June 7, 2021 5 minutes to read
This story originally appeared on StockNews
The electric vehicle (EV) industry is currently slowing – largely due to a global semiconductor shortage – after its standout performance in 2020. With large EV companies scaling back production in the face of rising costs, their current valuations appear expensive. We therefore consider it advisable to avoid Tesla (TSLA) and Workhorse Group (WKHS) for the time being. Let’s discuss.
Last year’s boom in the electric vehicle (EV) industry, fueled by mounting concerns about climate change, several government subsidies, and federal plans to phase out fossil fuel vehicles, resulted in record levels in electric vehicle sales in 2020. The IEA reported a record 3 million new registrations of electric cars in 2020, 41% more than the previous year. This sales level came at a time when the global auto market was shrinking 16% due to the pandemic-induced recession.
However, a global semiconductor shortage has emerged as a major impediment to the growth of the electric vehicle industry, exacerbated by several natural and man-made disasters. According to consulting firm AlixPartners, the global auto industry is expected to lose $ 110 billion in sales in 2021 due to the ongoing chip shortage. In fact, due to the rising prices of processor chips, the manufacturers of electric vehicles are downsizing as production costs increase significantly. As a result, several EV companies’ revenue and earnings growth estimates should remain low for the quarters ahead.
Given the dire growth outlook, the current valuations of Tesla, Inc. (TSLA) and Workhorse Group Inc. (WKHS) do not appear sustainable. Hence, we think these stocks are best avoided now.
Click here to view our Electric Vehicle Industry Report for 2021
Tesla, Inc. (TSLA)
TSLA is the largest manufacturer and seller of electric vehicles (EVs). The company operates in two segments: automotive and energy generation and storage.
TSLA recently recalled several of its Model Y and Model 3 EVs due to faulty designs or workmanship. On June 3, the company called back 6,000 vehicles to tighten potentially loose bolts after the NHTSA reported that loose bolts could increase the risk of accidents.
CEO Elon Musk’s earlier announcement that Tesla will bring self-driving cars to market by the end of this year may also not materialize. Last month, TSLA sent a memo to the California Motor Vehicles Department saying it may not be able to commercialize self-driving technology by the end of this year.
On a non-GAAP forward P / E ratio, TSLA is currently trading at 130.66x, which is 653% higher than the industry average of 17.35x. Its price / sales multiple of 11.69 is 768.6% above the industry average of 1.35. The company’s forward price / cash flow and EV / EBITDA ratios of 87.41 and 62.77, respectively, compare to industry averages of 15.14 and 11.73, respectively.
TSLA’s total revenue increased 74% year over year to $ 10.39 billion in the first quarter of fiscal 2021. Operating income increased 110% year over year to $ 594 million. The company’s non-GAAP EPS increased 304% year over year to $ 0.93.
The Street expects TSLA’s revenue to increase 86.1% year over year to $ 11.23 billion in the current quarter (ending June 2021). A consensus EPS estimate of $ 0.96 for the current quarter indicates an improvement of 118.2% year over year. The company also has an impressive earnings surprise history. It outperformed consensus EPS estimates for each of the past four quarters.
TSLA is down 11.1% last month and 15.1% year-to-date.
TSLA’s POWR ratings are in line with that dire outlook. In our proprietary rating system, the share has a grade of F for value and a grade of D for stability. The POWR ratings are calculated taking 118 different factors into account, with each factor being optimally weighted. TSLA ranks 38th out of 57 stocks in the C-rated auto and vehicle industry.
Click here to view additional POWR ratings for Growth, Momentum, Sentiment, and Quality.
Click here to read our automotive industry report for 2021
Workhorse Group Inc. (WKHS)
WKHS develops and manufactures high-performance electric vehicles and airplanes. The company offers C-series electric delivery vans and parcel delivery planes, as well as HorseFly.
Several law firms have filed lawsuits against WKHS alleging that the company provided false and misleading information to attract investors. The law firm Schall has filed an investor lawsuit against the company for violating the Securities Exchange Act of 1934 and Rule 10b-5 of the SEC. Bronstein, Gewirtz & Grossman, LLC has also filed a similar lawsuit.
The WKHS Forward EV / Sales ratio of 19.09 is 1.121% above the industry average of 1.56. Its price / sales multiple of 22.07 is 1,539.8% higher than 1.35 the industry average. The company’s price-to-book ratio of 7.81 corresponds to the industry average of 3.72.
WKHS gross loss increased 243.4% year over year to $ 5.70 million for the first quarter ended March 31. Loss from continuing operations increased 1,750.8% year over year to $ 153.06 million. WKHS ‘net loss was $ 120.51 million, up 2631.7% year over year.
WKHS has lost 40.9% in the past six months. The stock has lost 34% since the beginning of the year.
Analysts expect WKHS’s EPS to remain negative through at least 2022. The company’s EPS is expected to decrease 341.4% year over year this year. The company also missed the Street’s EPS estimates for three of the past four quarters.
It’s no surprise that WKHS has an overall F rating, which equates to a strong sale in our proprietary POWR rating system.
The stock is rated F for value, stability, quality and sentiment. WKHS ranks 56th among the 57 stocks in the automotive and vehicle manufacturing sector.
Click here to view additional POWR ratings for other components.
Click here to view our Electric Vehicle Industry Report for 2021
TSLA stock was trading at $ 606.92 per share on Monday afternoon, up $ 7.87 (+ 1.31%). Since the beginning of the year, the TSLA is down -13.99%, compared to a 13.26% increase in the reference index S&P 500 over the same period.
About the author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to a career as an investment analyst. After completing her master’s degree in economics, she gained knowledge of equity research and portfolio management at Finlatics. She uses her knowledge as a fundamental analyst to help investors make informed decisions about their investment portfolios.
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