While the automobile manufacturing industry faces production-related challenges, growing interest in electric vehicles (EVs) and tax credits should allow it to grow in the long run. Leading electric vehicle giant Tesla (TSLA) has skyrocketed over the past decade, but its high valuation and meme stock features remain a concern. On the other hand, HMC has a solid foundation to lead the industry in the coming years, but is trading at a discount from its peers. Read more….
The automobile manufacturing industry is witnessing growing production challenges due to the continuing shortage of semiconductor chip and raw materials. High inflation and rising interest rates could also tarnish growth in demand.
However, tax credits, profitability and long-term sustainability have led consumers to switch to electric vehicles (EVs). Increasing investments by various nations to electrify vehicles should drive the long-term growth of the industry. The global electric vehicle market is expected to grow to one 18.2% CAGR to reach $ 823.75 billion by 2030.
While electric vehicle giant Tesla, Inc. (TSLA) skyrocketed in recent years and its finances have improved substantially, it appears that the shares are trading at a valuation that no longer justifies their prospects for future growth. As for non-GAAP forward P / E, TSLA is trading at 59x, 429% higher than the industry average of 11.15x. Therefore, it could lose significantly in the middle of the ongoing bear market.
On the other hand, Honda Motor Co., Ltd., based in Tokyo, Japan (HMC) looks well positioned to lead the industry in the coming years. Given the company’s solid growth prospects, the stock seems reasonable in its current valuation. In fact, he trades at a discount from his peers. Therefore, HMC could be a better investment than TSLA.
Let’s see what could drive HMC performance.
Honda Motor Co., Ltd. (HMC)
HMC develops, manufactures and distributes motorcycles, automobiles and electrical products. It also sells spare parts and offers after-sales services directly through retail distributors, independent distributors and licensees.
HMC produced 244,368 vehicles in May 2022, an increase of 85.5% over the previous year. On June 21, 2022, HMC’s China subsidiary, Honda Motor (China) Investment Co., Ltd., announced that its automobile production and sales JV, GAC Honda Automobile Co., Ltd. (GAC Honda), began construction of a new electric vehicle plant. .
With an initial investment of RMB 3,490 million ($ 521.81 million) and the adoption of advanced production technologies, this highly efficient, intelligent and low-carbon electric vehicle plant will have an annual production capacity of 120,000 units in from 2024.
For the fourth fiscal quarter of 2022 ended March 31, 2022, HMC’s sales revenue increased 10.5% year-on-year to 3.88 trillion yen ($ 28.57 billion). The company’s operating profit was 199.59 billion yen ($ 1.470 billion), a decrease of 6.4% over the previous year.
Its net profit was 144.5 billion yen ($ 1.07 billion), 35.4% less than last year. HMC EPS reached 73.02 ¥, indicating a 40.9% year-on-year decrease. As of March 31, 2022, the company had 3.68 trillion yen ($ 27.09 million) in cash and cash equivalents.
Over the past three years, EBITDA and HMC’s total assets have grown 13.6% and 5.5%, respectively.
Analysts expect HMC’s EPS to increase 2.2% year-over-year in fiscal year 2023, through March 31, 2023, and 15.1% in fiscal year 2024. Its revenue is expected grow 357.7% year-on-year in fiscal year 2023 and 8.5% in fiscal year 2023. fiscal year 2024.
In terms of future EV / EBITDA, HMC’s 7.6x compares to the industry average of 8.07x. It is 0.62x forward EV / sales it is 39.9% lower than the 1.03x sector average.
POWR ratings indicate better performance for the HMC
Although HMC has an overall rating of A, that translates to Strong Buy on our property POWR ratings system, TSLA has a general C grade, equivalent to Neutral. POWR scores are calculated taking into account 118 different factors, each weighted to an optimal degree.
The HMC has an A rating for value, which is synchronized with its lower valuation ratios than those in the sector. TSLA’s D rating is synchronized with its overvaluation. The 8.44x EV / TSLA sales are 716.3% higher than the industry average 1.03x.
HMC has been rated B in terms of stability, which is in sync with its lower volatility compared to wider markets. HMC has a beta version of 0.96. TSLA’s stability grade D reflects its beta of 2.13.
Of the 66 stocks of the Car and vehicle manufacturers industry, HMC ranks No. 1, while TSLA ranks No. 30.
Beyond what we said above, our POWR rating system has rated TSLA and HMC for Feeling, Quality, Growth and Momentum. Get all HMC scores here. Too, click here to see additional POWR ratings for TSLA.
Our research shows that the odds of success increase if you invest in stocks with a global POWR rating of strong buy or sell. Click here to access the most valued stocks in the auto and vehicle manufacturing industry.
TSLA shares traded at $ 695.20 per share on Wednesday afternoon, down $ 4.00 (-0.57%). To date, TSLA has decreased by -34.22%, compared to an increase of -18.71% in the S&P 500 benchmark index during the same period.
About the author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. He is passionate about educating investors to succeed on the stock market.
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