The automobile industry has demonstrated resilience over the past year by successfully navigating challenges created by the pandemic, which have included an unprecedented halt in production, supply chain disruptions, and delays in product launches. As a result, the S&P Global Ratings expects the global light-vehicle sales to grow in the range of 7%-9% in the next two years, after an 18%-20% slump last year.
Automakers are now investing increasing amounts in their digital infrastructure. And to elevate customers' experience, automakers are focusing on improving their online sales platforms and accelerating their connectivity and artificial intelligence (AI) capabilities to improve in-car, shopping and service experiences.
President Joe Biden’s administration has hinted at imposing stricter fuel-economy standards, which could speed up the shift toward zero-emissions for light- and medium-duty vehicles. The autonomous driving industry is also witnessing heavy investments from major auto-companies, technology giants and specialty start-ups.
Given these favorable trends surrounding the auto industry, we think investing in Toyota Motor Corporation (TM), Daimler AG (DDAIF) and Tata Motors Limited (TTM) could be rewarding considering their strong fundamentals and market-leading positions.
Click here to checkout our Electric Vehicle Industry Report for 2021
Toyota Motor Corporation (TM)
Based in Japan, TM designs, manufactures, assembles, and sells passenger vehicles, minivans and commercial vehicles, and related parts and accessories. The company operates through three segments: automotive, financial services, and an “other” segment, which designs, manufactures and sells houses. Last month, TM announced that Toyota Motor Manufacturing West Virginia (TMMWV) would invest $210 million to upgrade existing engine production and add 100 new jobs to increase assembly capacity for its four-cylinder engine line. This investment will help TMMWV to meet rising customer demand.
Also last month, , Toyota Motor North America unveiled its plan to launch two new Battery Electric Vehicles (BEVs) and a plug-in hybrid EV (PHEV). These new electrified models should further expand TM’s U.S. leadership in alternative powertrain vehicles and offer customers multiple powertrain choices. TM’s total sales revenues have increased 7.1% year-over-year to ¥8.15 billion in the third quarter, ended December 31, 2020. Its operating income has risen 54.3% from its year-ago value to ¥987.94 million, while its EPS has improved 49.4% to ¥299.97 over the same period.
Analysts expect TM’s revenues to grow 106.5% year-to-year in fiscal 2021 (ending March 31). A consensus EPS estimate for the current year represents a 6.27% improvement year-over-year. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in each of the trailing four quarters. The stock has gained 10.3% over the past six months.
TM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
TM has a B grade for Stability, Momentum and Growth and an A for Sentiment. Of the 52 stocks in the B-rated Auto & Vehicle Manufacturers Industry, the stock is ranked #15.
In total, we rate TM on eight different levels. Beyond what we stated above, we also have given TM grades for Value and Quality. Get all of TM’s ratings here.
Daimler AG (DDAIF)
Based in Germany, DDAIF is one of the world's most successful automotive companies. With its Mercedes-Benz Cars & Vans, Daimler Trucks & Buses and Daimler Mobility divisions, the Group is one of the leading global suppliers of premium cars and manufacturer of commercial vehicles.
Last December, DDAIF’s Mercedes-Benz production network announced that it planned to launch six new electric Mercedes-EQ Models by 2022. By then, the company’s portfolio should include eight all-electric Mercedes-EQ models. Through electrification of the entire product portfolio, Mercedes-Benz is targeting leadership in electric drives and vehicle software. The expansion is intended to help Mercedes-Benz emerge as a leading player in the field of e-mobility.
Last month, DDAIF announced its intention to split its businesses and establish two strong and independent pure-play companies. If the plan materializes soon, the company should be able to operate more efficiently, equipped with stronger net liquidity and free from the constraints of a conglomerate structure.
DDAIF’s fourth quarter results demonstrated its comprehensive efforts regarding cost control and cash management. The company’s EBIT increased 116.7% year-over-year to €5.15 billion in the fourth quarter, ended December 31, 2020, while its EPS increased to €3.26 over the same period. Its free cash flow has risen 151.4% from the year-ago value to €4.75 billion over the three-month period.
Analysts expect DDAIF’s revenues to grow 9.8% year-to-year in fiscal 2021 (ending December 31). A consensus EPS estimate for the current year represents a 123.3% improvement from the previous year. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in three of the trailing four quarters. The stock has gained 60.7% over the past six months.
DDAIF’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, which equates to Strong Buy in our proprietary rating system. DDAIF has an A grade for Growth and Sentiment and a B for Value and Stability. Within the same industry, the stock is ranked #2 of 52 stocks.
In total, we rate DDAIF on eight different levels. Beyond what we’ve stated above, we have also given DDAIF grades for Momentum and Quality. Get all DDAIF’s ratings here.
Tata Motors Limited (TTM)
Based in India, TTM is a leading global automobile manufacturer of cars, utility vehicles, pick-ups, trucks and buses. Part of the Tata group, Tata Motors is India’s only OEM. It offers an extensive range of integrated, smart and e-mobility solutions. It has operations worldwide through a strong global network of 134 subsidiaries, associate companies and joint ventures, including Jaguar Land Rover in the U.K. and Tata Daewoo in South Korea.
On March 3, TTM launched its latest offering in M&HCV segment – the Tata Signa 3118.T – India’s first 3-axle 10-wheeler rigid truck with 31-tonnes gross vehicle weight. The truck is expected to be the game-changer in the Indian trucking industry, offering the highest profit potential to its owners. Last month, TTM introduced a new XTA variant in the Tata Tiago family, strengthening its automatic line up with 4 AMT options and giving customers an array of options from which to choose within the Tiago range.
TTM’s total revenues from operations have increased 5.5% year-over-year to ₹756.53 billion in the third quarter, ended December 31, 2020. Its profit for the period has risen 67.2% from its year-value to ₹29.06 billion, while its EPS has improved 60.8% to ₹8.07 over the same period.
Analysts expect TTM’s EPS to grow 42.5% year-to-year in fiscal 2021 (ending March 31). A consensus revenue estimate for the current quarter (ending March 31) represents a 108.1% improvement from its year-ago value. The stock has gained 122.8% over the past six months.
It’s no surprise that TTM has an overall rating of B, which translates to Buy in our POWR Ratings system. TTM has a B grade for Growth, Momentum and Value. Of 52 stocks in the same B-rated industry, it is ranked #10.
Click here to see the additional POWR Ratings for TTM (Quality, Sentiment and Stability).
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
Click here to checkout our Electric Vehicle Industry Report for 2021
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TM shares were trading at $148.25 per share on Friday afternoon, up $1.40 (+0.95%). Year-to-date, TM has declined -4.09%, versus a 2.44% rise in the benchmark S&P 500 index during the same period.
About the Author: Rishab Dugar
Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands.
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