Auto manufacturing continues to be hampered by limited inventory, Fed rate hikes and the ongoing semiconductor shortage. Recently, Honda Motor Company Limited (HMC) stated it would reduce auto output up to 40% at two Japanese factories for the rest of September.
However, the CHIPS and Science Act is expected to strengthen manufacturing capabilities and supply chains and promote research in the semiconductor industry. This should benefit the automakers.
In addition, rising demand for electric vehicles (EVs) is expected to bolster the automotive industry. The global EV market is expected to grow at a CAGR of 24.5% from 2022 to 2028.
Given the background, we think investors may want to consider buying high-quality auto stocks, Volkswagen AG (VWAGY). However, fundamentally weak stocks in this space, Faraday Future Intelligent Electric Inc. (FFIE) and Mullen Automotive Inc. (MULN), is now best avoided.
Stock to buy:
Volkswagen AG (VWAGY)
VWAGY, headquartered in Wolfsburg, Germany, manufactures and markets automobiles primarily in Europe, North America, South America and the Asia-Pacific region. The company has four segments: Commercial Vehicles; energy technology; Financial services; and passenger cars and light commercial vehicles.
VWAGY’s sales revenue was €69.54 billion ($69.43 billion) for the second quarter of 2022, up 3.3% year over year. In addition, the company’s cash flow from investing activities was €7 billion ($6.99 billion), up 48.6% year over year.
VWAGY’s forward EV/S of 0.92x is 15.2% lower than the industry average of 1.09x. The forward P/S of 0.26x is 68.9% lower than the industry average of 0.85x.
Street expects VWAGY revenue to grow 7.8% year-over-year to $300.64 billion in 2023. Earnings per share are expected to increase slightly year-over-year to $3.67 in 2023. In the past three months, the stock lost 3.3% to close its last trading session at $19.78.
VWAGY’s strong foundations are reflected in its POWR ratings. It has an overall A rating, which is equivalent to Strong Buy in our proprietary rating system. The POWR Ratings rate stocks on 118 different factors, each with its own weighting.
VWAGY has a B-score for value, sentiment, quality and stability. Within the Auto and Vehicle Manufacturers industry, it ranks number 2 out of 65 stocks. Aside from what was mentioned above, we also rated VWAGY for momentum and growth. Get all VWAGY reviews here.
Stocks to Avoid:
Faraday Future Intelligent Electric Inc. (FFIE)
FFIE is engaged in the design, development, manufacture, engineering, sales and distribution of electric vehicles and related products in the United States and internationally.
FFIE’s operating loss was $137 million for the second quarter ended June 30, 2022, an increase of 389.3% year over year. Net loss came in at $142 million, up 167.9% year over year.
In terms of forward EV/S, FFIE’s 8.60x is 688.9% higher than the industry average of 1.09x. The forward P/S of 8.73x is 926.9% higher than the industry average of 0.85x.
FFIEs EPS is expected to fall 288.9% year-over-year to negative $0.35 in 2022. It also missed EPS estimates in all four subsequent quarters. Over the past year, the stock lost 90.4% to close its last trading session at $0.97.
FFIE’s POWR ratings are consistent with this bleak outlook. The stock’s overall F rating corresponds to strong selling in our proprietary rating system. It has an F for Value, Stability and Quality and a D for Sentiment.
FFIE ranks 55th in the auto and vehicle manufacturing industry. We also rated FFIE for momentum and growth. Get all FFIE ratings here.
Mullen Automotive Inc. (MULN)
MULN is a manufacturer and distributor of electric vehicles. In addition, it operates the digital platform CarHub, which uses AI to provide an easy-to-use way to buy, sell and own a car. It sells battery technology and point-of-care solutions for emergencies.
On August 1, 2022, MULN launched a brand new Automotive Development Center in California. However, this new initiative does not immediately yield promising results for the company.
MULN’s operating loss was $18.22 million for the third quarter ended June 30, 2022, an increase of 184.5% year over year. Net loss was $59.47 million, up 289.9% year over year. In addition, general and administrative expenses totaled $10.90 million, up 121.2% year over year.
MULN’s trailing 12-month price-to-book of 13.08x is 536.1% higher than the industry average of 2.06x.
Over the past year, the stock lost 94.6% to close its last trading session at $0.50.
MULN’s poor outlook is also reflected in the POWR Ratings. It has an overall F rating which equates to strong sales in our proprietary rating system. MULN has an F for Value and Stability and a D for Feel and Quality.
MULN ranks 56 in the same industry. click here to access the additional POWR Rating for MULN (growth and momentum).
VWAGY shares traded at $20.40 a share Monday afternoon, up $0.64 (+3.24%). Year-to-date, VWAGY is down -28.28%, versus a -18.10% gain in the benchmark S&P 500 index over the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. Immediately masters in economics, she helps investors make informed investment decisions through her insightful commentary. More…