The coronavirus pandemic led to country-wide shutdowns for several weeks last year, significantly hampering auto manufacturing. As a complete halt in activities for many sectors resulted in widespread unemployment, people shied away from buying new cars. Being a part of the consumer durables sector, the auto sector is closely tied to the overall economic situation.
The auto industry was one of the hardest hit industries by the pandemic, on back of underutilization of plants and lower auto loan generations. Moreover, experts predict it will take at least a couple of years for the auto space to recover to pre-pandemic levels.
However, the overall stock market performance of the industry wasn’t dull in 2020 thanks to the electric-vehicle boom. Global auto stocks, as represented by the First Trust NASDAQ Global Auto Index Fund (CARZ), significantly outperformed the broader market last year. CARZ gained 53.6% over this period versus the S&P 500’s 15.8% return. The momentum is likely to continue as the economy is expected to witness a steady recovery this year and consumer spending is expected to reach pre-pandemic levels.
There is a sense that the widespread distribution of effective vaccines could unleash an auto buying boom this year, with the trend anticipated to surge exponentially over the decade. Statista forecasts that the global automotive industry’s revenue will be worth just under $9 trillion by 2030, with new vehicle sales accounting for 38% of that value. One in five new car sales globally are forecast to be electric vehicles within 10 years, while millions of completely autonomous cars are expected to be running on roads worldwide by 2030.
Hence, it could be a good idea to add Tesla, Inc. (TSLA), Toyota Motor Corporation (TM), Ferrari N.V. (RACE) and Ford Motor Company (F) to your portfolio. Each of these stocks are fundamentally sound and are witnessing a rebound in sales from the pandemic driven lows.
Tesla, Inc. (TSLA)
TSLA designs, develops, manufactures, and sells electric vehicles (EVs), EV powertrain components, and stationary energy storage systems in the United States, China, and internationally. TSLA primarily operates through the following segments – Automotive, Energy Generation and Storage.
On January 2nd, TSLA said it delivered a record 180,570 vehicles during the fourth quarter of 2020, rising nearly 30% compared to the preceding quarter. The company delivered 499,550 vehicles in 2020, but fell short of CEO Musk’s target of 500,000. TSLA also plans to launch three new electric vehicles soon, including the Tesla Cybertruck and two electric cars. Moreover, after months of speculation, TSLA has finally been added to the S&P 500 Index last month after five consecutive quarters of profit. It was also added to the S&P 100 list.
In the third quarter, the company generated $8.77 billion in revenues, growing 39% year-over-year, driven by a 44% year-over-year rise in vehicle deliveries. Energy generation and storage segment generated $579 million in revenue, rising 44% year-over-year as the business reached record deployments of 759 MWh. Non-GAAP EPS came in at $0.76, more than doubling year-over-year.
TSLA is reportedly planning to launch its products in India this year and further expand into China, while opening new factories in Texas and Germany. The company is actively undertaking efforts to reduce battery costs through extensive development in its battery technology. It aims to integrate a tab-less battery system into its vehicles, which should significantly increase its profitability. Analysts expect TSLA’s revenues and EPS to grow 47.1% and 67%, respectively, this year.
How does TSLA stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
A for Peer Grade
A for Industry Rank
A for Overall POWR Rating
You can’t ask for better. The stock is also ranked #1 out of 35 stocks in the Auto & Vehicle Manufacturers industry.
Toyota Motor Corporation (TM)
TM is a Japan-based auto manufacturer that designs, assembles, and sells passenger vehicles (PVs), minivans and commercial vehicles, and related parts and accessories. Being a key player for the past 87 years, TM is one of the biggest auto companies in North America and internationally. The company operates through three segments – Automotive, Financial Services, and Other.
TM recently announced that its global sales and production increased year-over-year in November 2020 for the third consecutive month. On Christmas, the company launched “C+pod,” a new ultra-compact EV, as part of its hefty product-line of tiny EVs to drive the popularization of battery-electric vehicles (BEVs). Moreover, TM launched the completely redesigned Mirai fuel cell electric vehicle (FCEV) earlier last month that runs on hydrogen.
TM reported a top-line of $59.2 million for its second quarter that ended September 2020, which is a 10% decline year-over-year. However, this implied a 57% improvement sequentially. The company has sold a total of 3,086 vehicles in the first half of its fiscal year 2021, with North America contributing more than 30%. TM focused on improving its liquidity position throughout the first half of the fiscal year as its cash and cash equivalents balance increased 34.4% year-over-year during this period. EPS came in $1.58, significantly improving from the quarter-ago value of $0.53.
Known best for its budget-friendly and quality internal combustion engine (ICE) vehicles, TM’s hybrid is a stop-gap towards its EV line-up. The company unveiled its electric vehicle plans in September last year. Additionally, the company is moving closer to production with next generation fuel cell electric technology for zero-emissions heavy duty trucks. In line with the progress, analysts expect TM’s EPS to grow 7.9% annually for the next five years.
It’s no surprise that TM is rated a “Strong Buy” in our POWR Ratings system. It also has an “A” in Trade Grade, Buy & Hold Grade, Peer Grade, and Industry Rank. In the 35-stock Auto & Vehicle Manufacturers industry, TM is ranked #2.
Ferrari N.V. (RACE)
RACE designs, engineers, produces, and sells luxury performance sports cars in the United States and internationally. The company offers sports, GT, and special series cars; limited edition hypercars; Fuori series, one-off, and track cars; and Icona cars. RACE is one of the most valuable brands that participates in formula racing events. The company also provides luxury lifestyle goods and accessories, and operates the Ferrari World, a theme park in Abu Dhabi.
The Italian luxury automaker announced last month that its CEO Louis Camilleri had decided to retire effective immediately for “personal reasons.” He also vacated his seat on the company’s board of directors. Though the company’s share price wobbled a bit lately, it has resumed an uptrend as rumors swirled about the likely replacement. In November, RACE unveiled the convertible and hybrid version of SF90 Spider that uses electric and combustion motors.
In the third quarter that ended September 2020, sales fell 3% year-over-year to $1 billion. However, this implied a 55.5% growth sequentially, on the back of boosted sales of the higher-priced Monza 12-cylinder vehicles, and deliveries of the F8 Spider and the 812 GTS. Additionally, the company also unveiled a new more powerful Portofino during the quarter. Earnings rose 6.4% compared with the same period last year to $390 million.
The electrification of the auto industry is posing the biggest challenge toRACE as the company has on record said that it has no plans to launch an all-electric sports car. However, 60% of RACE’s models would have hybrid power by 2022. Analysts expect RACE’s revenues and EPS to grow 22.3% and 41.9%, respectively, this year.
RACE’s POWR Ratings reflect a promising outlook. It has an overall rating of “Strong Buy” with an “A” in Trade Grade, Buy & Hold Grade, Peer Grade ,and Industry Rank. Among the 35 stocks in the Auto & Vehicle Manufacturers industry, it’s ranked #4.
Ford Motor Company (F)
F is a Michigan-based global auto company that designs, manufactures, markets and services a full line of Ford cars, trucks, SUVs, electrified vehicles and Lincoln luxury vehicles, and provides financial services through Ford Motor Credit Company. The company operates through three segments – Automotive, Mobility, and Ford Credit.
F has recently called-off the previously announced automotive joint venture with Mahindra & Mahindra, an Indian multinational vehicle manufacturing corporation, primarily driven by fundamental changes in global economic and business conditions caused by the global pandemic. The company also mentioned that its independent operations in India will continue as is.
F delivered a total of 149,931 vehicles in the United States during November 2020, as Ford Super Duty Sales increased 7.5% year-over-year during the month. In the third quarter of 2020, F’s total revenues were $37.5 billion, up 1% year-over-year, driven by high-demand and better operational execution. The company is immensely benefiting from its franchise strength on the back of pickup trucks, SUVs, commercial vehicles and iconic PVs. The company reported an adjusted EPS of $0.65, rising 91% year-over-year.
In late 2021, the legacy automaker will start selling an all-electric cargo van for under $45,000. The commercial market needs a zero-emission fleet, and Ford is poised to ride that trend, developing the “next-level software, services, and capability” with this 2022 E-Transit. Moreover, the company plans to have a dedicated platform for its Mach-E SUV, scheduled to launch this year, for optimizing interior space, driving, electrical architecture. Thus, analysts expect F’s current year revenues and EPS to grow 22.7% and 2,650%, respectively.
F’s strong momentum is reflected in its POWR Ratings. It has a “Strong Buy” rating with an “A” in Trade Grade and Industry Rank, and a “B” in Buy & Hold Grade. Within the Auto & Vehicle Manufacturers industry, it’s ranked #12 out of 35 stocks.
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TSLA shares were trading at $730.90 per share on Monday afternoon, up $25.23 (+3.58%). Year-to-date, TSLA has gained 3.58%, versus a -1.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...
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