The automotive industry has witnessed dramatic growth over the past decade. With advanced technology integration, innovative zero-emission vehicles and autonomous self-driving vehicles are expected to be more prevalent in the near term. There are currently 1.2 million electric vehicles in use in the United States, which is expected to be 18.7 million by 2030.
Moreover, with countries prioritizing cleaner and sustainable technologies, the global electric vehicle (EV) market is expected to surpass $980 billion by 2028, growing at a CAGR of 24.5% between 2022 to 2028.
Given this backdrop, fundamentally strong auto stocks Volkswagen AG (VWAGY) and General Motors Company (GM) might be solid buys now.
With inflation at multi-decade high and interest rates rising, automotive suppliers and manufacturers are watching the Federal Reserve’s rate actions closely as the industry’s production environments continue to experience labor shortages and supply chain issues. Hence, we believe auto stock Faraday Future Intelligent Electric Inc. (FFIE) could be best avoided now, considering its weak fundamentals.
Stocks to Buy:
Volkswagen AG (VWAGY)
VWAGY, headquartered in Wolfsburg, Germany, manufactures and sells automobiles through four segments — Passenger cars; Commercial vehicles; Power Engineering, and Financial Services. It provides its products under the Volkswagen Passenger Cars, Audi, KODA, SEAT, Bentley, Porsche, Lamborghini, Ducati, and Bugatti brands.
On October 28, VWAGY announced that it will invest $763.5 million between 2022 and 2025 at its complex in the central state of Puebla, Mexico, one of Volkswagen’s largest facilities, to build a new paint plant and start production of a new gasoline-powered car. The plant is nearly completed, with openings expected early next year.
On October 27, it was reported that VWAGY plans to expand its cooperation with Intel Corporation (INTC) Mobileye to include its automated driving program. Mobileye, which develops autonomous driving technologies, already cooperates with VW’s software unit Cariad. This extended partnership should bolster its capabilities.
VWAGY’s sales revenue increased 24.2% year-over-year to €70.71 billion ($73.28 billion) for the third quarter ended September 30, 2022. Its operating result improved 64.5% year-over-year to €4.27 billion ($4.43 billion) over the quarter, while its gross cash flow increased 15.1% from its year-ago value to €37.50 billion ($38.86 billion).
VWAGY’s revenue estimate of $288.25 billion for the current fiscal year ending December 2022 represents a 5.2% year-over-year increase. Its EPS is likely to rise 91.2% year-over-year to $6.21 in the current year.
The stock has gained 25.1% over the past month to close its last trading session at $19.51. It has gained 10% over the past five days.
VWAGY’s POWR Ratings reflect this promising outlook. The company has an overall rating of A, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
VWAGY is rated an A for Value B in Growth, Stability, and Quality. Within the Auto & Vehicle Manufacturers industry, it is ranked #3 of 64 stocks.
Beyond what we’ve stated above, we have also given VWAGY grades for Momentum and Sentiment. Get all VWAGY ratings here.
General Motors Company (GM)
General Motors Company designs, builds, and sells trucks, crossovers, cars, and automobile parts and accessories worldwide. The company operates through GM North America; GM International; Cruise; and GM Financial segments.
On November 10, GM announced an agreement with San Diego Gas & Electric to investigate the feasibility of integrating bidirectional Electric Vehicles into the electric grid as a local energy resource.
Under the new agreement, the two companies will study three VGI capabilities: Vehicle-to-Home (V2H), Vehicle-to-Grid (V2G), and a Virtual Power Plant, which can leverage distributed energy resources such as EVs, batteries, and chargers to help the grid meet demand.
On October 24, GM announced a collaboration with SunPower Corporation (SPWR), a leading residential solar technology and energy services provider, to develop a new home energy system that will enable GM electric vehicles to provide backup energy to a home when properly equipped. GM also named SunPower as a preferred EV charger installation provider and its exclusive solar provider.
The collaboration will bring together SunPower’s home energy expertise and installation capabilities with GM’s leadership in EV and battery technology to help provide customers with more resilient, sustainable, and cost-effective energy.
These new expansions should bolster the company’s expertise and help it garner returns in the near future.
On October 24, GM declared a fourth-quarter 2022 cash dividend on the company’s outstanding common stock of $0.09 per share, payable on December 15, 2022.
In the third quarter ended September 30, 2022, GM’s total net sales increased 56.4% year-over-year to $41.88 billion. Its adjusted EBIT increased 46.7% year-over-year to $4.28 billion. The company’s net income attributable increased 38% year-over-year to $3.27 billion, while adjusted EPS came in at $2.25, representing an increase of 48% year-over-year.
The consensus EPS estimate of $0.13 for the fiscal first quarter ending 2022 represents a 55.3% improvement year-over-year.
GM has gained 22.3% over the past month, closing its last trading session at $40.24. It has gained 5.7% over the past five days.
GM’s POWR Ratings reflect its strong fundamentals. The stock has an overall B rating, which translates to Buy in our proprietary rating system.
GM is also rated an A in Growth and a B in Value and Sentiment. It is ranked #19 in the same industry,
To see additional POWR Ratings for Momentum, Stability, and Quality for GM, click here.
Stock to Avoid:
Faraday Future Intelligent Electric Inc. (FFIE)
FFIE engages in the design, development, manufacture, engineering, sale, and distribution of electric vehicles and related products in the United States and internationally. It aims to break the boundaries between the Internet, IT, creative, and auto industries with product and service offerings that integrate new energy, AI, Internet, and sharing models.
On September 22, it was reported that FFIE’s board of directors and its advisors continued to pursue financing alternatives with multiple parties to support the production of its FF 91. However, allegations that certain directors are conspiring to pursue unnecessary bankruptcy for their own personal gain impacted the fundraising.
Back in August, several employees of FFIE called on the board and shareholders of the company to remove Executive Chairperson Susan Swenson. In a letter dated August 23, the employees alleged that Swenson had attempted to push the company into bankruptcy and restructuring. These issues have hampered investors’ confidence.
For the fiscal second quarter ended June 30, 2022, FFIE’s total operating expenses increased 396.5% from the year-ago period to $137.47 million. Its operating loss came in at $137 million, up 389.3% year-over-year. Its net loss rose 167.9% year-over-year to $142 million.
FFIE’s EPS is expected to decline 288.9% year-over-year to negative $0.35 in the fiscal fourth quarter ending December 2022.
The stock has fallen 94.4% over the past year to close the last trading session at $0.51. It has declined 81.7% over the past three months.
FFIE’s weak fundamentals are reflected in its POWR Ratings. The company has an overall F rating, equating to a Strong Sell in our proprietary rating system.
It has an F grade for Value, Stability, and Quality and a D for Sentiment. It is ranked #60 in the same industry.
Click here to see the ratings of FFIE for Growth and Momentum.
VWAGY shares were unchanged in premarket trading Wednesday. Year-to-date, VWAGY has declined -31.40%, versus a -15.13% 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. More…
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