The world’s largest electric vehicle (EV) manufacturer Tesla, Inc. (TSLA) dominated the global automobile industry last year as the demand for EVs skyrocketed. Moreover, with most governments announcing their plans to phase out fossil-fuel-powered vehicles, the EV giant gained significant traction.
While TSLA is still the biggest EV company, its stock looks highly overvalued at its current price level given the company’s relatively low profit margin. Furthermore, because the current semiconductor shortage is affecting the EV industry significantly, increasing production costs and low sales might cause TSLA’s shares to retreat in the coming months.
Regardless, overall automobile sales projected to rise in the recovering global economy despite temporary headwinds in the EV industry. Given this backdrop, we believe established car manufacturers Toyota Motor Corporation (TM), Honda Motor Co., Ltd. (HMC) and Volvo ADR (VLVLY) will grow substantially in the near term, potentially overtaking TSLA.
Toyota Motor Corporation (TM)
Based in Japan, TM manufactures and sells passenger vehicles, minivans and commercial vehicles, and related parts and accessories. It operates in automotive, financial services, and All Other segments. The Company’s product line also includes robots, basic research projects, marine and electric vehicles.
On June 23, Woven Alpha, Inc., a TM subsidiary, agreed to collaborate with Mitsubishi Fuso Truck and Bus Corporation to explore and advance safety for Advanced Driver Assistance Systems with its Automated Mapping Platform. This technological innovation should allow TM to strengthen its position in the market and generate significant revenues.
On June 10, TM unveiled its new Land Cruiser with upgraded technology. Considering the impressive sales performance of the previous models, this is expected to be a hit in the market and generate consumer buzz. TM’s net income increased 8.1% year-over-year to ¥2.28 trillion ($20.63 billion) in the fiscal fourth quarter, ended March 31. The company’s EPS increased 10.4% year-over-year to ¥794.67. Its cash and cash equivalents balance rose 24.5% from the prior year quarter to ¥5.10 trillion ($46.10 billion) over this period.
Analysts expect TM’s revenues to increase 11.5% year-over-year to $276.84 billion in the fiscal period ending March 2022. A $17.80 consensus EPS estimate for the same period indicates a 21.3% gain compared to the last year. Shares of TM have gained 39% over the past year, and 14.9% year-to-date.
It is no surprise that TM has an overall B rating of B, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
The stock also has a B grade for Growth, Stability, Sentiment and Momentum. Among the 57 stocks in the Auto & Vehicle Manufacturers industry, TM is ranked #18.
To see additional TM Ratings for Value and Quality, click here.
Click here to check out our Automotive Industry Report for 2021
Honda Motor Co., Ltd. (HMC)
Headquartered in Japan, HMC is a renowned manufacturer and seller of motorcycles, automobiles, power products, and other products in the global market. The company operates primarily through four segments: its Motorcycle Business, Automobile Business, Financial Services Business, and Life creation and Other Businesses.
On June 24, HMC unveiled its all-new Civic Hatchback, which is expected to go on sale this fall. This launch should be widely demanded given the brand assurance and the model’s chic features.
On June 8, HMC launched its eGX electrified DC power unit with applications in commercial-grade OEM equipment. The company has also launched several new and upgraded vehicles over the past month, including Type R Honda Civic, 2021 Acura TLX Type S, and two off-road power sports bikes. These recent product launches should help HMC to strengthen its global market reach and customer base.
HMC’s sales revenue increased 4.8% year-over-year to ¥3.62 trillion ($33.10 billion) in its fiscal fourth quarter, ended March 31. The company’s operating income stood at ¥213.20 billion ($1.95 billion), up 3,907.1% from the same period last year. HMC sold 680,388 American Hondas in May, representing a 42.5% improvement year-over-year.
The Street expects HMC’s revenues to rise 382.6% year-over-year to $136.50 billion in the period ending March 2022. HMC has gained 21.8% over the past year and 13.4% year-to-date.
HMC has an overall rating of A, which equates to Strong Buy in our proprietary POWR Ratings system. It has an A grade for Value, and B for Growth, Stability, Momentum and Sentiment. It is ranked #2 out of 57 stocks in the same industry.
Beyond what we’ve stated above, we have also rated HMC for other components. Click here to view all HMC Ratings.
Note that HMC is one of the few stocks handpicked by our Chief Value Strategist, David Cohne, currently in the POWR Value portfolio. Learn more here.
Volvo ADR (VLVLY)
Based in Sweden, VLVLY manufactures and sells trucks, buses, construction equipment, and marine and industrial engines. Its segments are trucks, construction equipment, buses, Volvo Penta, group functions & other, and financial services. The company operates in 18 countries and sells its products in more than 190 markets.
On June 2, Volvo Penta, a wholly owned subsidiary of VLVLY, announced the acquisition of marine battery systems pioneer ZEM AS. This should allow VLVLY to strengthen its market presence in the marine engines industry.
On April 26, VLVLY signed agreements to acquire 60% of Designwerk Technologies AG to accelerate its electromobility transformation. This should facilitate VLVLY’s zero-emission vehicle production, thereby strengthening its position in the industry.
VLVLY’s net sales increased 2.8% year-over-year to SEK94.02 billion ($11.10 billion) in the fiscal first quarter, ended April 4. Income for the period stood at SEK9 billion ($1.06 billion), up 88.9% from the same period last year. Its operating income grew 63.6% from the year-ago value to SEK12.07 billion ($1.42 billion). The company’s EPS increased 89.1% year-over-year to SEK4.35. VLVLY has gained 58.5% over the past year and 8.2% year-to-date.
VLVLY has an overall A rating, which equates to Strong Buy in our proprietary POWR Ratings system. VLVLY has a B grade for Growth, Value, Stability and Quality. It is ranked #3 in the same industry.
Click here to view additional VLVLY Ratings for Momentum and Sentiment.
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TM shares were trading at $178.32 per share on Friday afternoon, up $0.65 (+0.37%). Year-to-date, TM has gained 17.01%, versus a 14.96% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...
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