The auto industry is poised for growth thanks to strong customer demand with the potential rate cuts, the shift to Electric Vehicles (EVs), government incentives, and improved supply chains.
Despite the industry's rosy prospects, NIO Inc. (NIO) is best avoided now because of its fundamental weakness. On the other hand, Cenntro Electric Group Limited (CENN) could be a strong candidate for one’s watchlist. Before diving deeper into the fundamentals of these stocks, let’s discuss why the auto industry is well-positioned for growth.
Global auto sales recovered post-pandemic, but chip shortages and material costs hampered production growth. Meanwhile, China's rising vehicle exports outpaced Japan, setting new production benchmarks and posing a significant challenge to the U.S. auto industry.
However, innovations like electric vehicles and stricter emissions controls present new market opportunities, with most automakers expanding into the electric mobility sector. Growing environmental awareness is fueling interest in mobility services and autonomous vehicles, transforming the automotive industry alongside changing consumer tastes and technological progress.
The global auto sales for 2024 are expected to be 90 million units, encompassing both passenger and commercial vehicles. With the uptake of advanced technologies and the rise in the number of passenger vehicles, the global automotive industry is on track to hit a landmark of 100 million units in sales, including both passenger and commercial vehicles, by 2026.
Furthermore, S&P Global Mobility predicts that global new light vehicle sales will hit 88.3 million units in 2024, up 2.8% from the previous year.
In this context, let’s examine the fundamentals of the two featured stocks from the Auto & Vehicle Manufacturers industry, starting with the one ranked lower from the investment point of view.
Stock #2: NIO Inc. (NIO)
Headquartered in Shanghai, China, NIO designs, develops, manufactures, and sells smart electric vehicles in China. It offers five and six-seater electric SUVs, as well as smart electric sedans.
In terms of the trailing-12-month gross profit margin, NIO’s 4.47% is 87.5% lower than the 35.69% industry average. Likewise, its 0.55x trailing-12-month asset turnover ratio is 44.4% lower than the industry average of 0.98x.
For the third quarter ended September 30, 2023, NIO’s total revenues fell 31.8% year-over-year to RMB13 billion ($1.83 billion), while its adjusted loss from operations widened 30.1% year-over-year to RMB4.24 billion ($595.64 million).
In addition, adjusted net loss attributable to ordinary shareholders of NIO widened 14.1% year-over-year to RMB3.95 billion ($554.90 million). Furthermore, adjusted net loss per share attributable to ordinary shareholders narrowed 85.3% year-over-year to RMB0.31.
For the quarter ended December 31, 2023, NIO’s EPS is expected to remain negative. It failed to surpass the consensus EPS estimates in each of the trailing four quarters. Over the past six months, the stock has declined 59% to close the last trading session at $6.03.
NIO’s grim prospects are reflected in its POWR Ratings. The stock has an overall F rating, which translates to a Strong Sell in our proprietary system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
It has an F grade for Stability and a D for Momentum and Quality. It is ranked #44 out of 53 stocks in the Auto & Vehicle Manufacturers industry. To access NIO’s grades for Growth, Value, and Sentiment, click here.
Stock #1: Cenntro Electric Group Limited (CENN)
CENN designs, manufactures, distributes, and services commercial vehicles powered by electricity or hydrogen energy sources in Europe, the United States, and Asia. It serves various fleet and municipal organizations.
On December 19, 2023, CENN's all-electric Logistar 400 (LS400) got CARB's approval for California's Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project (HVIP), providing a $60,000 voucher. This speeds up LS400's commercialization, making it more affordable for fleet customers to go electric.
On December 11, 2023, CENN announced the delivery of over 250 autonomous driving delivery vehicles to Zelos (Suzhou) Technology Co., Ltd. in China. These vehicles, equipped with CENN’s iChassis technology and Zelos' autonomous driving software, are deployed for urban delivery, marking a significant milestone in CENN’s commercial deployments.
In terms of the trailing-12-month Capex/Sales, CENN’s 72.05% is considerably higher than the 3.07% industry average. However, its 10.79% trailing-12-month gross profit margin is 69.8% lower than the industry average of 35.69%. Likewise, its 0.05x trailing-12-month asset turnover ratio is 95% lower than the industry average of 0.98x.
CENN’s net revenues for the third quarter that ended September 30, 2023, increased 174.9% year-over-year to $5.76 million. Its gross profit came in at $717.47 thousand, compared to a gross loss of $634.33 thousand in the year-ago quarter.
On the other hand, the company’s loss from operations widened 22.7% year-over-year to $12.62 million. In addition, its net loss attributable to CENN’s shareholders widened 11.7% over the prior-year quarter to $16.10 million.
Over the past month, CENN’s stock has gained 17.4% to close the last trading session at $1.19.
CENN’s POWR Ratings reflect an uncertain outlook. The stock has an overall C rating, which translates to a Neutral in our proprietary system.
It has a C grade for Growth, Value, Momentum, and Quality. It is ranked #37 in the Auto & Vehicle Manufacturers industry. Beyond what we stated above, we also have given CENN grades for Momentum. Get all CENN ratings here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
NIO shares fell $0.13 (-2.16%) in premarket trading Wednesday. Year-to-date, NIO has declined -33.52%, versus a 3.93% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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