The auto industry has been under pressure due to several headwinds, such as supply chain constraints, stubborn inflation, the Fed’s rate hikes, and the high prices of raw materials. Auto sales were disappointing last year as vehicle sales dropped to their lowest level in more than a decade in the United States.
Although auto sales are expected to return to pre-pandemic levels this year, it could be wise to steer clear of fundamentally weak auto stocks NIO Inc. (NIO), Lucid Group, Inc. (LCID), Rivian Automotive, Inc. (RIVN), and Workhorse Group Inc. (WKHS). Before discussing the fundamentals of these stocks, let’s explore why the auto industry is under pressure.
Although February’s CPI report signaled a continued cooling trend of inflation, its rate of 6% from a year ago remains well above the Federal Reserve’s 2% target level. The Fed has indicated that it wants to bring inflation down to its target through more rate interest hikes this year.
Rising interest rates and high inflation make it difficult for prospective car buyers to afford a new vehicle. According to J.D. Power, the average price of a new vehicle was up 4.2% year-over-year in January 2023, fuelling the demand for used cars.
Most analysts forecast auto sales to rise globally. In the United States, Cox Automotive forecasts U.S. new vehicle sales of 14.10 million in 2023, while S&P Global Mobility expects new vehicle sales to rise 7% to 14.80 million units in 2023. Global EV sales are expected to grow 29% year-over-year in 2023, reaching 12.10 million units.
Despite the expectations, worries over an impending recession, slowing demand, and supply chain disruptions could continue to impact auto sales this year.
Given these factors, it could be wise for investors to avoid fundamentally weak auto stocks NIO, LCID, RIVN, and WKHS.
NIO Inc. (NIO)
Headquartered in Shanghai, China, NIO designs, develops, manufactures, and sells smart electric vehicles. It offers five, six, and seven-seater electric SUVs, as well as smart electric sedans.
The company is also involved in the provision of energy and service packages to its users; design and technology development activities; manufacture of e-powertrains, battery packs, and components; and sales and after-sales management activities.
In terms of trailing-12-month EV/Sales, NIO’s 1.67x is 48.7% higher than the 1.13x industry average. It's 1.12x forward Price/Sales is 32.3% higher than the industry average of 0.85x. Likewise, its 6.02x forward Price/Book is 144.3% higher than the 2.47x industry average.
On December 20, 2022, NIO was made aware that certain information about users and vehicle sales in China before August 2021 was sold on the internet by third parties for illegal purposes. The company issued a public statement related to the incident and has undertaken responsibility for the loss that its users may incur in connection with the data leakage.
NIO’s gross profit for the fourth quarter ended December 31, 2022, declined 63.4% year-over-year to RMB621.80 million ($90.14 million). The company’s adjusted loss from operations widened 193.7% year-over-year to RMB6.02 billion ($872.05 million). Its adjusted net loss widened 190% year-over-year to RMB5.07 billion ($734.32 million).
Additionally, its adjusted net loss per ordinary share widened 186.9% from the prior-year quarter to RMB3.07.
Analysts expect NIO’s EPS for the quarter ending March 31, 2023, to remain negative. It failed to surpass the Street EPS estimates in each of the trailing four quarters. Over the past six months, the stock has fallen 61.7% to close the last trading session at $8.25.
NIO’s bleak outlook is 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 #53 out of 58 stocks. It has an F grade for Stability and Sentiment and a D for Growth and Quality.
To see the additional ratings of NIO for Value and Momentum, click here.
Lucid Group, Inc. (LCID)
LCID is a technology and automotive company that develops electric vehicle (EV) technologies. The company designs, engineers, and builds electric vehicles, EV powertrains, and battery systems.
In terms of forward EV/Sales, LCID’s 8.91x is 690.4% higher than the 1.13x industry average. Its 10.08x forward Price/Sales is significantly higher than the 0.85x industry average. Likewise, its 6.02x forward Price/Book is 144% higher than the 2.47x industry average.
For the fiscal fourth quarter ended December 31, 2022, LCID’s loss from operations widened 54.4% year-over-year to $749.74 million. Its net loss attributable to common stockholders narrowed 54.8% from the year-ago period to $472.65 million. In addition, its adjusted EBITDA loss widened 108.2% year-over-year to $623.61 million, while its net loss per share came in at $0.28.
LCID’s EPS for the quarter ending March 31, 2023, is expected to remain negative. It failed to surpass the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has fallen 66.3% to close the last trading session at $7.40.
LCID’s grim outlook is reflected in its POWR Ratings. The stock has an overall rating of F, translating to a Strong Sell in our proprietary rating system.
It is ranked last in the same industry. Moreover, it has an F grade for Value, Stability, and Quality and a D for Growth and Sentiment. To see LCID’s rating for Momentum, click here.
Rivian Automotive, Inc. (RIVN)
RIVN designs, develops, manufactures, and sells electric vehicles and accessories. It offers five-passenger pickup trucks and sports utility vehicles and sells its products directly to customers in the consumer and commercial markets.
In terms of forward Price/Sales, RIVN’s 2.94x is 245.9% higher than the 0.85x industry average. Likewise, its 1.40x trailing-12-month EV/Sales is 24.5% higher than the 1.13x industry average.
RIVN’s gross loss widened 571.6% year-over-year to $3.12 billion for the fiscal year ended December 31, 2022. Its loss from operations widened 62.5% year-over-year to $6.86 billion. Its net loss attributable to common stockholders widened 44% from the prior-year quarter to $6.75 billion, while its net loss per share came in at $7.40
RIVN’s EPS for the quarter ending March 31, 2023, is expected to remain negative. Over the past six months, the stock has fallen 67.2% to close the last trading session at $13.03.
RIVN’s POWR Ratings reflect its weak fundamentals. The stock has an overall rating of F, equating to a Strong Sell in our proprietary rating system. It is ranked #46 out of 58 stocks in the Auto & Vehicle Manufacturers industry.
The company has an F grade for Stability and Quality and a D for Value. Click here to see the other ratings of RIVN for Growth, Momentum, and Sentiment.
Workhorse Group Inc. (WKHS)
WKHS is a technology company that designs, manufactures, and sells zero-emission commercial vehicles. It offers electric and range-extended medium-duty delivery trucks and HorseFly Unmanned Aerial System, a custom-designed purpose-built all-electric drone system. It also provides Metron, an air delivery application that tracks the performance of vehicles deployed.
In terms of forward Price/Sales, WKHS’s 2.93x is 245.2% higher than the 0.85x industry average. Likewise, its 1.94x forward EV/Sales is 71.7% higher than the 1.13x industry average.
WKHS’ gross loss for the fiscal fourth quarter ended December 31, 2022, narrowed 82.6% year-over-year to $17.77 million. Its loss from operations narrowed 67.3% year-over-year to $39.34 million. The company’s net loss narrowed 75.2% year-over-year to $38.65 million. Moreover, its net loss attributable to common stockholders per share came in at $0.24.
Analysts expect WKHS’ EPS for the quarter ending March 31, 2023, to remain negative. It failed to surpass consensus EPS estimates in each of the trailing four quarters. Over the past six months, the stock has fallen 53.2% to close the last trading session at $1.53.
WKHS’ bleak prospects are reflected in its POWR Ratings. The stock has an overall rating of F, which equates to a Strong Sell in our proprietary rating system. It is ranked #57 in the Auto & Vehicle Manufacturers industry. In addition, it has an F grade for Value, Stability, Sentiment, and Quality.
Beyond what we stated above, we have also given WKHS grades for Growth and Momentum. Get all the WKHS ratings here.
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NIO shares were trading at $8.23 per share on Thursday morning, down $0.02 (-0.24%). Year-to-date, NIO has declined -15.59%, versus a 1.21% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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