Tesla, Inc. (TSLA) and Toyota Motor Corporation (TM) are two of the biggest car manufacturing giants in the automobile sector. TSLA not only designs, develops, manufactures and sells electric vehicles (EVs), it also manufactures, installs and sells solar energy generation and energy storage products. Headquartered in Japan, TM operates through several business segments, including automobile, finance, house design and manufacturing.
Electrification, autonomous driving and shared mobility are the main trends that are expected to shape the automotive industry over the next decade. As the demand for cars increases—with people much more inclined now to commute and travel generally in personal vehicles for social distancing reasons—we expect established global car manufacturers TSLA and TM to witness greater demand for their vehicles.
While TM has returned 19.2% over the past year, TSLA has gained 322.9%. In terms of their past six-months’ performance, TSLA is a clear winner with 64.8% returns versus TM’s 16.1%. But which of these two stocks is a better pick now? Let’s find out.
On April 27, TSLA announced that it intended to tweak its application for its planned Gigafactory in Europe, but that it could not give a definite date when the site would be approved. If its plan comes to fruition, it expects to increase its production capacity by five million vehicles annually and increase its revenue significantly.
Also on April 27, TM’s subsidiary Woven Planet Holdings, Inc. announced that it had acquired Lyft, Inc.’s (LYFT) self-driving division, Level 5. The acquisition is expected to enhance the company’s capacity to build more self-driving cars, which is widely presumed to be the future of the automobile industry.
Recent Financial Results
TSLA’s revenue increased 73.6% year-over-year to $10.40 billion for the first quarter, ended March 31, 2021. The company’s operating Income was $594 million, which represents an 109% year-over-year increase. Its net income increased 363.4% year-over-year to $1.10 billion.
For its fiscal year 2020 third quarter ended December 31, TM’s revenue increased 48% year-over-year to ¥586.20 million. The company’s net income increased 23.9% year-over-year to ¥906.90 million.
Expected Financial Performance
Analysts expect TSLA’s revenue to increase 86.5% for the quarter ending June 30, 45.9% for the quarter ending September 30,and 56.2% in its fiscal year 2021. The company’s EPS is expected to increase 96.4% in its fiscal year 2021 and 39.8% in its fiscal year 2022.
In comparison, analysts expect TM’s revenue to increase 56.5% for the quarter ending June 30, 7.4% for the quarter ending September 30, and 108.8% in its fiscal year 2021. Its EPS is expected to grow 7.6% in its fiscal year 2021 and 13% in 2022.
TM’s trailing-12-month revenue is 7.17 times TSLA’s. Also, TM is more profitable, with a 5.8% net income margin versus TSLA’s 3.2%.
Also, TM’s 7.1% EBIT margin compares favorably with TSLA’s 6%.
In terms of forward non-GAAP P/E, TSLA is currently trading at 149.26x, 1344.9% higher than ™, which is currently trading at 10.33x. TSLA is also more expensive in terms of forward EV/Sales (13.50x versus 1.46x).
In terms of forward EV/EBITDA, TSLA’s 72.45x is 488.1% higher than TM’s 12.32x.
So, TM is the more affordable stock.
TSLA has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. However, TM has a B overall rating of B, which represents Buy. The POWR Ratings are calculated by considering 118 different factors, with the weighting of each optimized to improve overall performance.
TSLA has a C grade for Sentiment, which is in sync with unfavorable analyst sentiment, while TM has a B grade for Sentiment.
Also, TM has a B grade for Stability while TSLA has a D grade on this front.
Furthermore, of 53 stocks in the B-rated Auto and Vehicles manufacturers industry, TM is ranked #21 and TSLA is ranked #38.
In addition to the POWR Ratings grades we’ve just highlighted, TM and TSLA are rated for Growth, Momentum, Value, and Quality. Click here to see the additional ratings for TM. Also, get all TSLA’s ratings here.
While both TSLA and TM can be considered good long-term investments given their market dominance in the auto vehicle manufacturer industry, we think TM is better positioned based on its higher profitability and much lower valuation.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to learn about other top-rated stocks in the Auto and vehicles manufacturers industry.
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TM shares were trading at $150.70 per share on Friday afternoon, down $1.73 (-1.13%). Year-to-date, TM has declined -2.50%, versus a 12.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Ananyo Guha Niyogi
Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand. More...
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