Investing in the automotive sector can be very tricky as companies that are part of this sector experience high capital expenditures and cyclical income. As a result, most auto companies have underperformed indexes like the S&P 500 in the last two decades.
However, accelerated shift towards clean energy solutions makes old car manufacturers like Ford Motor (F) and General machine (GM) top long term bet now. Both companies are eyeing the fast-growing electric vehicle segment and are poised to benefit from some secular towing going forward.
Let’s see which auto giant, between Ford and General Motors, is currently the better investment.
After adjusting for dividends, Ford’s stock has returned just under 100% to investors in the last 10 years. However, 40% of these profits have been accrued since April 2021, and for good reason. The auto heavyweight reveals plans to gain traction in the electric vehicle segment. It has two main business segments and Ford’s Model e division focuses on EV manufacturing.
In fact, Ford expects to produce two million electric vehicles annually by 2026, accounting for a third of its global volume. The company also expects EV sales to make up 50% of total shipments by 2030.
Ford will soon begin deliveries of the F-150 Lightning which is a highly anticipated electric pickup truck. The base version of the EV offers a driving range of 230 miles on a single charge while other versions can increase the battery capacity to 320 miles.
wade through also invest $500 million in EV start-up Rivian for a 12% stake currently worth nearly $5 billion. Rivian is powered by Amazon as well and has pre-orders for 100,000 delivery vans from the tech giant.
Similar to Ford, even General Motors is investing heavily to build its EV infrastructure. General Motors has actually claimed it will spend $35 billion in autonomous vehicle and battery research by 2025. The investment is expected to provide General Motors with two battery manufacturing facilities by the end of 2023.
General Motors expects to manufacture and ship one million EVs in North America by 2025 and introduces 30 new EV models over the next few years.
Investors should also note that pre-order for The GM Silverado EV has surpassed 110,000 in a two-week period. The company enjoys a sizeable presence in China which is the largest EV market in the world. In the past two years, GM has sold nearly six million vehicles in China and these numbers will move higher as adoption of electric vehicles increases.
Both Ford and General Motors continue to trade at attractive valuations. For example, Ford is expected to increase sales by 15% to $145 billion in 2022 and by 10.3% to $160 billion in 2023. By comparison, adjusted revenue is expected to increase at an annual rate of 74% over the next five years. So Ford’s stock is priced forward to sales multiples of 0.5x and a price-to-earnings ratio of 8.5x, which is a bargain.
Or, General Motors is expected to increase sales by 23% to $156 billion this year and by 6.4% to $166.4 billion in 2023. Its price-to-sales multiple is 0.42x and its price-to-income ratio is also attractive at 6.3x while adjusted revenue is expected to increase in 15% annual rate in the next five years.
Both Ford and GM are undervalued gems targeting the high-margin truck and SUV segments in the EV vertical. However, Ford’s investment in Rivian and strong earnings growth make it the better stock today.
F shares traded at $16.07 per share on Tuesday morning, down $0.59 (-3.54%). This year, the F has fallen -22.23%, versus the -4.02% gain in the benchmark S&P 500 index over the same period.
About the Author: Aditya Raghunath
Aditya Raghunath is a financial journalist who writes about business, public equity and personal finance. His work has been published on several digital platforms in the US and Canada, including The Motley Fool, Finscreener, and Market Realist. Again…
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