The automobile market is expanding due to a shift toward EVs, government incentives, and technological advancements. Yet, challenges like disrupted supply chains, rising material costs, and regulatory concerns persist. So, it seems prudent to wait for a better entry point in Ford Motor Company (F) while avoiding struggling Tesla, Inc. (TSLA) could be wise.
The auto industry 2024 outlook is marked by economic headwinds, charging infrastructure concerns, and regulatory uncertainties. But S&P Global Mobility forecasts 88.3 million global new light vehicle sales in 2024, up 2.8% year-over-year. Also, battery electric passenger vehicle sales are expected to reach 13.3 million units, representing 16.2% of world passenger vehicle sales.
In addition, this year, the U.S. auto market is expected to return to normalcy with slow growth, increased new vehicle inventory, and declining transaction prices, while the electric vehicle segment sees expansion through incentives and advertising efforts.
Concurrently, the Biden-Harris Administration allocated $15.50 billion to aid the transition to electric vehicles, supporting factory retooling and job retention, with $2 billion in grants and up to $10 billion in loans for automotive manufacturing conversions and plans for a $3.50 billion investment in domestic battery manufacturing.
Further, the EV market is expanding rapidly due to government incentives and environmental concerns, with passenger cars leading the surge. Advanced battery technology and supportive policies are driving this growth, making electric vehicles increasingly attractive to consumers worldwide. The global EV market is projected to grow at a CAGR of 17.8% to reach $1.58 trillion by 2030.
Considering these conducive trends, let’s discuss the fundamentals of two Auto & Vehicle Manufacturers stock picks, F and TSLA.
Stock to Hold:
Ford Motor Company (F)
F is a global automotive company that manufactures and sells a diverse range of vehicles, including trucks, commercial cars, SUVs, and luxury vehicles worldwide. It also provides vehicle financing and leasing services to customers and dealers, supporting both retail and commercial markets.
On March 1, 2024, F paid a first-quarter regular dividend of 15 cents ($0.15) per share and a supplemental dividend of 18 cents ($0.18) per share. The company pays $0.60 annually, which translates to a yield of 4.82% on the prevailing price level. Its four-year average dividend yield is 4.83%.
On January 19, F increased staffing by nearly 900 workers at its Michigan Assembly Plant to address the demand for Bronco and Ranger models while also adjusting F-150 Lightning production to match customer preferences. This move involves transitioning the Rouge Electric Vehicle Center to one shift, affecting around 1,400 employees.
F’s trailing-12-month gross profit margin of 9.17% is 74.4% lower than the industry average of 35.79%. But its trailing-12-month cash from operations of $14.92 billion is significantly higher than the $275.50 million industry average.
In terms of forward EV/Sales, F is trading at 0.99x, 20.6% lower than the industry average of 1.24x. However, the stock’s forward EV/EBIT of 16.76x is 20.5% higher than the industry average of 13.91x.
During the fourth quarter that ended December 31, 2023, F’s revenue rose 4.5% year-over-year to $46 billion. However, its adjusted net income and EPS decreased 43.8% and 43.1% from the prior year’s quarter to $1.16 billion and $0.29, respectively. As of December 31, 2023, its total assets amounted to $149.21 billion, compared to $138.58 billion as of December 31, 2022.
The company anticipates an adjusted EBIT ranging between $10 billion to $12 billion and adjusted free cash flow of $6 billion to $7 billion for the fiscal year 2024, with capital spending expected to fall within the range of $8 billion to $9.50 billion.
For the fiscal first quarter ending March 2024, analysts expect F’s revenue to grow 8.2% year-over-year to $42.28 billion. However, the company’s EPS for the same period is estimated to decline 21% from the prior year’s quarter to $0.50.
Shares of F have gained 20.8% over the past three months to close the last trading session at $12.74. However, the stock has declined 1.2% over the past year.
F’s mixed outlook is reflected in its POWR Ratings. The stock has an overall rating of C, which translates to a Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
F has a C grade for Growth, Stability, Sentiment, and Quality. It is ranked #33 out of 52 stocks within the Auto & Vehicle Manufacturers industry.
In addition to the POWR Ratings stated above, one can access F’s Value and Momentum ratings here.
Stock to Avoid:
Tesla, Inc. (TSLA)
TSLA is a leading manufacturer and distributor of electric vehicles and energy storage systems worldwide. Through its Automotive and Energy Generation & Storage segments, the company offers a range of products and services, including electric vehicles, solar energy generation, and storage solutions for residential, commercial, and industrial customers.
Today, TSLA's shares plunged to new multi-week lows as shipments slumped and new price cuts were announced in China. The stock closed down more than 7%, its lowest close since February 13. Also, it has slumped 20.1% over the past three months and 23.2% over the past six months to close the last trading session at $188.14.
February shipments from its Giga Shanghai factory fell by 16% from the previous month and 19% from a year ago, marking the lowest shipment total since December 2022. Additionally, the company announced new price cuts in China, including incentives equivalent to nearly $4.8K reduction on Model 3 and Model Y vehicles purchased from existing inventories by the end of March.
TSLA’s trailing-12-month gross profit margin of 18.25% is 49% lower than the industry average of 35.79%. Also, the stock’s trailing-12-month levered FCF of 2.30% is 58.7% lower than the 5.58% industry average.
In terms of forward EV/Sales, TSLA is trading at 5.66x, 356.5% higher than the industry average of 1.24x. Likewise, the stock’s forward EV/EBITDA of 35.79x is 264.3% higher than the industry average of 9.83x.
TSLA’s operating expenses increased 26.5% year-over-year to $2.37 billion in the fourth quarter that ended December 31, 2023. Its adjusted EBITDA declined 26.9% from the year-ago value to $3.95 billion. Also, its non-GAAP net income and EPS attributable to common stockholders declined 39.5% and 40.3% from the prior year’s period to $2.49 billion and $0.71, respectively.
The consensus EPS estimate of $0.67 for the fiscal first quarter ending March 2024 indicates a 21.1% year-over-year decrease. Similarly, the consensus EPS estimate of $0.76 for the second quarter ending June 2024 exhibits a 16.8% year-over-year decline.
TSLA’s bleak fundamentals are apparent in its POWR Ratings. The stock has an overall rating of D, which equates to Sell in our proprietary rating system.
TSLA has an F grade for Value and a D for Growth, Momentum, Stability, and Sentiment. It is ranked #38 out of 52 stocks within the same industry.
Click here to access all TSLA ratings.
What To Do Next?
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TSLA shares fell $3.92 (-2.08%) in premarket trading Tuesday. Year-to-date, TSLA has declined -24.28%, versus a 7.78% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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