In this article, I have evaluated prominent auto stocks, Rivian Automotive, Inc. (RIVN) and Japan-based Toyota Motor Corporation (TM), to determine which could generate better returns. After thoroughly evaluating these stocks, I think TM might be a superior choice for the reasons discussed.
The increasing infrastructure investment around the world’s emerging economies is considered to be one of the crucial parameters supporting the expansion of the automotive market. Moreover, the escalating demand for high-end passenger vehicles is also likely to enhance the performance of the market around the world.
Automotives Market Research Report predicts the global automotive market to reach $6.07 trillion by the end of 2030, growing at a CAGR of 6.9%.
Additionally, the growth of the automotive manufacturing equipment industry is expected to be driven by a combination of global demand for vehicles, adoption of automation and robotics technology, increasing demand for electric and hybrid vehicles, and a focus on sustainability and energy efficiency.
The market for automotive manufacturing equipment market is predicted to grow to $11.40 billion by 2028 at a CARG of 11.1%.
Moreover, TM is a clear winner in terms of price performance, with 7.2% gains over the past month compared to RIVN’s 1.7% decline. Also, TM has gained 26.3% over the past nine months compared to RIVN’s 22.5% decline.
Here are the reasons why I think TM might perform better in the near term:
Recent Developments
On June 21, 2023, RIVN announced the acquisition of Swedish mapping company Iternio, developer of the ‘A Better Routeplanner’ (ABRP) app. ABRP is an industry leader in EV trip planning and has a strong community of EV drivers in both North America and Europe.
On June 20, RIVN announced it had signed an agreement with Tesla, Inc. (TSLA) to provide RIVN drivers access to Tesla’s Supercharger network across the United States and Canada. Central to its mission to electrify and decarbonize transportation, RIVN will continue expanding its own Rivian Adventure Network.
Conversely, on June 8, 2023, TM announced that it would invest nearly $50 million to construct a new laboratory facility at its North American R&D headquarters in York Township to evaluate batteries for electric and electrified vehicles in North America.
As part of its evaluation process, the new Michigan battery lab will ensure that TM’s batteries meet North American customer requirements by confirming the performance, quality, and durability of automotive batteries made by TM. Operations at the new battery lab are expected to begin in 2025.
On May 2, TM and PACCAR Inc (PCAR) announced an expansion of their joint efforts to develop and produce zero emissions hydrogen fuel cell (FCEV) Kenworth and Peterbilt trucks powered by TM’s next-generation hydrogen fuel cell modules.
The expanded agreement supports ongoing development and commercialized zero-emission versions of the Kenworth T680 and Peterbilt 579 models featuring Toyota’s hydrogen fuel cell powertrain kit, with initial customer deliveries planned for 2024.
Recent Financial Results
RIVN’s revenues for the first quarter ended March 31, 2023, rose 595.8% year-over-year to $661 million. Its gross loss widened 6.6% year-over-year to $535 million. The company’s net loss attributable to common stockholders narrowed 15.3% year-over-year to $1.35 billion. Also, its loss per share narrowed by 18.1% year-over-year to $1.45.
On the contrary, TM’s sale revenue increased 24.2% year-over-year to ¥10.55 trillion ($59.61 billion) for the first quarter that ended June 30, 2023. Its operating income increased 93.7% year-over-year to ¥1.12 trillion ($7.88 billion). Net income attributable to TM increased % year-over-year to ¥1.31 trillion ($9.22 billion).
Past And Expected Financial Performance
Over the past year, RVIN’s revenue grew at a significant CAGR. Analysts expect RVIN’s revenue to grow by 150% this year and 178.1% in the second quarter ended June 2023. However, its EPS is expected to be negative $5.30 this year, negative $1.39 in the to-be-reported quarter ended June 2023, and negative $1.31 in the current quarter ending September 2023.
Conversely, TM’s revenue has increased at a CAGR of 22.8% over the past year. Its revenue is expected to increase 3.3% this year and 14.5% in the second quarter ended September 2023. Its EPS is expected to be $18.73 this year.
Valuation
RVIN’s forward P/S multiple of 5.74 is higher than TM’s 0.82. Additionally, RVIN’s forward EV/Sales multiple of 3.81x is higher than TM’s 1.44x.
Thus, TM is more affordable.
Profitability
RVIN’s trailing-12-month gross profit margin of negative 141.9% is lower than TM’s 17.81%. In addition, RVIN’s trailing-12-month EBITDA margin of negative 269.24% is lower than TM’s 12.62%.
Furthermore, RVIN’s trailing-12-month ROCE, ROTC, and ROTA of negative 41.98%, 23.42%, and 35.78% are lower than TM’s 10.49%, 3.38%, and 3.78%, respectively.
Thus, TM is more profitable.
POWR Ratings
RVIN has an overall rating of F, which equates to a Strong Sell in our proprietary POWR Ratings system. Conversely, TM has an overall rating of B, translating to a Buy. 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. RVIN has an F grade for Stability which is justified by its 24-month beta of 2.35. On the other hand, TM has a B grade for Stability, which is in sync with its 24-month beta of 0.64.
Among the 56 stocks in the Auto & Vehicle Manufacturers industry, RVIN is ranked #51, while TM is ranked #17.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Value, Momentum, Sentiment, and Quality. Get all RVIN ratings here. Click here to view TM ratings.
The Winner
The global automotive industry has lately demonstrated immense development. The primary parameter causing a surge in the performance of the market is the rapid urbanization happening across the globe. Industry players like RIVN and TM should benefit from these industry tailwinds.
However, RIVN’s poor profitability, elevated valuation multiples, and high beta value make its competitor TM the better buy.
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 here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
TM shares were trading at $169.19 per share on Tuesday morning, down $4.20 (-2.42%). Year-to-date, TM has gained 25.88%, versus a 17.87% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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