The automotive manufacturing industry faces increasing production challenges due to persistent shortages of semiconductor chips and raw materials. High inflation and rising interest rates could also hurt demand growth.
However, tax credits, cost effectiveness and long-term sustainability have led consumers to turn to electric vehicles (EVs). Rising investment from several countries to electrify vehicles is expected to boost the industry’s long-term growth. The global electric vehicle market is expected to grow at a pace CAGR of 18.2% to reach $823.75 billion by 2030.
While electric vehicle giant Tesla, Inc. (TSLA) has skyrocketed over the past few years and its finances have improved significantly, the stock appears to be trading at a valuation that no longer justifies its future growth prospects. In non-GAAP forward P/E terms, TSLA is trading at 59x, 429% higher than the industry average of 11.15x. Therefore, it could lose significantly amid 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 years to come. Given the company’s strong growth prospects, the stock looks reasonable at its current valuation. In fact, it trades at a discount to its peers. Therefore, HMC might be a better investment than TSLA.
Let’s see what could boost the performance of HMC.
Honda Motor Co., Ltd. (HMC)
HMC develops, manufactures and distributes motorcycles, automobiles and electrical products. It also sells spare parts and provides aftermarket services directly through retailers, independent distributors and licensees.
HMC produced 244,368 vehicles in May 2022, representing an increase of 85.5% over the prior year period. On June 21, 2022, HMC’s Chinese subsidiary, Honda Motor (China) Investment Co., Ltd., announced that its automobile production and sales joint venture, GAC Honda Automobile Co., Ltd. (GAC Honda), had begun construction of a new electric vehicle plant. .
With an initial investment of RMB 3.49 billion ($521.81 million) and the adoption of advanced production technologies, this highly efficient, intelligent and low-carbon electric vehicle factory will possess an annual production capacity of 120,000 units from 2024.
For the fourth quarter of fiscal 2022 ended March 31, 2022, HMC’s revenue increased 10.5% year-over-year to 3.88 trillion yen ($28.57 billion). The company’s operating profit was 199.59 billion yen ($1.47 billion), down 6.4% from the year-ago period.
Its net profit was 144.50 billion yen ($1.07 billion), down 35.4% from the year-ago period. HMC’s EPS came in at ¥73.02, indicating a 40.9% year-over-year decline. As of March 31, 2022, the company had 3.68 trillion yen ($27.09 billion) in cash and cash equivalents.
Over the past three years, HMC’s EBITDA and total assets have increased by 13.6% and 5.5%, respectively.
Analysts expect HMC’s EPS to grow 2.2% year-over-year in fiscal 2023, ending March 31, 2023, and 15.1% in fiscal 2024. Its revenue is expected to increase 357.7% year-over-year in fiscal 2023 and 8.5% in fiscal 2023. fiscal 2024.
In terms of forward EV/EBITDA, HMC’s 7.6x compares to the industry average of 8.07x. Sound 0.62x forward EV/Sales is 39.9% lower than the industry average of 1.03x.
POWR ratings indicate better performance for HMC
While HMC has an overall A rating, which translates to a strong buy in our own POWR Rankings system, TSLA has an overall rating of C, equivalent to Neutral. POWR ratings are calculated by considering 118 separate factors, each weighted to an optimal degree.
HMC has an A rating for value, which is in line with its lower-than-industry valuation ratios. TSLA’s D rating for value is in line with its overvaluation. TSLA’s EV to Futures Sales ratio of 8.44x is 716.3% higher than the industry average of 1.03x.
HMC was rated B in terms of stability, which is in line with its lower volatility compared to broader markets. HMC has a beta of 0.96. TSLA’s D rating for stability reflects its beta of 2.13.
Of the 66 shares of Automobile and vehicle manufacturers industry, HMC is ranked #1, while TSLA is ranked #30.
Beyond what we’ve stated above, our POWR rating system ranked TSLA and HMC for sentiment, quality, growth, and momentum. Get All HMC Ratings here. Also, Click here to see additional POWR ratings for TSLA.
Our research shows that the odds of success increase if one invests in stocks with an overall POWR rating of Buy or Strong Buy. Click here to access the highest rated stocks in the car and automaker industry.
TSLA shares were trading at $695.20 per share on Wednesday afternoon, down $4.00 (-0.57%). Year-to-date, the TSLA is down -34.22%, compared to a -18.71% rise in the benchmark S&P 500 over the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a particular interest in researching market inefficiencies. She is passionate about educating investors, so they can succeed in the stock market. After…