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3 Auto Stocks That Are Stuck in Reverse

January 24
11:29 2023

Last year the U.S. auto industry posted its worst sales year in more than a decade as supply-chain snarls, severe chip crunch, and commodity inflation dented results for many automakers. According to the research firm Wards Intelligence, only 13.7 million vehicles were sold in 2022, marking an 8% decrease from 2021 and the lowest overall figure since 2011.

The sector’s downfall is evident from the Simplify Volt RoboCar Disruption and Tech ETF’s (VCAR) 55.1% decline over the past year. Moreover, among the barriers to electric vehicle (EV) adoption were the shortage of public fast-charging infrastructure, the rising cost of batteries due to key material shortages, and uncertainty over government subsidies.

Although many automakers are optimistic for a rebound this year, AFS President Joe McCabe believes that EV sales likely will not increase in a smooth, ever-ascending curve. Furthermore, rising odds of a recession this year will likely force automakers to cut prices and give up profits, further dampening the industry’s growth and returns.

“Ongoing supply chain challenges and recessionary fears will result in a cautious build-back for the market. US consumers are hunkering down, and recovery towards pre-pandemic vehicle demand levels feels like a hard sell. Inventory and incentive activity will be key barometers to gauge potential demand destruction,” said Chris Hopson, manager of North American light vehicle sales forecast at S&P Global Mobility.

Amid the economic uncertainty, the auto sector’s prospects look dull. Therefore, it could be wise to avoid fundamentally weak auto stocks XPeng Inc. (XPEV – Get Rating), Workhorse Group Inc. (WKHS – Get Rating), and Faraday Future Intelligent Electric Inc. (FFIE – Get Rating), which seem to be stuck in reverse.

XPeng Inc. (XPEV – Get Rating)

XPEV operates as a designer, developer, manufacturer, and seller of smart EVs in China. Its offerings include SUVs under the G3 name, four-door sports sedans under the P7 name, and smart EVs and family sedans under the P5 name. The company is headquartered in Guangzhou, China.

On November 4, 2022, the company’s subsidiary, Guangzhou Xiaopeng Automotive Financial Leasing Co., Ltd., announced the completion of RMB964 million ($142.06 million) debut issuance of auto leasing carbon-neutral asset-backed securities on the Shanghai Stock Exchange. This debt issuance is expected to increase XPEV’s debt burden.

In terms of forward EV/Sales, XPEV is trading at 1.28x, 6.1% higher than the industry average of 1.20x. Also, its forward Price/Sales multiple of 2.01 compares to the industry average of 0.93.

XPEV’s total operating expenses increased 11.5% year-over-year to RMB3.12 billion ($460.50 million) in the third quarter that ended September 30, 2022. The company’s operating loss widened 19.1% from the year-ago value to RMB2.18 billion ($298.29 million), while its non-GAAP net loss came in at RMB2.22 billion ($327.66 million), widening 49% year-over-year. Also, its loss per share widened 46.6% year-over-year to RMB1.29.

Analysts expect XPEV’s EPS for the fiscal years 2022 and 2023 to remain negative. Its revenue for the quarter that ended on December 31, 2022, is expected to decline 42.3% year-over-year to $774.28 million. Over the past year, the stock has lost 78.9% to close the last trading session at $9.40.

XPEV’s weak fundamentals 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 are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

It has an F grade for Stability and Sentiment and a D for Growth and Quality. It is ranked #54 out of 63 stocks in the D-rated Auto & Vehicle Manufacturers industry. Click here to see the other ratings of XPEV for Value and Momentum.

Continue Reading at StockNews.com

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