3 Auto Stocks to Consider Over TSLA

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The auto industry is thriving due to factors like improving inventories, price cuts, government incentives, and improved infrastructure. The industry is anticipated to perform well due to expected interest rate cuts, a shift to EVs and hybrids, rising disposable incomes, and stabilizing supply chains.

In this piece, I have discussed the reasons why it could be wise to consider buying fundamentally strong auto stocks Blue Bird Corporation (BLBD), Rolls-Royce Holdings plc (RYCEY), and Stellantis N.V. (STLA) instead of Tesla, Inc. (TSLA). Before diving deeper into the fundamentals of these stocks, let’s discuss why TSLA must be avoided and why the auto industry is well-positioned for growth.

In March, new vehicle sales in the U.S. surged to 1.46 million units, driven by enhanced supply and strong demand, marking a 15.5% increase from February and a 5.1% rise from March 2023. Moreover, S&P Global Mobility projects a light vehicle sales volume of 15.9 million units for 2024, reflecting a 3% increase from 2023.

The auto industry’s growth will be fueled by the increasing adoption of EVs and hybrid cars, rising incomes, anticipated interest rate cuts, and technological advancements. The global automotive industry is projected to grow at a 6.8% CAGR, reaching $6.86 trillion by 2033.

TSLA failed to surpass the consensus EPS and revenue estimates in the fourth quarter. The EV maker’s shares declined 29% in the first quarter, highlighting investors’ disappointment over expectations of lower-than-expected vehicle volume growth this year, lower margins, and heightened competition. The company was the worst performer in the S&P 500 during the first quarter.

During the first quarter, TSLA reported vehicle deliveries of 386,810, a drop of 8.5% year-over-year, marking its first year-over-year decline since 2020. Vehicle production also took a hit as it declined around 1.7% year-over-year and 12.5% sequentially. TSLA’s delivery numbers were below analysts’ expectations of between 414,000 and 469,000.

The company anticipates that the vehicle production growth rate will be lower in 2024 than last year due to focusing on the launch of the next-generation vehicle at Gigafactory Texas, indicating that it would not reach Wall Street estimates of 2.19 million for 2024. TSLA’s recent troubles are also due to heightened competition in the world’s largest EV market, China.

TSLA currently trades at an expensive valuation. TSLA’s forward EV/Sales of 5.16x is 327.6% higher than the industry average of 1.21x. Its forward Price/Sales of 5.33x is 484.6% higher than the industry average of 0.91x. Additionally, its 58.20x forward EV/EBIT is 326.7% higher than the 13.64x industry average.

This article was originally published on this site