With a stellar performance in the first half of 2023 and an uptick in year-over-year U.S. vehicle sales, the industry’s overall outlook seems promising. In this piece, I have evaluated the fundamentals of three auto stocks, namely, Rivian Automotive, Inc. (RIVN), Tesla, Inc. (TSLA), and Volkswagen AG (VWAGY), to help you navigate if it’s the time to buy, sell or hold these stocks.

With new-vehicle inventory at a two-year high, August’s sales volume is expected to surge by 18.8% year-over-year, reaching an impressive 1.37 million units. In addition, new vehicle sales are projected to rise more than 3% from last month. While some pent-up demand has been met, the industry can still rely on higher incentives and increased fleet sales to maintain this positive momentum.

Moreover, a joint report by J.D. Power and GlobalData reveals that global sales for 2023 are set to reach 86.8 million units, surpassing the previous estimate of 86.4 million units, amid the continuous improvement in supply chains. Looking ahead to 2024, global light-vehicle sales are anticipated to hit 90.2 million units.

On the contrary, some analysts believe that the U.S. car market is experiencing a shift into lower gear. They predict that an oversupply of vehicles could trigger a price war, causing profits to plummet.

As per UBS, global car production is expected to exceed sales by 6% this year, resulting in a surplus of 5 million vehicles that may require price cuts to be sold. This surplus has already resulted in a price war in the EV space and will likely extend to the combustion engine segment as well.

Given the industry’s backdrop, let’s delve into the fundamentals of the three Auto & Vehicle Manufacturers stocks, beginning with number 3.

Stock #3: Rivian Automotive, Inc. (RIVN)

RIVN designs, develops, manufactures, and sells electric vehicles and accessories. The company manufactures five-passenger pickup trucks and seven-passenger sports utility vehicles. It also offers a Commercial Vehicle platform for Electric Delivery Van in collaboration with Amazon.com, Inc.

In terms of forward EV/Sales, RIVN is trading at 2.90x, 148.2% higher than the industry average of 1.17x. Likewise, its forward Price/Sales multiple of 4.52 is 427.3% higher than the industry average of 0.86.

RIVN’s trailing-12-month EBITDA, net income, and levered FCF margins of negative 184.60%, 200.97%, and 166.17% compare to the industry averages of 10.83%, 4.29%, and 4.97%. Also, its trailing-12-month asset turnover ratio of 0.16x is 84.2% lower than the industry average of 1.01x.

During the second quarter that ended June 30, 2023, RIVN’s gross loss decreased 41.5% year-over-year to $412 million. Its loss from operations narrowed 24.8% from the year-ago value to $1.28 billion.

The company’s adjusted net loss attributable to common stockholders came in at $1.02 billion and $1.08 per share, narrowing 30.9% and 33.3% year-over-year, respectively. Also, its adjusted EBITDA loss stood at $881 million. In addition, as of June 30, 2023, its cash and cash equivalents amounted to $9.26 billion compared to $11.57 billion for the period ended December 31, 2022.

Analysts expect RIVN’s EPS to remain negative for the fiscal years 2023 and 2024. Moreover, it failed to surpass the revenue estimates in three of the trailing four quarters. Over the past year, the stock has declined 30.5% to close the last trading session at $22.31.

RIVN’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall rating of F, translating to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It also has an F grade for Value, Stability, and Quality. In the 57-stock Auto & Vehicle Manufacturers industry, it is ranked #47. Click here to see the other ratings of RIVN for Growth, Momentum, and Sentiment.

Stock #2: Tesla, Inc. (TSLA)

The world’s leading automaker, TSLA, designs, develops, manufactures, leases, and sells electric vehicles, energy generation, and storage systems and offers services related to its products. It operates in two segments: Automotive; and Energy Generation and Storage.

On July 19, TSLA revealed its intention to implement comprehensive modifications to its Berlin factory, which includes expanding battery cell production, underscoring the persistence of ramp-up strategies despite the shift in focus toward bolstering operations in the United States.

The company is set to produce lithium-ion cells for electric vehicles and energy storage systems across multiple global sites. The expansion encompasses diverse enhancements, including cell testing, novel material blending zones, and the entire spectrum of processes and components essential for anode and cathode production.

In terms of forward non-GAAP P/E, TSLA is trading at 74.64x, 400.2% higher than its industry average of 14.92x. Its forward EV/Sales of 7.97x is 576.3% higher than the 1.18x industry average. Moreover, its forward EV/EBITDA of 44.78x compares to the industry average of 9.76x.

TSLA’s trailing-12-month EBITDA margin of 17.86% is 65% higher than the 10.83% industry average. Its trailing-12-month net income margin of 12.97% is 202.1% higher than the industry average of 4.29%. In addition, the stock’s trailing-12-month ROCE and ROTC of 27.96% and 15.46% compares to the industry averages of 10.84% and 6.01%, respectively.

TSLA’s total revenues increased 47.2% year-over-year to $24.93 billion in the fiscal second quarter that ended June 30, 2023. Its adjusted EBITDA grew 22.7% from the year-ago value to $4.65 billion. Moreover, the company’s non-GAAP net income and non-GAAP EPS attributable to common stockholders increased 20.2% and 19.7% year-over-year to $3.15 billion and $0.91, respectively.

However, its income from operations stood at $2.39 billion, down 2.6% year-over-year. In addition, as of June 30, 2023, the company’s net cash inflow from operating activities declined 12.1% from the prior-year period to $5.58 billion.

Analysts expect TSLA’s revenue to increase 16% year-over-year to $24.89 billion for the third quarter ending September 30, 2023. On the other hand, the company’s EPS for the current quarter is expected to decline 22.8% from the previous year to $0.81.

TSLA’s shares have gained 108.8% year-to-date to close the last trading session at $257.18. However, it slumped 3.5% over the past three months.

TSLA’s POWR Ratings show its mixed fundamentals. The stock has an overall rating of C, which translates to Neutral in our proprietary rating system. It has a B grade for Quality and a C for Growth, Momentum, and Sentiment. Within the same industry, it is ranked #39.

Click here to see the additional ratings for TSLA (Value and Stability).

Stock #1: Volkswagen AG (VWAGY)

Based in Wolfsburg, Germany, VWAGY is engaged in manufacturing and selling automobiles. The company operates through four segments: Passenger Cars and Light Commercial Vehicles; Commercial Vehicles; Power Engineering, and Financial Services.

On July 12, VWAGY and its brand, Elli, launched electricity trading on EPEX Spot, Europe’s largest power exchange. The project includes battery storage and a digital battery and electricity trading platform. Elli aims to build a smart energy portfolio, and both companies intend to contribute to the energy transition by leveraging electric car and battery storage capacities.

On June 21, the company launched performance programs across all brands. It involves a paradigm shift by emphasizing sustainable value creation over volume growth. This new launch should help VWAGY maintain and improve its cash flows and profitability.

In terms of forward EV/Sales and Price/Sales, VWAGY is trading at 0.82x and 0.19x, which are 29.7% and 77.8% lower than the industry averages of 1.17x and 0.86x. Also, its forward EV/EBITDA multiple of 6.19 compares with the industry average of 9.62.

In the second quarter that ended June 30, 2023, VWAGY’s sales revenue increased 15.2% year-over-year to €80.06 billion ($86.54 billion). Its operating result improved 24.7% from the year-ago value to €5.60 billion ($6.05 billion), while its earnings after tax amounted to €3.79 billion ($4.10 billion). Also, its vehicle sales units increased 15.5% year-over-year to 2.32 million.

The consensus EPS estimate of $6.41 for the fiscal year 2023 (ending December 31) represents a 101.5% improvement year-over-year. The consensus revenue estimate of $333.18 billion for the current year indicates an 11.1% increase from the prior-year period. The company has an impressive surprise history, surpassing the consensus revenue estimates in three of the trailing four quarters.

The stock’s trailing-12-month levered FCF margin of 5.21% is 4.9% higher than the 4.97% industry average. In addition, its CAPEX/Sales of 4.78% is 49.9% higher than the industry average of 3.19%.

Over the past nine months, the stock has declined 9.3% to close the last trading session at $14.33.

VWAGY’s solid fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. It has an A grade for Stability and a B for Growth and Value. Among the 57 stocks in the same industry, it is ranked #14. 

In addition to the POWR Ratings I’ve just highlighted, you can see VWAGY’s ratings for Momentum, Sentiment, and Quality here.

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TSLA shares fell $3.03 (-1.18%) in premarket trading Wednesday. Year-to-date, TSLA has gained 107.83%, versus a 18.46% rise in the benchmark S&P 500 index during the same period.

About the Author: Shweta Kumari

Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions. More...

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