), government incentives, and improved supply chains.
Before delving deeper into their fundamentals, let’s discuss what’s happening in the auto industry.
Despite higher fuel prices, U.S. new vehicle sales are expected to rise in August, boosted by improved supply and high demand for personal transportation. The growing popularity of electric vehicles, driven by environmental concerns and incentives, is contributing to the overall expansion of the auto market.
The U.S. actively promotes EV adoption, with all 50 states working on a nationwide charging infrastructure network funded by the Infrastructure Investment and Jobs Act (IIJA). The global automotive market is expected to reach $28.70 billion in 2030, growing at a CAGR of 4.5%.
Moreover, the global automotive market is set to reach $3.58 trillion by 2031, growing at a 3% annual rate. In 2023, with improved supply and high demand, global auto sales are expected to reach 86.8 million units, surpassing earlier estimates. In 2024, the projection is 90.2 million units, mainly due to supply chain improvements.
Considering these conducive trends, let’s analyze the fundamental aspects of the three Auto & Vehicle Manufacturers picks, beginning with the third choice.
Stock #3: General Motors Company (GM)
GM designs, builds, and sells trucks, crossovers, cars, and automobile parts; and provides software-enabled services and subscriptions worldwide. The company operates through GM North America, GM International, Cruise, and GM Financial segments. It markets its vehicles primarily under the Buick, Cadillac, Chevrolet, GMC, Baojun, and Wuling brand names.
On October 24, 2023, GM Ventures and Niron Magnetics are collaborating to pursue affordable and sustainable EV motor magnets. GM aims to establish a secure, sustainable North American EV supply chain and is committed to developing affordable electric vehicles.
GM and Niron have entered a strategic partnership to co-develop this technology for future GM EVs. GM Ventures has invested in Niron to support the scaling of manufacturing and commercialization of their sustainable magnets.
On October 18, 2023, GM, Cruise, and Honda announced a joint venture to launch a driverless ride-hailing service in Japan in early 2026, using the Origin vehicle. Co-developed by the three companies, the vehicle will be manufactured in the U.S., with around 500 units produced for the launch at Factory ZERO Detroit-Hamtramck Assembly in Michigan.
The initiative addresses Japan’s taxi demand, driver shortages, and the need for new transportation, contributing to a future with zero crashes, zero emissions, and zero congestion.
In terms of the trailing-12-month net income margin, GM’s 5.83% is 32.6% higher than the 4.40% industry average. Likewise, its 14.21% trailing-12-month Return on Common Equity is 27.2% higher than the 11.17% industry average. However, its 0.63x trailing-12-month asset turnover ratio is 36.5% lower than the 1x industry average.
GM’s revenue for the fiscal third quarter that ended September 30, 2023, increased 5.4% year-over-year to $44.13 billion. Its adjusted automotive free cash flow rose 6.9% over the prior-year quarter to $4.91 billion. Its adjusted EPS came in at $2.28, representing an increase of 1.3% year-over-year. However, its net income attributable to stockholders decreased 7.3% year-over-year to $3.06 billion.
Street expects GM’s revenue for the quarter ending March 31, 2024, to increase 6.3% year-over-year to $42.51 billion. Its EPS for the same quarter is expected to decrease 53.6% year-over-year to $0.98. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has declined 35.1% to close the last trading session at $26.85.
GM’s uncertain outlook justifies its overall rating of C, which translates to Neutral in our proprietary POWR Ratings system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #30 out of 52 stocks in the B-rated Auto & Vehicle Manufacturers industry. It has a C grade for Growth, Stability, Sentiment, and Quality. To see GM’s Value and Momentum ratings, click here.
Stock #2: Niu Technologies (NIU)
Headquartered in Beijing, the People’s Republic of China, NIU designs, manufactures and sells smart electric scooters in the People’s Republic of China. The company offers RQi, NQi, MQi, SQi, UQi, and Gova series electric scooters and motorcycles; KQi series one kick-scooters; BQi series e-bikes; and Niu Aero Sports Bicycles.
In terms of the trailing-12-month Capex/Sales, NIU’s 4.73% is 45.1% higher than the 3.26% industry average. Likewise, its 1.24x trailing-12-month asset turnover ratio is 24.6% higher than the 1x industry average. However, its 1.37% trailing-12-month EBITDA margin is 87.6% lower than the 11.04% industry average.
For the fiscal second quarter ended June 30, 2023, NIU’s total revenues rose marginally year-over-year to RMB828.81 million ($113.79 million). Its gross profit rose 14.2% year-over-year to RMB191.48 million ($26.29 million). The company’s adjusted net income declined 53.9% year-over-year to RMB14.36 million ($1.97 million).
NIU’s EPS and revenue for fiscal 2023, are expected to increase 752.1% and 8.2% year-over-year to $0.14 and $498.34 million, respectively. It failed the consensus EPS estimates in each of the trailing four quarters. Over the past month, the stock has declined 15.5% to close the last trading session at $2.18.
NIU’s POWR Ratings are consistent with this uncertain outlook. It has an overall rating of C, translating to Neutral in our proprietary rating system.
It is ranked #28 out of 52 stocks in the same industry. It has a C grade for Growth, Sentiment, and Quality. Click here to see NIU’s Value, Momentum, and Stability ratings.
Stock #1: Li Auto Inc. (LI)
Headquartered in Beijing, the People’s Republic of China, Li Auto Inc., through its subsidiaries, designs, develops, manufactures, and sells new energy vehicles. The company provides Li ONE and Li L series smart electric vehicles.
In terms of the trailing-12-month net income margin, LI’s 6.32% is 43.7% higher than the 4.40% industry average. Likewise, its 30.57% trailing-12-month levered FCF margin is 493.2% higher than the industry average of 5.15%. However, the stock’s 21.33% trailing-12-month gross profit margin is 40.3% lower than the industry average of 35.74%.
LI’s total revenues for the third quarter that September June 30, 2023, increased 271.2% year-over-year to RMB34.68 billion ($4.76 billion). Its gross profit rose 546.8% over the prior-year quarter to RMB7.64 billion ($1.05 billion).
However, its non-GAAP income from operations came in at RMB2.99 billion ($410.51 million) compared to a non-GAAP loss from operations of RMB1.72 million ($236.15 million). Moreover, its non-GAAP net income came in at RMB3.47 billion ($476.41 million) compared to a non-GAAP net loss of RMB1.24 million ($170.24 million) in the year-ago quarter.
For the quarter ending December 31, 2023, LI’s EPS and revenue are expected to increase 210% and 104.6% year-over-year to $0.42 and $5.20 billion, respectively. Over the past year, the stock has gained 112.3% to close the last trading session at $36.96.
LI’s bleak prospects are reflected in its POWR Ratings. It has an overall rating of C, equating to a Neutral in our proprietary rating system.
Within the Auto & Vehicle Manufacturers industry, it is ranked #26. It has a C grade for Value. Click here to see LI’s Growth, Momentum, Stability, Sentiment, and Quality ratings.
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LI shares were trading at $39.36 per share on Monday afternoon, up $2.40 (+6.49%). Year-to-date, LI has gained 92.94%, versus a 16.51% 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. More...
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