For Immediate Release
Chicago, IL – May 11, 2023 – Today, Zacks Equity Research discusses BYD Co Ltd BYDDY, Volkswagen AG VWAGY, BMW AG BAMXF and Stellantis N.V. STLA.
Industry: Foreign Autos
The increasing demand for green vehicles is serving as a key catalyst for the Zacks Automotive - Foreign industry. Most countries are witnessing a significant surge in sales of electric vehicles (EVs) due to rising climate concerns. Despite economic concerns, the car markets in major regions such as China, Europe, and India are predicted to experience year-over-year growth in vehicle sales in 2023. While automakers face challenges such as commodity inflation and rising operating expenses, the overall outlook for the industry appears positive, with exciting opportunities for growth and expansion.
The industry's valuation is encouraging, as it is currently trading at a discount compared to both the S&P 500 and the broader auto sector. One can consider investing in stocks like BYD Co Ltd, Volkswagen AG, BMW AG and Stellantis N.V. to gain from the promising prospects of the industry.
Companies in the Zacks Automotive – Foreign industry are involved in designing, manufacturing and selling vehicles, components as well as production systems. The foreign automotive industry is highly dependent on business cycles and economic conditions. China, Japan, Germany and India are some of the key foreign automotive manufacturing countries. The widespread usage of technology is resulting in a fundamental restructuring of the market.
Stricter emission and fuel-economy targets, the ramp-up of charging infrastructure as well as supportive government policies are boosting sales of green vehicles. With almost all firms intensifying their electrification game, competition is getting tougher with each passing day. Foreign automakers are now actively engaged in the R&D of electric and autonomous vehicles, fuel efficiency along with low-emission technologies.
Factors Shaping the Industry's Prospects
China's Vehicle Market Growth: The world's largest auto market is on a growth trajectory. Car sales in March 2023 saw a 9.7% increase to 2.45 million units, extending the 13.5% increase in the prior month, per China Association of Automobile Manufacturers (CAAM). April marked the third consecutive month for year-over-year growth in vehicle sales, with retail sales of new passenger vehicles jumping 56%, per the China Automobile Dealers Association.
CAAM predicts total auto sales in China in 2023 to reach 27.6 million, a year-over-year increase of 3%, and NEVs to reach nine million, up 35%. Despite challenges such as increasing competition, economic uncertainty and commodity cost inflation, the China market is expected to maintain its leadership position in the global automotive industry.
Europe's Auto Industry Gains Momentum: The European vehicle market witnessed a significant increase in new car registrations in the first quarter of 2023. Almost 2.7 million units were sold, up 17.9% from the corresponding period of 2022. New commercial vehicle registrations, including vans, trucks, and buses, increased by 7.7%, 19.4%, and 15.5%, respectively, in the first quarter of 2023. LMC Automotive predicts a 7.9% year-over-year gain in vehicle sales in Western Europe for 2023.
Fitch Group expects profitability to remain solid, aided by the transition to battery-electric vehicles and pent-up demand. Although a still-high inflationary environment and weaker consumer sentiment pose challenges, easing raw material prices and improving inventory management should help mitigate them. Overall, the European vehicle market seems to be resilient.
India Auto Market in High Gear: India's auto industry posted its highest-ever vehicle sales last year, overtaking Japan to become the third-largest vehicle market in 2022. Sales of passenger vehicles in 2022 were up roughly 23% year over year. India is hopeful that the growth momentum will sustain this year. Crisil predicts that India's passenger vehicle sales will increase by 9-10% in fiscal 2023-24, surpassing pre-pandemic peak levels by roughly 20% due to strong demand and reduced chip shortages. The Indian automobile industry is embarking on a journey with optimism for sustained growth momentum this year.
Accelerating E-Mobility Shift: The growing concern for the environment is pushing various cities and nations to adopt green energy, with EVs playing a major role. The European Commission plans to phase out new petrol and diesel cars by 2035, China aims to ban fossil fuel cars by 2030, and Japan will stop the sale of gasoline-powered cars by the mid-2030s. California has also pledged to ban ICE cars by 2035 and sell only electric cars and trucks by 2035 and 2045, respectively.
The acceleration of EV targets is creating opportunities for automakers, as consumer confidence in EVs continues to rise. Green vehicle sales are skyrocketing, and global sales of EVs surpassed 10 million vehicles last year, according to the International Energy Agency, which predicts sales to grow another 35% this year to reach 14 million.
Zacks Industry Rank Indicates Rosy Prospects
The Zacks Automotive – Foreign industry is a 27-stock group within the broader Zacks Auto-Tires-Trucks sector. The industry currently carries a Zacks Industry Rank #24, which places it in the top 10% of around 250 Zacks industries.
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates decent near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry's positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group's earnings growth potential.
Before we present a few stocks that investors can buy given their solid potential, let's look at the industry's recent stock market performance and current valuation.
Industry Lags S&P 500, Tops Sector
The Zacks Automotive – Foreign industry has outperformed the Auto, Tires and Truck sector but underperformed the Zacks S&P 500 composite over the past year. The industry has lost 22.2% compared with the S&P 500 and the sector's decline of 27.6%. Meanwhile, the S&P 500 has moved up 3.2% over the same timeframe.
Industry's Current Valuation
Since automotive companies are debt-laden, it makes sense to value them based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio.
Based on trailing 12-month enterprise value to EBITDA (EV/EBITDA), the industry is currently trading at 7.28X compared with the S&P 500's 12.23X and the sector's 9.06X.
Over the past five years, the industry has traded as high as 11.03X, as low as 3.47X and at a median of 7.93X.
4 High-Potential Foreign Auto Stocks
BYD: It is a leading Chinese company that specializes in the manufacturing, research, and distribution of automobiles, mobile phone components, and rechargeable batteries. BYD's rechargeable battery business provides essential lithium-ion and nickel batteries that are necessary for the production of green vehicles. As the demand for green vehicles and batteries continues to surge in China, BYD stands to benefit significantly.
The firm's top line is being driven by the rising deliveries of its Han and Tang models. In 2022, BYD reported a remarkable 209% increase in EV sales, selling 1.86 million EVs.With its solid execution capabilities and expansion efforts, BYD is well-positioned to continue its growth trajectory.
BYDDY currently sports a Zacks Rank #1 (Strong Buy). The consensus mark for 2023 and 2024 sales implies year-over-year growth of 209.6% and 34.3%, respectively. The Zacks Consensus Estimate for 2024 earnings has been upwardly revised by 10 cents over the past 30 days to $3.78 per share, implying year-over-year growth of 54.3%.
Volkswagen: This Germany-based auto biggie designs, manufactures, and distributes a wide range of vehicles, including cars, trucks, and buses. It is positioning itself as one of the leaders in the shift toward sustainable mobility and has committed to an ambitious plan to electrify its entire fleet by 2030. The company plans to spend EUR 180 billion in 2023-2027 for electrification and its efforts are centered around its ID. electric vehicle family, which includes ID.3, ID.4 and ID.5.
Encouragingly, Volkswagen's total deliveries are estimated to be around 9.5 million units in 2023, driven by the strong order backlog. This implies growth from 8.3 million vehicles sold in 2022. Revenues are expected to grow 10%-15% in 2023.
VWAGY currently sports a Zacks Rank #1. The consensus mark for 2023 and 2024 sales implies year-over-year growth of 6.3% and 2.2%, respectively. The Zacks Consensus Estimate for 2024 earnings has been upwardly revised by 48 cents over the past 30 days to $3.47 per share, implying year-over-year growth of 2%.
BMW: It is a Germany-based auto titan that designs, manufactures, and distributes luxury vehicles and motorcycles. BMW AG is taking great strides in electrification and expects EVs to account for 50% of its global sales by 2030.For 2023, the company plans to increase its BEV share to 15%.By 2025, the carmaker plans to deliver 2 million fully electric vehicles and by 2030 the number of deliveries would increase to 10 million.
BMW projects 2023 deliveries to be slightly higher than 2022 and its EBIT margin to range between 8 and 10%, ahead of the rollout of its new electric fleet this year. The rollout of the latest premium models and BEVs is expected to be the dominant growth driver for BMW. It has pledged to invest around €30 billion toward e-mobility by 2025 end.
BAMXF currently sports a Zacks Rank #1. The consensus mark for 2023 sales implies year-over-year growth of 9.3%. The Zacks Consensus Estimate for 2023 and 2024 earnings per share has been upwardly revised by $2.47 and $4.46, respectively, over the past 30 days.
Stellantis: Formed from the merger of Fiat Chrysler and the PSA Group, this Italian-American carmaker is one of the notable names in the auto space. Stellantis' Dare Forward 2030 strategy bodes well. The core objective of Dare Forward 2030 is to achieve 100% of total passenger car sales in Europe and 50% of light-duty truck and passenger car sales in the United States as battery electric vehicles by the end of the decade.
If Stellantis successfully achieves the given target, it has a higher possibility of doubling its revenue by 2030 compared to the start of the decade, maintaining double-digit adjusted operating margins throughout the decade and becoming number one in providing exceptional products and services in every market by 2030. By 2025, Stellantis plans to invest a total of EUR 30 billion in electrification technology to provide best-in-class BEVs to its customers.
STLA currently carries a Zacks Rank #1. The consensus mark for 2023 sales implies year-over-year growth of 7.8%. The Zacks Consensus Estimate for 2023 earnings per share has been upwardly revised by 27 cents and 54 cents, respectively, over the past 30 days.
You can see the complete list of today's Zacks #1 Rank stocks here.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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