Despite high borrowing costs, U.S. auto sales are rising, indicating the industry’s bright prospects. However, not all stocks are well-positioned to capitalize on the industry tailwinds. As we move towards the year end, I think now is not the right time to invest in General Motors Company (GM) and Tesla, Inc. (TSLA).

The automotive sector is facing several challenges, including inflation, semiconductor chip shortages, and quality issues. These challenges have resulted in increased production costs and delayed deliveries for automakers. Also, the lack of semiconductor chips has impacted the integration of advanced technologies in vehicles, hindering their overall performance and customer satisfaction.

The automobile industry is struggling with supply chain issues. Inflation, labor costs, and supply-side issues all contribute to decreased profits and increased consumer demand.

GM has been experiencing supply chain issues due to the worldwide semiconductor shortage, which could impact its fourth-quarter performance. TSLA, on the other hand, has been experiencing production and delivery delays, raising questions about the company's capacity to meet demand.

Analysts expect GM’s revenue for the fiscal fourth quarter ending December 2023 to decrease 8.6% year-over-year to $39.41 billion, the company’s EPS expected to decline 54.4% year-over-year to $0.97. On the other hand, while TSLA’s revenue is expected to increase 5.1% year-over to $25.57 billion, the company is expected to decline 38.4% year-over-year to $0.73 per share.

Let’s delve deeper into the fundamentals of the featured stocks.

Stock to Hold:

General Motors Company (GM)

GM is a global automotive company that manufactures and sells vehicles and automobile parts under various brand names. It also offers various after-sale and connected services, including software-enabled features and subscriptions for vehicle owners. Additionally, GM operates in automotive financing and insurance services.

GM’s trailing-12-month levered FCF margin of 6.40% is 25.1% higher than the industry average of 5.12%. However, its trailing-12-month EBITDA margin of 9.70x is 11.9% lower than the industry average of 11.01x.

For the fiscal third quarter (ended September 30), GM’s revenue increased 5.4% year-over-year to $44.13 billion. Its adjusted automotive free cash flow rose 6.9% from the same period last year to $4.91 billion, while its adjusted EPS came in at $2.28, up marginally year-over-year.

However, its adjusted EBIT declined 16.9% from the prior-year quarter to $3.56 billion. Its net income attributable to stockholders decreased 7.3% from the same period last year to $3.06 billion.

The consensus revenue estimate of $169 billion for the fiscal year ending December 2023 represents a 7.8% increase year-over-year. Its EPS is expected to decline 4.3% year-over-year to $7.26 for the same year. GM’s shares have lost 28.7% over the past year to close the last trading session at $27.22.

GM’s POWR Ratings reflect this promising outlook. The stock has an overall rating of C, equating to a Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

GM also has a C grade for Momentum, Growth, Stability, Sentiment and Quality. It is ranked #29 out of 53 stocks in the Auto & Vehicle Manufacturers industry. Click here for the additional POWR Ratings for Value for GM.

Stock to Sell:

Tesla, Inc. (TSLA)

TSLA designs, develops, manufactures, leases, and sells electric vehicles, and energy generation and storage systems in the United States, China, and internationally. It operates in two segments, Automotive, and Energy Generation and Storage.

TSLA’s trailing-12-month levered FCF margin of 1.68% is 67.2% lower than the industry average of 5.12%. Its trailing-12-month gross profit margin of 19.81x is 44.6% lower than the industry average of 35.74x.

For the third quarter that ended September 30, 2023, TSLA’s gross loss came in at $4.18 billion, down 22.4% year-over-year, while its income from operations stood at $1.76 billion, declined 52.2% year-over-year.

Additionally, net loss and loss per share declined 43.7% and 44.2% came in at $1.85 billion and $0.53, respectively.

Street expects TSLA’s EPS to decline 21% for the year ending December 2023. Over the past three months, the stock has lost 18.9% to close the last trading session at $207.30.

TSLA’s bleak fundamentals are reflected in its POWR Ratings. The stock has an overall rating of D, which equates to a Sell in our proprietary rating system.

It is ranked #41 in the same industry. It has an F grade for Value and a D for Growth, Stability and Sentiment. To see additional TSLA’s ratings for Momentum and Quality, click here.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

GM shares were trading at $27.27 per share on Monday afternoon, up $0.05 (+0.18%). Year-to-date, GM has declined -18.30%, versus a 9.31% rise in the benchmark S&P 500 index during the same period.

Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.

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