Auto sales are expected to get a significant boost in the coming months as people continue to avoid public transportation. In fact, optimism surrounding the quick rollout of COVID-19 vaccines and the strength of the economic rebound should lead to a substantial surge in commercial fleet sales. Also, the continued recovery of the new light-vehicle market has also enhanced the growth prospects of the automotive industry.
However, with the demand for semiconductors outstripping the supply, the automobile industry is struggling to increase production. Given inefficient supply chains, even if the industry could get chips to move upstream more quickly, it could take a while for the manufacturers to benefit and increase production and deliver thy of their product. This situation has compelled a few automakers to cut production and even close plants.
Although Honda Motor Co., Ltd. (HMC) and Mazda Motor Corporation (MZDAY) are well positioned to navigate these challenges and capitalize on the industry tailwinds, we think NIO Inc. (NIO) and GreenPower Motor Company Inc. (GP) are suffering from the global chip shortage and could struggle to stay afloat in the near-term.
Click here to check out our Automotive Industry Report for 2021
Stocks to Buy:
Honda Motor Co., Ltd. (HMC)
Headquartered in Tokyo, Japan, HMC produces motorcycles, automobiles, power products, and other products. It operates through four segments: Motorcycle Business, Automobile Business, Financial Services Business, and Life creation and Other Businesses. In late 2015, the company added HondaJet aircraft services to its portfolio.
Last month, HMC unveiled a new upgraded aircraft, the HondaJet Elite S. The aircraft is an upgraded version of its previous model HondaJet Elite in terms of expanded operational capability and improved flight operation. The launch should help HMC grow its brand value significantly.
HMC’s sales revenue increased 4.8% year-over-year to ¥3.62 trillion ($33 billion) in the fourth fiscal quarter, ended March 31, 2021. Its operating profit came in at ¥213.2 billion ($1.94 billion) compared to a ¥5.6 billion ($0.05 billion)operating loss a year ago.
A $3.36 consensus EPS estimate for its fiscal period ending March 2023 indicates a 13.8% improvement year-over-year. A$137.43 billion consensus revenue estimate for its fiscal period ending March 2022 represents a 385.9% increase year-over-year. HMC’s stock has gained 18.1% over the past year.
HMC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A grade, which equates to Strong Buy in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has an A grade for Value and a grade of B for Growth and Stability. Among the 57 stocks in the Auto & Vehicle Manufacturers industry, it is ranked #2.
In total, we rate HMC on eight different components. Beyond what we’ve stated above, we have also given HMC grades for Momentum, Sentiment and Quality. Get the ratings here.
Mazda Motor Corporation (MZDAY)
Based in Hiroshima, Japan, MZDAY manufactures passenger cars and commercial vehicles. Its principal products include four-wheeled vehicles, gasoline reciprocating engines, diesel engines, and automatic and manual transmissions for vehicles. The company’s businesses are in more than 130 countries and regions.
In April, MZDAY’s Mazda3 was named Canadian Car of the Year 2021 by the Automobile Journalists Association of Canada due to its high marks for Styling, Quality, Driver Position, Quietness, Performance, Vehicle Dynamics and Safety. It is the first vehicle to win the award for two consecutive years, following its win in 2020. This award should increase consumers’ trust in the brand and boost its sales.
The company reported ¥2.88 trillion ($27.3 billion) in net sales for its fiscal year ended March 31, 2021. Its selling, general and administrative expenses declined 14% year-over-year to ¥604.82 billion ($5.51 billion), while its non-operating expenses decreased 43.6% year-over-year to ¥13.07 billion ($0.12 billion) for the same period. Furthermore, MZDAY’s net cash from operating activities grew 244.7% year-over-year to ¥120.06 billion ($1.09 billion).
MZDAY is expected to see 58.6% revenue growth year-over-year to $30.97 billion in the fiscal period ending March 2022. The stock has gained 32.4% over the past year.
MZDAY’s POWR Ratings reflect this promising outlook. The stock has an overall A grade, which translates to Strong Buy in our POWR ratings system.
MZDAY is also rated an A in Value, and a B in Growth and Momentum. In the Auto & Vehicle Manufacturers industry, it is ranked #3.
To see additional POWR Ratings for Sentiment, Stability and Quality for MZDAY, Click here.
Stocks to Avoid:
NIO Inc. (NIO)
NIO manufactures and markets smart electric vehicles in Mainland China, Hong Kong, the United States, the United Kingdom, and Germany. The company offers five, six, and seven-seater electric SUVs, as well as smart electric sedans. It is also involved in the provision of energy and service packages to its users.
Last month, NIO unveiled its Power North Plan, which in three years will deploy a total of 100 Power Swap stations, 120 Power Mobiles, 500 Power Charger stations with more than 2,000 Power Chargers, and more than 10,000 destination chargers in eight provinces and autonomous regions. Although the plan is in alignment with a consumer market that is transitioning to electrical vehicle use, this huge investment could significantly increase the company’s expenses.
NIO’s forward EV/Sales currently stands at 10.79x, 594.1% higher than the 1.55x industry average. The company’s 11.58x forward Price/Sales is 685.4% higher than the 1.47x industry average of 1.47x.
The company’s net loss came in at RMB451 million ($68.8 million) for the first quarter, ended March 31, 2021. Also, its non-GAAP loss from operations came in at RMB199.44 million ($30.4 million) for this period. It reported a RMB3.14 ($0.48) loss per share of , compared to a RMB 1.66 ($0.26) loss per share of in the prior-year quarter.
NIO’s EPS is estimated to decrease at the rate of 0.2% per annum over the next five years. The stock lost 28.5% over the past six months.
NIO’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall F rating, which equates to Strong Sell in our POWR Ratings system. NIO has an F grade for Stability, and a D grade for Sentiment and Value. Of the 57 stocks in the C-rated Auto & Vehicle Manufacturers industry, it is ranked #45.
Click here to see the additional POWR Ratings for NIO. (Momentum, Growth and Quality).
GreenPower Motor Company Inc. (GP)
Canada-based GP produces a variety of high-floor and low-floor all-electric medium and heavy-duty vehicles, including transit buses, school buses, shuttles, cargo vans, and a cab and chassis. The company aims to provide a durable and reliable form of transportation with utmost safety and efficiency.
In its third fiscal quarter, ended December 2020, GP’s revenue decreased 51.8% year-over-year to $2.4 million. Its loss for the period came in at $2.13 million. Its cash expenses increased 7.6% year-over-year to $1.99 million for the period. And its loss per share came in at $0.11, compared to a $0.07 loss per share in the prior-year period. GP’s stock has declined 32% over the past three months.
GP’s weak prospects are apparent in its POWR Ratings also. It has an overall F grade, which equates to Strong Sell in our POWR ratings system. It has an F grade for Quality, Stability and Value. In the same industry, the stock is ranked #51.
In addition to the POWR Ratings grades we’ve just highlighted, one can see the GP’s ratings for Momentum, Sentiment and Growth here.
Click here to check out our Automotive Industry Report for 2021
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REVISED: 2023 Stock Market Outlook (includes top 7 picks)
NIO shares were trading at $41.43 per share on Wednesday afternoon, down $0.91 (-2.15%). Year-to-date, NIO has declined -15.00%, versus a 12.82% rise in the benchmark S&P 500 index during the same period.
About the Author: Samiksha Agarwal
Samiksha Agarwal has always had a keen interest in financial markets. This has led her to a career as a financial journalist. Through her extensive knowledge of fundamental analysis, her goal is to help investors identify untapped investment opportunities in the stock market. More...
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