In this piece, I have evaluated two auto stocks, Hyundai Motor Company (HYMTF) and Lucid Group, Inc. (LCID), to determine which could generate better returns. Seoul, South Korea-based HYMTF manufactures and distributes motor vehicles and parts globally, whereas LCID engages in the Electric Vehicle (EV) technology business.
The automotive industry faced significant headwinds over the past few years, encompassing several elements of the global economy, such as high inflation, rising interest rates, and geopolitical instability due to the Russia-Ukraine war. Shortages in microchips and labor also impacted nearly every aspect of the automotive supply chain.
Despite numerous macroeconomic challenges, auto sales will likely remain steady throughout the year. Fitch forecasts a 5% rise in global sales and production in 2023, recovering from the depressed 2022 levels. Additionally, automakers and suppliers expect profitability support from lower commodity prices and eased costs like logistics.
Moreover, the auto industry has demonstrated a positive trajectory so far, with U.S. new-vehicle sales increasing by 7.5% during the first quarter. EV sales also witnessed a remarkable 48% surge, reaching over 258,000 units from January to March. They constituted 7.2% of U.S. new vehicle sales, compared to last year’s market share of 5.8%.
With the growing environmental concerns and the government’s initiatives globally, there has been a significant transition toward EVs lately. Manufacturers’ focus on enhancing battery performance and expanding the charging infrastructure as part of the development of EVs continues to drive the auto industry’s growth.
The industry also embraces robotics throughout the supply chain, enabling high automation levels. This trend drives the development of Artificial Intelligence (AI) and Virtual Intelligence (VI) tools to enhance quality, speed, and the ability to meet consumer demands, ensuring the industry's competitiveness.
According to a report published by Contrive Datum Insights, the global automotive market is expected to reach $28.70 billion by 2030, growing at a CAGR of 4.5%. The industry’s tailwinds could bode well for HYMTF and LCID.
HYMTF is a clear winner in terms of price performance, with 16.5% gains over the past three months compared to LCID’s 25.1% decline. HYMTF has gained 37.7% over the past nine months, while LCID plummeted by 57.7%. Moreover, HYMTF has gained 21.3% over the past year, while LCID has plunged 66.8%.
But which stock is a better buy now? Let’s find out.
Recent Developments
On May 26, HYMTF and LG Energy Solution, a renowned worldwide battery producer, announced an EV battery cell manufacturing Joint Venture (JV) in the United States. HYMTF and LG would each hold a 50% stake in the JV, with the involvement of an investment of over $4.30 billion.
Jaehoon Chang, President and CEO of HYMTF, said, “Hyundai Motor Group is focusing on its electrification efforts to secure a leadership position in the global auto industry.” The collaboration is expected to enable HYMTF to promptly address the surging EV demand in the U.S. market while establishing a reliable battery supply in the region.
On May 31, it was reported that LCID plans to raise $3 billion through a stock offering, with two-thirds coming from Saudi Arabia's Public Investment Fund (PIF). PIF will buy 265.70 million shares for $1.80 billion in a private placement. The remaining funds would be raised through a public offering of 173.50 million shares.
The additional funds are crucial for the automaker as it faces mounting losses and tight cash reserves due to recession fears.
Recent Financial Results
For the first quarter that ended March 2023, HYMTF’s revenue grew 24.7% from the year-ago value to KRW 37.78 trillion ($29.04 billion). Its operating profit rose 86.3% from the prior year’s period to KRW 3.59 trillion ($2.76 billion).
Moreover, net profit came in at KRW 3.42 trillion ($2.63 billion), up 92.4% year-over-year. Also, the company’s vehicle sales increased 13.2% year-over-year to 1,021,712 units.
LCID’s loss from operations increased 29.2% year-over-year to $772.16 million for the first quarter that ended March 31, 2023. Its net loss and net loss per share attributable to common stockholders widened 28.9% and 19.4% from the prior year’s period to $779.53 million and $0.43, respectively.
In addition, its cash outflow from operating activities rose 62% year-over-year to $801.26 million.
Past And Expected Financial Performance
Over the past three years, HYMTF’s revenue grew at an 11.9% CAGR. The company’s EBITDA and net income increased at 32.8% and 51.5% CAGRs, respectively. Furthermore, HYMTF’s EPS grew at a 56.6% CAGR during the same period.
Analysts expect HYMTF’s revenue for the fiscal year ending December 2023 to increase by 2.6% year-over-year to $118.64 billion. The company’s revenue for the next fiscal year (ending December 2024) is expected to rise 2.4% from the prior year to $121.53 billion. Moreover, the company topped its consensus revenue estimates in all four trailing quarters.
LCID’s revenue increased at a CAGR of 409.8% over the past three years. Its total assets grew at 138.7% CAGR over the same time frame.
LCID’s revenue is expected to grow 55.9% year-over-year to $947.92 million for the fiscal year 2023. However, analysts expect LCID to report a loss per share of $1.42 for the current year and $1.03 for the next fiscal year, respectively. Also, the company missed its consensus EPS and revenue estimates in three of four trailing quarters, which is disappointing.
Valuation
In terms of trailing-12-month Price/Sales, HYMTF is currently trading at 0.31x, 97.9% lower than LCID, which is trading at 15.01x. Likewise, HYMTF’s trailing-12-month EV/Sales multiple of 0.90 is 95.2% lower than LCID’s 18.90. Additionally, HYMTF’s trailing-12-month Price/Book ratio of 0.55x is 82.1% lower than LCID’s 3.08x.
Thus, HYMTF is relatively more affordable.
Profitability
HYMTF’s trailing-12-month revenue is 164.12 times what LCID generates. Moreover, HYMTF is more profitable, with a trailing-12-month gross profit margin of 20.18% compared to LCID’s negative 171.54%. In addition, HYMTF’s trailing-12-month net income margin of 6.06% compares to LCID’s negative 286.13%.
Furthermore, HYMTF’s trailing-12-month ROCE and ROTC of 10.85% and 3.56% compare to the LCID’s negative 53.68% and negative 28.57%, respectively. Moreover, HYMTF’s trailing-12-month cash from operations of $6.55 billion compares with LCID’s negative $2.53 billion.
POWR Ratings
HYMTF has an overall rating of A, which equates to a Strong Buy in our proprietary POWR Ratings system. Conversely, LCID has an overall rating of F, translating to a Strong Sell. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. HYMTF has an A grade for Stability, in sync with its 24-month beta of 0.65, while LCID’s F grade for Stability is justified by its 24-month beta of 1.58.
In addition, HYMTF has an A grade for Value, consistent with its lower-than-industry valuation. HYMTF’s forward EV/Sales of 0.87x is 23.9% lower than the 1.15x industry average. LCID, on the contrary, has an F grade for Value, in sync with its relatively higher valuation. LCID has a forward EV/Sales of 13.96x, 1,117% higher than the 1.15x industry average.
Of the 55 stocks in the Auto & Vehicle Manufacturers industry, HYMTF is ranked #8, while LCID is ranked last.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Momentum, Quality, and Sentiment. Click here to view HYMTF ratings. Get all LCID ratings here.
The Winner
Rising demand for personal and commercial vehicles, the increased shift to EVs amid the growing awareness of environmental issues among consumers, and the seamless integration of newer technologies have positioned the automotive industry for robust growth this year and beyond. Therefore, prominent auto manufacturers HYMTF and LCID could benefit from the industry tailwinds.
However, considering LCID’s relatively weak financial performance, low profitability, and higher valuation, its competitor HYMTF, could be a better buy now.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Auto & Vehicle Manufacturers industry here.
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HYMTF shares were trading at $41.50 per share on Wednesday afternoon, down $0.24 (-0.56%). Year-to-date, HYMTF has gained 39.50%, versus a 14.64% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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