Amid a global semiconductor chip shortage, while NIO (NIO) is struggling to stay afloat because of its weak financials and fundamentals, other leading automakers, such as Honda Motor (HMC), Isuzu Motors (ISUZY), and Mazda Motor (MZDAY), are revitalizing their operations and implementing new strategies to combat the supply constraints and meet the growing global demand for automobiles. So, we believe these companies are better positioned to overcome the industry challenges and sail through than NIO. Read on for details.
Driven by a shift in consumer trends toward electric vehicles (EVs) on growing environmental concerns, Chinese EV-maker Nio, Inc. (NIO) has gained 562.7% over the past year. However, the stock has lost momentum over the past few months on investors’ concerns with the company’s financials. In its last reported quarter, NIO reported a RMB4,875.0 million ($744.1 million) net loss, and a RMB295.9 million ($45.2 million) loss from operations. This has cast a pall over the company’s future performance. Consequently, the stock has declined 6.7% so far this year. Although its shares have surged 23% over the past three months and 26.7% over the past month on the back of optimism surrounding the EV industry, we think NIO’s weak fundamentals could cause a pullback in the near term.
Also, a global semiconductor chip shortage continues to weigh heavily on the automotive industry and NIO’s vehicle delivery was adversely affected last month. While the automobile sector has benefited from increasing demand, a severe shortage of semiconductors is hurting vehicle manufacturers. However, some automakers have been able to expand their foundry capacity, find new suppliers, and make logistical adjustments to address the situation.
Established automakers Honda Motor Co. Ltd. (HMC), Isuzu Motors Limited (ISUZY), and Mazda Motor Corporation (MZDAY) are examples. They are likely to experience a resurgence in sales because they are ramping up their capacity to combat the chip shortage. Since these companies have a lot of room to grow, we believe they are better bets than NIO now.
Click here to check out our Automotive Industry Report for 2021
Honda Motor Co. Ltd (HMC)
Headquartered in Tokyo, Japan, HMC is a leading manufacturer and seller of motorcycles, vehicles, power goods, and other items worldwide. The company operates through motorcycles, automobiles, financial services, and life creation and other business segments.
In April, HMC, along with Digital Location Inc. and Verizon, agreed to explore how 5G connection combined with edge computing might help automobiles, people, and infrastructure communicate more quickly. They aim to examine how improved communications delivered over 5G and assessed at the edge might help automobiles avoid crashes and dangers, as well as locate better routes. This innovative exploration should allow HMC to stand out in the market.
For its fiscal year ended March 31, 2021, HMC’s operating income rose 4.2% from its year-ago value to ¥660.2 billion ($101.90 billion). Its net income increased 44.3% year-over-year to ¥657.4 billion ($101.47 billion), while its EPS grew 120.62% from the prior-year quarter to ¥380.75 ($58.76).
A $3.36 consensus EPS estimate for the fiscal period ending March 31, 2023 represents a 13.8% increase year-over-year. The $136.50 billion consensus revenue estimate for the current year represents a 382.6% increase from the same period last year. The stock has gained 21.9% over the past year and 37.3% over the past nine months.
HMC’s POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
HMC is also rated an A grade for Value and a B for Growth, Stability, and Momentum. Within the C-rated Auto-Vehicle Manufacturers industry, it is ranked #2 of 57 stocks.
To see additional POWR Ratings for Quality and Sentiment for HMC, Click here.
Note that HMC is one of the few stocks handpicked by our Chief Value Strategist, David Cohne, currently in the POWR Value portfolio. Learn more here.
Isuzu Motors Limited (ISUZY)
Founded in 1916, ISUZY is a Japan-based commercial vehicle manufacturer and seller. The company’s primary operations include the manufacture of vehicle components, industrial engines, and logistics-related services. Commercial vehicles and light commercial vehicles (LCVs), such as big trucks, buses, compact trucks, and pick-up trucks, are also manufactured and sold by the company.
This month, ISUZY, along with Toyota Motor Corporation’s (TM) subsidiary Woven Alpha Inc. and Hino Motors Ltd., agreed to proceed with talks on using Woven Alpha’s Automated Mapping Platform (AMP). The agreement is aimed at contributing to the evolution of safer autonomous driving by using HD maps and Advanced Driver Assistance System (ADAS). This strategic partnership should enable ISUZY to develop durable commercial vehicles with breakthrough technologies.
For its fiscal year ending March 31, 2021, ISUZY reported ¥1.91 billion ($294.66 billion) in net sales. Its operating profit came in at ¥95.73 billion ($14.78 billion), while its gross profit amounted to ¥303.04 billion ($46.79 billion). The company reported a ¥52.54 billion ($8.11 billion) net profit for this period.
ISUZY is expected to see 163.1% revenue growth for the fiscal period ending March 2022. Over the past year, ISUZY’s stock has gained 51.3%. Also, it has returned 47.8% in the past six months.
ISUZY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock also has a B grade for Value and Quality. In the Auto-Vehicle Manufacturers industry, it is ranked #5 of 57 stocks.
In total, we rate ISUZY on eight different levels. Beyond what we’ve stated above, we have also given ISUZY grades for Sentiment, Growth, Momentum, and Stability. Get all the ISUZY ratings here.
Mazda Motor Corporation (MZDAY)
Based in Hiroshima, Japan, MZDAY is a manufacturer and distributor of passenger cars and commercial vehicles internationally. In addition, the company distributes old autos and special purpose vehicles, and transports automobiles and components, and produces and distributes machine tools.
This month, MZDAY unveiled its new technology and product development policy for 2030, “Sustainable Zoom-Zoom 2030”, which is based on the company’s long-term technological development ambitions. The company seeks to proceed with technology and product development into 2030 based on its updated medium-term management plan and its goal of carbon neutrality by 2050.
For its fiscal year ended March 31, 2021, MZDAY’s cash and cash equivalent increased ¥170.8 billion ($26.37 billion) from the end of the previous fiscal year to ¥738.8 billion ($114.08 billion). Its gross profit came in at ¥613.64 billion ($94.75 billion), while its operating income amounted to ¥8.82 billion ($1.36 billion). Also, the company’s comprehensive income came in at ¥20.46 billion ($3.15 billion), compared to a ¥5.07 billion ($782.92 million) comprehensive loss in the prior year..
Analysts expect MZDAY’s revenue to increase 57.1% year-over-year to $30.69 billion in the fiscal period ending March 2022. MZDAY’s stock has gained 41.5% over the past year. Also, the stock has surged 51.9% over the past nine months.
It is no surprise that MZDAY has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock also has an A grade for Value and a B for Growth, Stability and Quality. In the Auto-Vehicle Manufacturers industry, it is ranked #4 of 57 stocks.
In addition to the POWR Ratings grades we have just highlighted one can see the MZDAY ratings for Sentiment and Momentum here..
Click here to check out our Automotive Industry Report for 2021
HMC shares were trading at $32.36 per share on Friday morning, up $0.32 (+1.00%). Year-to-date, HMC has gained 16.04%, versus a 14.61% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.
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