Despite pioneering high-performance electric vehicles (EVs), Tesla, Inc. (TSLA – Get Rating) has experienced a slippage from its dominating position, facing stiff competition from established automakers and emerging challengers.
I believe fundamentally sound stocks Isuzu Motors Limited (ISUZY – Get Rating) and REV Group, Inc. (REVG – Get Rating) present better investment options than TSLA for reasons discussed throughout this article.
TSLA faces intense competition, primarily from rising Chinese manufacturers and long-established Western automotive giants. To counterbalance this competition and enhance affordability amid climbing borrowing costs for potential buyers, TSLA has implemented multiple price cuts across the US, China, and other global markets since late last year. This proactive strategy includes escalated discount offers and incentives to minimize inventory levels.
Also, TSLA’s CEO, Elon Musk’s comments about possible future price reductions contribute further to investor unease. These statements infuse uncertainty and provoke questions regarding TSLA’s financial stability and profitability prospects.
Industry experts suggest Musk’s strategies could potentially undermine profit margins, especially as the corporation faces ongoing investigation by US safety regulators owing to numerous crash incidents involving TSLA models.
Nevertheless, TSLA plans to invest over $1 billion in Project Dojo, a state-of-the-art supercomputer custom-built for neural net training and real-world dataset handling. The emerging artificial intelligence startup, xAI, with a goal of ‘understanding the universe,’ would be closely working with TSLA’s silicon chip team and AI software programmers.
Meanwhile, TSLA registered record deliveries of 466,140 units during the fiscal second quarter that ended June 30, 2023, while its revenue reached $24.93 billion, up 47.2% year-over-year. Despite this robust growth, there was a notable decrease in the company’s automotive gross margin to 19.2% from 27.9% a year ago, with its overall gross margin dwindling to 18.2% from 25%.
Simultaneously, TSLA trades at a considerably premium value compared to its competitors. TSLA’s forward EV/Sales of 8.25x is 594.3% higher than the 1.19x industry average. Its forward Price/Sales multiple of 8.41 is 831.6% higher than the industry average of 0.90.
Despite these uncertainties, the imminent launch of TSLA’s Cybertruck, a futuristic-looking pickup slated for market introduction by year-end, may position the company favorably within one of the most lucrative segments of the U.S. auto market, offering a potential buffer against downside risks.
The market’s strong rebound from supply-chain restrictions over the past two years is expected to raise the annual new-vehicle sales in July 2023 to 15.9 million, an increase of 2.6 million from July 2022. S&P Global Mobility projects new US light vehicle sales volume to surge 18% year-over-year to 1.33 million units by July 2023.
Anticipated for further expansion this year, EV sales are propelled by price reductions, government funding, rapid evolution of charging infrastructure, and significant tax credits. Driven by these factors, the global automotive market is poised to reach $6.07 trillion by 2030 at a CAGR of 6.9%.
Considering the long-term industry prospects, investments in auto stocks ISUZY and REVG could yield better returns than TSLA. Let’s explore these alternatives and their fundamentals in detail.
Isuzu Motors Limited (ISUZY – Get Rating)
ISUZY, headquartered in Tokyo, Japan, manufactures and sells commercial vehicles, light-duty trucks, diesel engines, and components worldwide. Its product portfolio includes heavy-duty trucks, buses, pickup trucks, tractors, and SUVs. The company also offers maintenance services, leasing, and part manufacturing.
The company’s year-end dividend was ¥43 per share, an increase of ¥7 from the previous forecast due to higher-than-expected net income. The annual dividend, including the interim dividend, is ¥79 per share. The annual dividend translates to a 4.54% yield on the current share price.
Its four-year average dividend yield is 3.62%. The company’s dividend payouts have grown at a CAGR of 16.7% over the past three years and 4.3% over the past five years.
In terms of forward EV/Sales, ISUZY is trading at 0.51x, which is 57% lower than the 1.19x industry average. Also, its forward EV/EBITDA multiple of 4.74 is 51.8% lower than the industry average of 9.82.
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