The auto industry remains well-positioned to maintain its momentum next year, driven by declining inflation, an expected interest rate cut early next year, the growing adoption of electric vehicles, and improving supply chains.

However, not all auto stocks can capitalize on the industry tailwinds. I am extremely bearish on XPeng Inc. (XPEV), given its poor growth prospects. On the other hand, Harley-Davidson, Inc. (HOG) is worth watching, and Mercedes-Benz Group AG (MBGAF) could be a solid portfolio addition now.

Before diving deeper into the fundamentals of these stocks, let’s understand what’s shaping the industry’s prospects.

The auto industry recovered well from last year’s semiconductor shortages, persistent inflation, supply chain disruptions, and rising interest rates. U.S. new vehicle sales rose 8.8% year-over-year to 1.24 million units in November.

The rising focus of countries on transitioning to cleaner energy sources is boosting the adoption of battery electric vehicles (BEVs). EVs have become popular due to expanding public charging infrastructure, government incentives, and price cuts. Global sales of BEVs and plug-in hybrids (PHEV) rose 20% year-over-year to hit a fresh monthly record of 1.4 million units in November.

According to BloombergNEF’s electric vehicle outlook, EVs will reach 44% of global passenger vehicle sales by 2030 and 75% by 2040. With the revival of Chinese demand, J.D. Power and GlobalData raised the annual forecast for global light-vehicle sales to 89.3 million units, rising 10% over last year. Also, global light-vehicle sales in 2024 are forecasted to grow 3% year-over-year to 92.3 million units next year.

Considering these trends, let’s analyze the fundamentals of the three Auto & Vehicle Manufacturers stocks, beginning with the third from the investment point of view.

Stock #3: XPeng Inc. (XPEV)

Headquartered in Guangzhou, China, XPEV is a designer, developer, manufacturer, and marketer of smart EVs. Its offerings include SUVs under the G3, G3i, and G9 names, four-door sports sedans under the P7 and P7i names, and smart EVs and family sedans under the P5 name. The company also provides sales contracts, maintenance, supercharging, technical support, auto financing, insurance technology support, and ride-hailing.

In terms of forward EV/Sales, XPEV’s 2.99x is 150.1% higher than the 1.19x industry average. Its 3.28x forward Price/Book is 31.9% higher than the 2.48x industry average. Likewise, its 3.31x forward Price/Sales is 275.4% higher than the 0.88x industry average.

For the fiscal third quarter ended September 30, 2023, XPEV’s non-GAAP loss from operations widened 50% year-over-year to RMB3.04 billion ($423.70 million). Its non-GAAP net loss attributable to ordinary shareholders of XPEV widened 25.5% over the prior-year quarter to RMB2.79 billion ($388.86 million). In addition, its non-GAAP net loss per ADS came in at RMB3.23, widening 24.7% year-over-year.

Street expects XPEV’s EPS for the quarter ending December 31, 2023, to remain negative. It failed to surpass the Street EPS estimates in three of the trailing four quarters. Over the past three months, the stock has declined 16.7% to close the last trading session at $15.53.

XPEV’s weak prospects are reflected in its POWR Ratings. It has an overall rating of F, equating to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

Within the Auto & Vehicle Manufacturers industry, it is ranked #49 out of 51 stocks. It has an F grade for Stability and Sentiment and a D for Value and Quality. To see the other ratings of XPEV for Growth and Momentum, click here.

Stock #2: Harley-Davidson, Inc. (HOG)

HOG manufactures and sells motorcycles in the United States and internationally. The company operates in three segments: Harley-Davidson Motor Company, LiveWire, and Harley-Davidson Financial Services.

On September 6, 2023, HOG’s board of directors authorized the company to repurchase up to an additional 10 million shares of HOG’s common stock. The authorization is in addition to the existing share repurchase authorization approved in February 2020. The share repurchase is expected to create value for shareholders.

On June 20, 2023, HOG announced the H-D Membership program to strengthen its community and engagement among riders and moto-culture enthusiasts under the United We Ride banner. This initiative, offering personalized experiences, benefits, and loyalty rewards, is expected to enhance customer loyalty and brand engagement, potentially boosting HOG’s prospects.

In terms of forward non-GAAP P/E, HOG’s 6.93x is 55.4% lower than the 15.54x industry average. Its 1.42x forward Price/Book is 43% lower than the 2.48x industry average.

On the other hand, in terms of forward EV/EBITDA, HOG’s 10.88x is 11.2% higher than the 9.78x industry average. Likewise, its 2.17x forward EV/Sales is 81.5% higher than the 1.19x industry average. Its 14.14x forward EV/EBIT is 1.8% higher than the 13.89x industry average.

HOG’s revenue for the third quarter ended September 30, 2023, declined 6% year-over-year to $1.55 billion. Its operating income decreased 38.2% over the prior-year quarter to $209.29 million. The company’s net income attributable to HOG declined 23.9% year-over-year to $198.65 million.

Its current assets increased 8.2% year-over-year to $5.42 billion. Additionally, its net cash provided by operating activities for nine months ended September 30, 2023, increased 23% year-over-year to $706.77 million.

For the quarter ending December 31, 2023, HOG’s revenue is expected to decline 5.2% year-over-year to $871.01 million. Its EPS for the quarter ending June 30, 2024, is expected to increase 8.1% year-over-year to $1.32. It topped the Street EPS estimates in three of the trailing four quarters, which is impressive. The stock has gained 21.2% over the past month and declined 28.5% over the past year to close the last trading session at $32.28.

HOG’s bleak prospects are reflected in its POWR Ratings. It has an overall rating of C, which translates to Neutral in our proprietary rating system.

It has a C grade for Value and Momentum. It is ranked #33 in the same industry. Click here to see HOG’s additional ratings for Growth, Stability, Sentiment, and Quality.

Stock #1: Mercedes-Benz Group AG (MBGAF)

Headquartered in Stuttgart, Germany, MBGAF develops, manufactures, and sells premium and luxury cars and vans under the Mercedes-AMG, Mercedes Benz, Mercedes-Maybach, and Mercedes-EQ brands. It also provides financing, leasing, car subscription and rental, fleet management, insurance brokerage, mobility services, and digital services for charging and payment.

On September 18, 2023, MBGAF announced that it signed an agreement with Steel Dynamics, Inc. (SDI) to source more than 50,000 tonnes of CO2-reduced steel annually for its plant in Tuscaloosa, Alabama. The deal is part of MBGAF’s efforts to decarbonize its global steel supply chain.

On February 16, 2023, MBGAF announced that its Board of Management and the Supervisory Board would conduct a share buyback program starting in March 2023. Shares worth €4 billion are intended to be repurchased over two years. This is expected to create shareholder value.

In terms of forward EV/EBITDA, MBGAF’s 6.08x is 37.9% lower than the 9.78x industry average. Its 4.75x forward non-GAAP P/E is 69.5% lower than the 15.54x industry average. Likewise, its 0.43x forward Price/Sales is 51.1% lower than the 0.88x industry average.

MBGAF’s revenue for the third quarter ended September 30, 2023, came in at €37.20 billion ($40.12 billion). The company’s adjusted EBIT stood at €4.92 billion ($5.31 billion). In addition, its net profit came in at €3.72 billion ($4.01 billion). Also, its EPS came in at €3.44.

Analysts expect MBGAF’s fiscal 2023 revenue to increase 2.5% year-over-year to $164.48 billion. Over the past month, the stock has gained 11.8% to close the last trading session at $67.85.

MBGAF’s POWR Ratings reflect solid prospects. The company has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.

Within the Auto & Vehicle Manufacturers industry, it is ranked #4. It has a B grade for Growth, Value, Momentum, Stability, and Quality. Click here to see MBGAF’s rating for Sentiment.

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MBGAF shares were unchanged in premarket trading Wednesday. Year-to-date, MBGAF has gained 3.75%, versus a 22.88% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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