The world’s leading producers of electric vehicles—Tesla, Inc. (TSLA - Get Rating) and Volkswagen AG (VWAGY - Get Rating)—have been exhibiting rapid growth. While TSLA remains a dominant player, German automaker VWAGY is quickly catching up, seeking  to dethrone TSLA as the world’s biggest EV manufacturer.

As new companies continue to enter the booming industry and grab market share from the dominant players, established carmakers like TSLA and VWAGY have been ramping up their EV production and deliveries, and introducing new products to outpace the burgeoning competition. Stringent restrictions on automotive emissions as a part of governments’ long-term climate sustainability commitments should benefit the EV leaders and create substantial profit opportunities for them.

In terms of their recent stock returns, while TSLA has advanced 665.7% over the past year, VWAGY has gained 200.4%. Regarding their  year-to-date performance, VWAGY is the clear winner with 63.8% gains versus TSLA’s negative returns. But which of these stocks is a better pick now? Let’s find out.

Click here to checkout our Electric Vehicle Industry Report for 2021

Latest Movements

This month, EVmo, Inc., a leading provider of vehicles to the rideshare and delivery gig economy,  collaborated with TSLA to become one of its first rideshare fleet partners in the U.S. that will deploy EVs. As EVmo’s  orders of TSLA’s Model 3 increase, higher profitability and business growth for TSLA is in the offing.

TSLA remains on track to begin vehicle production with structural batteries in Berlin and Austin, Tex. this year. The company has also boosted its Model S and Model X production and expects to deliver its first Tesla Semi by year’s end.

VWAGY  recently announced its plans to scale up its Modular Electric Drive Toolkit’s (MEB) all electric platform worldwide with production in Europe, China and the USA. It also intends to launch its first vehicles based on its  Premium Platform Electric (PPE) as early as next year. In addition, the company plans to pursue a platform strategy for batteries and charging, which will reduce the cost of battery cells significantly.

Recent Financial Results

In the fourth quarter, ended December 31, 2020, TSLA’s total revenues increased 46% year-over-year to $10.74 billion. Its gross profit has risen 49% from the same period last year to $2.07 billion, while its non-GAAP net income grew 134% from its  year-ago value to $903 million. However, its automotive gross margin was 24.1% over this period, versus 27.7% in the third quarter of 2020.

VWAGY’s net income has increased 27.8% year-over-year to €6.34 billion in the period ended December 31, 2020. The company’s other operating income grew 19.2% from its year-ago value to €6.02 billion. Its trailing-12-month revenue has been $272.27 billion, and its trailing-12-month EBITDA has been $29.31 billion.

Past and Expected Financial Performance

TSLA’s tangible book value and total assets have grown at a CAGR of 78.5% and 22.1%, respectively, over the past three  years.

Analysts expect TSLA’s revenue to increase 52.6% in the current year, and 30.4% next year. Its EPS is expected to grow 83.5% in the current year, and 34.3% next year.

In comparison,  the CAGR of VWAGY’s tangible book value and total assets have been 9.2% and 5.6%, respectively, over the past three years.

VWAGY’s revenue is estimated to increase 9.7% in fiscal 2021 and 4.7% in 2022. The Street expects the company’s EPS to increase 177.2% in the current year.

Profitability      

VWAGY’s trailing-12-month revenue is more than eight times TSLA’s. But TSLA is more profitable, with a gross profit margin of 21% versus VWAGY’s 16.5%.

However, VWAGY’s net income margin of 4% compares favorably with TSLA’s 2.3%.

Valuation

In terms of trailing-12-month price/sales, TSLA is currently trading at 19.37x, which is significantly higher than VWAGY’s 0.49x. Also, its trailing-12-month ev/ebitda  of 146.03x is 1149.2% higher than VWAGY’s 11.69x.

So, VWAGY is the more affordable stock.

POWR Ratings

VWAGY has an overall A rating, which translates to Strong Buy in our proprietary POWR Ratings system. However, TSLA has an overall C rating, which represents a Neutral. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Both TSLA and VWAGY have a Growth Grade of A, which is consistent with their expected growth in earnings and revenue.

In terms of Value Grade, VWAGY has a B, consistent with its lower-than-industry ev/sales ratio. TSLA’s Value Grade of F is reflective of its higher-than-industry p/e ratio.

Also, regarding  Momentum Grades, both TSLA and VWAGY have a B, in sync with their price returns over the past year.

Of the 51 stocks in the B-rated Auto & Vehicle Manufacturers industry, VWAGY is ranked #3 while TSLA is ranked #36.

Our POWR Ratings system has also rated both VWAGY and TSLA for Quality, Stability, and Sentiment. Get all VWAGY’s ratings here.  Click here to see the additional POWR Ratings for TSLA.

The Winner

While TSLA still holds the electric car crown, VWAGY is well positioned to outperform the EV juggernaut in the worldwide sale of electric vehicles. However,  TSLA’s lofty valuation and lower profitability make it a riskier investment compared to VWAGY. So, we expect VWAGY to perform better in the coming months.

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 the other top-rated stocks in the Auto & Vehicle Manufacturers industry.

The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Click here to checkout our Electric Vehicle Industry Report for 2021

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TSLA shares were trading at $677.11 per share on Tuesday morning, up $7.11 (+1.06%). Year-to-date, TSLA has declined -4.05%, versus a 5.04% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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