Rebounding demand from the resumption of infrastructure, construction, and mining activities has propelled commercial vehicle sales this year. Although major automakers have announced production cuts for the rest of the year owing to the global semiconductor chip shortage, increasing capital investments in the semiconductor industry and rising vehicle prices should buoy the industry.

Furthermore, in addition to rising demand, efforts to integrate technologies and electrification should keep driving the industry’s growth. The global commercial vehicles market size is expected to grow at 5.2% CAGR to $1.82 trillion by 2028.

With strong fundamentals and global market reach, we think Volvo AB (VLVLY) and Hino Motors, Ltd. (HINOY) are well-positioned to capitalize on the industry tailwinds. Conversely, Proterra Inc. (PTRA) and Workhorse Group Inc. (WKHS) might fail to benefit from the growing demand due to intense competition and their weak fundamentals.

Click here to check out our Automotive Industry Report for 2021

Stocks to Buy:

Volvo AB (VLVLY)

VLVLY is a Sweden-based company that designs, manufactures, and markets commercial vehicles worldwide. The company manufactures trucks, buses, engines, and construction equipment, and provides financing, insurance, rental, spare parts, repair, preventive maintenance, service agreement, and assistance services.

Maersk Line’s Performance Team company, a warehousing and distribution company, has placed an order for 16 of VLVLY’s Volvo VNR Electric Class 8 trucks. Expected to be on the road by the end of this year, these zero-tailpipe emission trucks are designed for local and regional freight distribution, offering more truck power to meet high volume delivery demands. Both companies are looking forward to a long-term partnership.

As part of expanding its business operation in China, VLVLY’s Volvo Trucks has agreed to acquire JMC Heavy Duty Vehicle Co., Ltd., a subsidiary of Jiangling Motors Co., Ltd., for SEK1.1 billion. By commencing  the production of the new heavy-duty Volvo FH, Volvo FM, and Volvo FMX trucks in the Taiyuan facility from the end of 2022, VLVLY expects to capitalize on the growing demand for its fleet in China.

VLVLY’s net sales came in at SEK90.56 billion ($10.51 billion) for its fiscal second quarter ended June 30, 2021, representing a 23.7% year-over-year rise. The company’s gross income increased 9.3% year-over-year to SEK21.72 billion ($2.52 billion). Its adjusted operating income came in at SEK9.73 billion ($1.13 billion), up 197.4% from the prior-year period. VLVLY’s net income increased 20500% year-over-year to SEK9.06 billion ($10.52 billion). Its EPS was  SEK4.38, compared to a SEK0.14 loss per share in the prior year period.

Analysts expect VLVLY’s revenue to increase 20.2% year-over-year to $10.44 billion in the current quarter, ending September 30, 2021. Over the past year, the stock has gained 15.3% in price to close yesterday’s trading session at $22.26.

VLVLY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, 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.

VLVLY has a B grade for Quality, Value, and Stability. In the 63-stock Auto & Vehicle Manufacturers industry, it is ranked #5.

To see additional POWR Ratings for Growth, Sentiment, and Momentum for VLVLY, click here.

Hino Motors, Ltd. (HINOY)

Japan-based HINOY is a subsidiary of Toyota Motor Corporation (TM) that manufactures and sells large commercial vehicles worldwide. It offers trucks and buses, light commercial vehicles and passenger vehicles, as well as automotive and industrial diesel engines, vehicle parts, and others.

In an announcement dated August 31, 2021, at the 2021 Advanced Clean Transportation (ACT) Expo event, HINO revealed its first Class 8 Hino XL8 prototype powered by a hydrogen fuel cell electric drivetrain. HINO is looking forward to validating the performance, reliability, and efficiency of its hydrogen fuel cell electric system in the XL Series chassis.

On the same day, HINOY partnered with Allison Transmission, a leading designer and manufacturer of conventional, electric hybrid, and fully electric vehicle propulsion solutions, to integrate Allison’s eGen Power 100D e-Axle into its Class 6, 7, and 8 Battery Electric Vehicle (BEV) trucks. Both companies are looking forward to a long-standing partnership to provide reliable and durable solutions to their customers.

For the fiscal first quarter, ended June 30, 2021, HINOY’s net sales came in at ¥343.55 billion ($3.12 billion), representing a 14.4% improvement year-over-year. The company’s gross profit increased 74.9% year-over-year to ¥62.99 billion ($572.85 million). Its operating income came in at ¥16.17 billion ($147.06 million), compared to a loss of ¥10.61 million ($96.43 million). HINOY’s net profit was ¥7.77 billion ($70.61 million), versus a ¥8.77 billion ($79.75 million) net loss in the year-ago period. Its EPS was ¥11.05, versus  a ¥14.08 loss per share.in the prior-year period.

Analysts expect HINOY’S revenue to be  $12.88 billion for the current year, representing a 38.2% rise from the prior-year period. The stock surpassed consensus revenue estimates in each of the trailing four quarters. HINOY has gained 15.3% in price over the past year to end yesterday’s trading session at $80.68.

HINOY’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which translates to Buy. HINOY has an A grade for Growth, and a B grade for Value and Stability. Moreover, it is ranked #12 in the Auto & Vehicle Manufacturers industry.

In addition to the POWR Rating grades we’ve highlighted, one can see HONIY’s ratings for Quality, Sentiment, and Momentum, here.

Stocks to Avoid:

Proterra Inc. (PTRA)

PTRA designs and manufactures zero-emission electric transit vehicles and electric vehicle technology solutions for commercial applications. The Burlingame, Calif.-based company also offers energy services that include fleet planning, charging infrastructure, energy management, and charging infrastructure financing.

In a partnership with LG Energy Solution, last month PTRA received a long-term contract to supply LG Energy’s cylindrical cells to PTRA’s factories to manufacture industry-leading commercial electric vehicle battery systems. This collaboration could be a critical milestone in tapping America’s eco-friendly commercial vehicle industry.

PTRA’S gross profit declined 43.9% year-over-year to $1.31 million for its fiscal second quarter, ended June 30, 2021. The company’s loss from operations came in at $29.75 million, indicating a 38.7% rise from the prior-year period. While its net loss increased 732.8% year-over-year to $189.03 million, its loss per share decreased 31.8% to $4.24. PTRA had $634.84 million in cash and cash equivalents as of June 30, 2021.

PTRA’s EPS is expected to remain negative in the coming quarters of the current year and next year. However, the stock has lost 39.9% in price over the past three months to close yesterday’s trading session at $10.25.

PTRA’s weak prospects are reflected in its POWR Ratings. The stock has an overall F rating, which equates to Strong Sell in our proprietary rating system.

PTRA has an F grade for Quality, and a D grade for Growth, Value, Stability, and Sentiment. It is ranked #56 in the Auto & Vehicle Manufacturers industry.

To see additional POWR Ratings for PTRA’s Momentum, click here.

Workhorse Group Inc. (WKHS)

WKHS is a technology company that provides sustainable solutions to the commercial transportation sector. The Loveland, Ohio, company is  an original equipment manufacturer and designs and builds battery-electric vehicles, including trucks, aircraft, and drone systems. It also develops cloud-based and real-time telematics performance monitoring systems that enable fleet operators to optimize energy and route efficiency.

On August 31, 2021, WKHS and Amerit Fleet Solutions, a customized fleet maintenance and repair program provider, partnered to provide warranty and demand repair programs to Workhorse customers. By integrating operational, maintenance, and fleet data into an accessible portal that allows real-time tracking and expedited response times, both companies hope to offer their customers a comprehensive and customized EV experience.

For its fiscal second quarter, ended June 30, 2021, WKHS’ gross loss came in at $13.59 million, representing an 857.7% rise from the prior-year period. The company’s loss from operations increased 392.8% from the prior-year period to $34.42 million. Its net loss was $43.62 million, down 201.1% from the year-ago period. And its loss per share increased 80.1% year-over-year to $0.35. The company had $156.61 million in cash and cash equivalents as of June 30, 2021.

WKHS’ EPS is expected to remain negative in the coming quarters of the current year and next year. WKHS missed consensus EPS estimates in three of the trailing four quarters. Over the past month, WKHS’ shares have declined 9.7% in price to end yesterday’s trading session at $8.27.

WKHS’ POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, which translates to Strong Sell. In addition, WKHS has an F grade for Stability, Sentiment and Quality, and a D grade for Growth and Value. Moreover, it is ranked #62 in the Auto & Vehicle Manufacturers industry.

In addition to the POWR Rating grades I’ve highlighted, one can see WKHS ratings for Momentum here.

Click here to check out our Automotive Industry Report for 2021

VLVLY shares were unchanged in after-hours trading Friday. Year-to-date, VLVLY has gained 7.52%, versus a 18.83% rise in the benchmark S&P 500 index during the same period.

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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