Automobile industry production continues to be hindered due to limited inventory, the Fed’s rate hikes, and the lingering semiconductor shortage. Recently, Honda Motor Company Limited (HMC) declared that it would diminish car output by up to 40% at two Japanese plants 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 automobile manufacturers.
Moreover, surging demand for electric vehicles (EVs) is expected to fortify the auto industry. The global EV market is projected to grow at a CAGR of 24.5% from 2022 to 2028.
Given the backdrop, we think investors could consider buying quality auto stock, Volkswagen AG (VWAGY). However, fundamentally weak stocks in this space, Faraday Future Intelligent Electric Inc. (FFIE) and Mullen Automotive Inc. (MULN), might be best avoided now.
Stock to Buy:
Volkswagen AG (VWAGY)
Headquartered in Wolfsburg, Germany, VWAGY manufactures and sells automobiles primarily in Europe, North America, South America, and the Asia-Pacific region. The company has four segments: Commercial Vehicles; Power Engineering; Financial Services; and Passenger Cars and Light Commercial Vehicles.
VWAGY’s sales revenue came in at €69.54 billion ($69.43 billion) for the second quarter of 2022, up 3.3% year-over-year. Moreover, the company’s cash flow from investing activities came in at €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. Its forward P/S of 0.26x is 68.9% lower than the industry average of 0.85x.
Street expects VWAGY’s revenue to increase 7.8% year-over-year to $300.64 billion in 2023. Its EPS is expected to increase marginally year-over-year to $3.67 in 2023. Over the three past months, the stock has lost 3.3% to close the last trading session at $19.78.
VWAGY’s Strong fundamentals are reflected in its POWR Ratings. It has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
VWAGY has a B grade for Value, Sentiment, Quality, and Stability. Within the Auto & Vehicle Manufacturers industry, it is ranked #2 out of 65 stocks. Beyond what is stated above, we’ve also rated VWAGY for Momentum and Growth. Get all VWAGY ratings here.
Stocks 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.
FFIE’s operating loss came in at $137 million for the second quarter ended June 30, 2022, up 389.3% year-over-year. Its 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. Its forward P/S of 8.73x is 926.9% higher than the industry average of 0.85x.
FFIE’s EPS is expected to decrease 288.9% year-over-year to a negative $0.35 in 2022. Also, it missed EPS estimates in all four trailing quarters. Over the past year, the stock has lost 90.4% to close the last trading session at $0.97.
FFIE’s POWR Ratings are consistent with this bleak outlook. The stock’s overall F rating equates to a Strong Sell in our proprietary rating system. It has an F grade for Value, Stability, and Quality and a D for Sentiment.
FFIE is ranked #55 in the Auto & Vehicle Manufacturers industry. We’ve also rated FFIE for Momentum and Growth. Get all FFIE ratings here.
Mullen Automotive Inc. (MULN)
MULN is an electric vehicle manufacturer and distributor. Additionally, it runs the digital platform CarHub, which uses AI to give a user-friendly way to buy, sell, and own a car. It sells battery technology and emergency point-of-care solutions.
On August 1, 2022, MULN launched a brand-new Automotive Development Center in California. However, this new initiative might not immediately deliver promising results for the company.
MULN’s loss from operations came in at $18.22 million for the third quarter ended June 30, 2022, up 184.5% year-over-year. Its net loss came in at $59.47 million, up 289.9% year-over-year. In addition, its general and administrative expenses came in at $10.90 million, up 121.2% year-over-year.
MULN’s trailing-12-month Price/Book of 13.08x is 536.1% higher than the industry average of 2.06x.
Over the past year, the stock has lost 94.6% to close the last trading session at $0.50.
MULN’s poor prospects are also apparent in its POWR Ratings. It has an overall F rating equates to a Strong Sell in our proprietary rating system. MULN has an F grade for Value and Stability and a D for Sentiment and Quality.
MULN is ranked #56 in the same industry. Click here to access the additional POWR Rating for MULN (Growth and Momentum).
VWAGY shares were trading at $20.40 per share on Monday afternoon, up $0.64 (+3.24%). Year-to-date, VWAGY has declined -28.28%, versus a -18.10% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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