Many people expect Chinese electric vehicle (EV) manufacturer NIO Ltd. (NIO) to become “the next Tesla,” given its impressive growth and exposure to the largest EV market. The company also enjoys government support through low-interest loans and subsidies, allowing it to invest in growth. After emerging as one of the leading EV manufacturers in China, the company is now eyeing international markets.
However, the picture is not as rosy as it seems. NIO reported negative EPS and net income in the trailing 12-months. Despite being in the market for around 6 years, the company has failed to generate profits to date. However, NIO’s shares are surging in the market on the ongoing EV trend. The stock gained 1012.1% over the past nine months, becoming significantly overvalued considering its financials and profitability. From a macroeconomic perspective, an anti-Chinese sentiment brewing among most nations following the pandemic is likely to restrict its growth potential in the international markets.
On the other hand, well-established industry leaders such as Toyota Motor Corp (TM), General Motors Company (GM), and Honda Motor Co Ltd. (HMC) are witnessing a rebound in sales from the pandemic driven lows. With decades of experience, these MNCs have a stellar reputation in the market, abundant resiliency to combat challenges brought on by the pandemic, as well as significant industry knowledge and financial backing, allowing them to accustom to the changing automobile industry.
Toyota Motor Corp (TM)
Based in Japan, TM vehicles are known across the world due to its high quality and reliability. Being a key player for the past 87 years, TM is one of the biggest automakers in the United States, and internationally. The company operates through three segments – Automotive, Financial Services, and Other.
Toyota Sienna won the Family Green Car of the year on November 24th. Texas Auto Writers Association (TAWA) awarded Toyota RAV4 TRD ‘Compact SUV of Texas’ for two consecutive years, on November 5th. TAWA also recognized TM as the best-selling vehicle in the country.
To boost its clean energy drive, TM partnered with Iwatani Corporation of America on November 12th, to increase the number of hydrogen-refueling stations present across Southern California. This venture aims to expand the hydrogen refuel stations by 25% in the state, with each station having the capacity to supply 900kg of hydrogen per day.
The company has a well-developed research and development team as well, helping it keep up with the newly emerged trends in the automobile industry. TM Collaborative Safety Research Center (CSRC) recently invested $1 billion in research projects undertaken jointly with multiple universities across the US. These projects aim to build on advanced driver assistance systems (ADAS) technologies to ensure more efficient and safer mobility systems.
As the world recovers from the pandemic, the automotive industry has witnessed a steady rise in vehicle sales from the March lows. While TM’s revenue and net income indicate a slow recovery of the company, TM focused on improving its liquidity position throughout the first half of the fiscal year 2021. TM’s cash and cash equivalents balance increased 34.4% year-over-year to ¥5.51 trillion in six months ended September 2020. Other financial assets increased 47.7% from the year-ago value to ¥5.16 trillion.
The consensus EPS estimate of $15.11 for the fiscal year ending March 2022 indicates a 32.9% improvement year-over-year. Analysts expect revenues to increase 107.4% in the fiscal year ending March 2021, and 10.7% in 2022. The company has an impressive revenue surprise history as well, as it beat the street revenue estimates in each of the trailing four quarters.
TM has gained more than 25% since hitting its 52-week low of $108.01 in March. The stock hit its 52-week high of $144.65 on November 16th.
How does TM stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
A for Industry Rank
A for Overall POWR Rating.
You can’t ask for better. The stock is currently ranked #2 out of 34 stocks in the Auto & Vehicle Manufacturers industry.
General Motors Company (GM)
GM’s miraculous recovery from almost being bankrupt to regaining its glory as one of the top three automobile manufacturers in the country has made it one of the most actively traded stocks. The company is currently in the process of manufacturing GMC Hummer EV, which is expected to hit the market by 2022.
GM recently signed a non-binding Memorandum of Understanding (MoU) with Nikola Corporation (NKLA) to supply Hydrogen fuel tech systems for NKLA’s class 7/8 semi-trucks. This comes as an amendment to the prior announcement, where GM announced undertaking an equity stake in NKLA.
Earlier this year, GM signed a memorandum of understanding with Honda to establish a strategic alliance in North America to share common vehicle platforms as well as collaborate on technological advancements.
GM is in the process of investing $27 billion in tranches to launch 30 EV models globally by 2025. Two-thirds of the total company EV production is expected to be available in North America.
GM’s EV production factory ZERO in Detroit, which is expected to start manufacturing EV’s next year, is the first auto plant in the country to install 5G technology.
GM delivered over 771,400 vehicles in China in the third quarter ended in September 2020, indicating a 12% rise year-over-year. Total industry SAAR is expected to increase 33.6% from the prior-year quarter to approximately 15.9 million vehicles. GM’s net income rose 74% year-over-year to $4 billion, while EPS increased 74% from the same period last year to $2.78. Non-GAAP adjusted EBITDA grew 78% from the prior-year quarter to $5.30 billion.
The consensus EPS estimate of $1.90 for the current quarter ending December 2020 indicates a 3700% rise year-over-year. The company has an impressive earnings surprise history as well, as it beat the street EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $35.93 billion for the ongoing quarter indicates a 16.5% rise from the year-ago value.
GM has gained more than 205% since hitting its 52-week low of $14.33 in March. the stock hit its 52-week high of $46.71 in November.
GM is rated “Strong Buy” in our POWR Ratings system, with an “A” for Trade Grade, Buy & Hold Grade, and Industry Rank, and a “B” for Peer Grade. It is currently ranked #3 in the same industry.
Honda Motor Co Ltd. (HMC)
HMC is one of the best car makers in the United States, known for its wide range of motorcycles and automobiles. Originating from Japan in the mid-1900s, HMC quickly became one of the biggest MNCs operating in this sector, through four segments – Motorcycles, Automobiles, Financial Services, and Life creation and Other business.
On November 24th, HMC announced the development of a new model, the Rebel 1100, due to be released next year. The new cruiser motorcycle model is built using HMC’s dual-clutch transmission (DCT), thereby making it a state-of-the-art vehicle fitting all requirements of riders.
HMC is currently redesigning one of its bestselling cars, Honda Civic, projected to be released in 2022. The prototype of the 11th generation Civic was recently debuted on the entertainment platform Twitch on November 12th.
Apart from commercial vehicles, HMC also a pioneer in sports vehicles. HMC’s Acura won the IMSA WeatherTech SportsCar Championship in the 2020 season. On October 26th, the company won its 9th INDYCAR Manufacturers Championship. Furthermore, HMC has retained this position for three consecutive years.
HMC’s automobile sales rose slightly year-over-year to 1.25 million units in the fiscal second quarter ended September 2020. Life creation segment sales rose 18.6% from the same period last year to 1.16 million units. The company’s operating profit increased by 28.5% year-over-year to ¥282.90 billion in the fiscal second quarter ended September 2020. Net profit rose 22.6% from the prior-year quarter to ¥196.50 billion.
Analysts expect HMC’s EPS to rise 75.6% in the fiscal year ending March 2022. The consensus revenue estimate of $123.47 billion for the fiscal year ending March 2021 indicates a 263.4% rise year-over-year. Revenue is expected to rise by 10.4% to $136.34 billion in 2022. Moreover, HMC beat the street revenue estimates in three out of the trailing four quarters, which is impressive.
HMC gained more than 55% to hit its 52-week high of $30.21 in December since hitting its 52-week low of $19.38 in March.
It’s no surprise that HMC is rated “Strong Buy” with an “A” for Trade Grade, Buy & Hold Grade and Industry Rank, and “B” for Peer Grade. It is currently ranked #4 out of 34 stocks in the same industry.
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TM shares were trading at $138.00 per share on Monday morning, down $0.28 (-0.20%). Year-to-date, TM has gained 1.08%, versus a 16.44% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don’ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More…
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