Lingering logistic disruptions in the semiconductor chip sector have caused substantial productivity hindrances in the auto industry. According to AutoForecast Solutions, microchip shortages have forced automakers globally to cut over 13 million vehicles from production plans since 2021.

Given the backdrop, it might be wise to avoid fundamentally weak auto stock Mullen Automotive Inc. (MULN).

However, the auto industry is evolving with significant technological advancement, which should drive growth. Demand for electric vehicles (EVs) has soared over the past years. The electric vehicles market is projected to witness a robust growth rate of 23.5% from 2019 to 2028.

Thus, investors looking to invest in the industry could consider buying quality auto stocks Volkswagen AG (VWAGY) and Honda Motor Company, Ltd. (HMC).

Stock to Avoid:

Mullen Automotive Inc. (MULN)

MULN is an electric vehicle manufacturer and distributor. Additionally, it runs the digital platform CarHub, which uses AI to give a user-friendly way to buy, sell, and own a car. It sells battery technology and emergency point-of-care solutions.

 MULN's loss from operations came in at $18.22 million for the third quarter ended June 30, 2022, up 184.5% year-over-year. Its net loss came in at $59.47 million, up 289.9% year-over-year. In addition, its general and administrative expenses came in at $10.90 million, up 121.2% year-over-year.

Over the past year, the stock has lost 93.6% to close the last trading session at $0.64.

MULN's POWR Ratings reflect this bleak outlook. The company has an overall rating of F, which translates to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

MULN has an F grade for Value and Stability and a D for Sentiment and Quality. MULN is ranked #55 out of 65 stocks in the Auto & Vehicle Manufacturers industry. Click here to access the additional POWR Rating for MULN (Growth and Momentum).

Stocks to Buy:                                                                                                       

Volkswagen AG (VWAGY)

Headquartered in Wolfsburg, Germany, VWAGY manufactures and sells automobiles primarily in Europe, North America, South America, and the Asia-Pacific region. The company has four segments: Commercial Vehicles; Power Engineering; Financial Services; and Passenger Cars and Light Commercial Vehicles.

VWAGY's sales revenue came in at €69.54 billion ($69.43 billion) for the second quarter of 2022, up 3.3% year-over-year. Moreover, the company's cash flow from investing activities came in at €7 billion ($6.99 billion), up 48.6% year-over-year.

Street expects VWAGY's revenue to increase 4.2% year-over-year to $285.03 billion in 2023. Its EPS is expected to increase marginally year-over-year to $6.18 in 2023. VWAGY's shares lost marginally intraday to close the last trading session at $18.23.

VWAGY has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has an A grade for Value and Sentiment and a B for Quality and Stability. It is ranked first in the same industry. Beyond what is stated above, we've also rated VWAGY for Momentum and Growth. Get all VWAGY ratings here.

Honda Motor Company, Ltd. (HMC)

Headquartered in Tokyo, Japan, HMC develops, manufactures, and distributes motorcycles, automobiles, power products, and other products in Japan, North America, Europe, Asia, and internationally. Its four segments are Motorcycle Business; Automobile Business; Financial Services Business; and Life Creation and Other Businesses.

On August 29, 2022, HMC and LG Energy Solution announced their joint venture (JV) agreement to spend $4.40 billion to produce lithium-ion batteries in the U.S. The JV plant aims to have an annual production capacity of 40GWh and foster HMC and Acura EV models for the North American market.

Furthermore, on July 14, 2022, American HMC signed a multi-year agreement with Kyndryl Holdings, Inc. (KD), the world's largest IT infrastructure services provider.

Adam Sparks, Assistant Vice President of Enterprise IT Services at American HMC, said, "Kyndryl will contribute to efficiencies and competitiveness across all North America processes, which will help us establish new connected products and services."

HCM's sales revenue came in at ¥3.83 trillion ($27.96 billion) for the first quarter ended June 30, 2022, up 6.9% year-over-year. Moreover, the company's motorcycle sales came in at 4.25 million units, up 9.6% year-over-year. Also, its cash and cash equivalents came in at ¥3.63 trillion ($26.50 billion), up 45% year-over-year.

HMC's revenue is expected to increase 359.1% year-over-year to $122.63 billion in 2023. Its EPS is expected to increase 26.3% year-over-year to $3.46 in 2023. Over the past three months, the stock has gained 2.7% to close the last trading session at $26.12.

HMC's overall A rating equates to a Strong Buy in our POWR Ratings system. It also has an A grade for Value and a B for Quality and Stability.

The stock is ranked #3 in the same industry. We've also rated HMC for Momentum, Sentiment, and Growth. Get all HMC ratings here.

VWAGY shares were trading at $18.24 per share on Friday afternoon, up $0.01 (+0.05%). Year-to-date, VWAGY has declined -35.87%, versus a -16.85% rise in the benchmark S&P 500 index during the same period.

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.

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