Which EV Stock Is an Attractive Pick at Current Levels?

Stock Market

Recently reported results of several electric vehicle (EV) makers indicated that EV sales have been resilient so far this year, despite persistent macroeconomic challenges. Government incentives and price cuts by most EV makers have driven higher volumes.

Citing data from Motor Intelligence, a Wall Street Journal report highlighted that U.S. EV sales increased 50% to 557,330 units in the first half of 2023. EVs accounted for 7.2% of overall vehicle sales in the U.S. in the first half of this year, up from 5.4% in the comparable period of the prior year.

While EV adoption continues to rise, the report noted that the pace of growth has decelerated compared to the 71% sales growth witnessed in the first half of last year amid a rise in gas prices and the introduction of several new EV models. Also, dealer inventory of EVs increased substantially at the end of June, per Cox Automotive.

Despite these challenges, EV sales are expected to continue to rise as several countries across the globe are focused on phasing out CO2-emitting cars in the years ahead.

Keeping all these dynamics in mind, I used TipRanks’ Stock Comparison Tool to compare the following EV stocks and pick the most attractive one, as per Wall Street analysts.

Ford (F)

Source: JuliusKielaitis / Shutterstock.com

Last week, legacy automaker Ford Motor (NYSE:F) delivered better-than-expected second-quarter results, driven by solid pricing and demand for its traditional vehicles. The company’s revenue increased 12% to $45 billion, while adjusted earnings per share (EPS) grew 6% to 72 cents.

Sales of the company’s Model e EV division were up 39% to $1.8 billion. However, the Model e unit’s loss before interest and taxes increased to $1.1 billion compared to $570 million in the prior-year quarter.

While Ford raised its full-year adjusted EBIT outlook to reflect the strength in its Ford Pro and Ford Blue businesses, investors were disappointed with the $4.5 billion loss outlook for the Model e business. The company expects losses for the Model e unit to widen this year due to a competitive pricing environment, continued investments in innovation and capacity expansion, and other costs.

Following the Q2 print, Goldman Sachs analyst Mark Delaney reiterated a “hold” rating on the stock and maintained a price target of $14. The analyst believes that the higher loss outlook for the Model e unit will raise “investor concerns related to what the shift toward EVs means for Ford’s longer-term profitability.” Delaney also pointed out the Ford pushed its EV annual production target of 600,000 vehicles from this year to 2024.

Wall Street is sidelined on Ford stock, with a “hold” consensus rating based on six buys, seven holds and three sells. The average price target of $15.08 implies nearly 15% upside.

Tesla (TSLA)

Source: Rokas Tenys / Shutterstock.com

Elon Musk-led EV maker Tesla (NASDAQ:TSLA) surpassed analysts’ expectations for the second quarter. The EV maker’s revenue jumped 47% year-over-year to about $25 billion and adjusted EPS grew 20% to 91 cents.

However, fears about Tesla’s aggressive price cuts hurting its margins came true, with the company’s gross margin plunging 682 basis points to 18.2% and operating margin declining 493 basis points to 9.6%.

During the second-quarter earnings call, Musk dismissed concerns about the short-term impact on the gross margin and profitability, given the company’s long-term potential. The CEO also expressed confidence in vehicle autonomy, which he expects to “drive volume through the ceiling next level.” Tesla reaffirmed its full-year deliveries target of 1.8 million but cautioned that it expects Q3 production to be slightly lower due to factory upgrades.

Last week, UBS analyst Patrick Hummel downgraded Tesla stock from “buy” to “hold” but increased the price target to $270 from $220. The analyst believes that the robust rally in TSLA shares fully reflects the rise in demand triggered by the price cuts. Hummel also noted the temporary production slowdown expected in the third quarter and increasing operating expenses incurred by the Cybertruck, the Dojo supercomputer and other projects.

While Hummel is positive about Tesla’s ability to lead the race to offer affordable EVs and autonomous mobility, he thinks that the risk-reward of the stock seems balanced.

Overall, Wall Street has a “hold” consensus rating on Tesla based on 10 buys, 13 holds, and four sells. Following the solid year-to-date rally, the average price target of $263.33 implies a possible downside of 1.2%.

General Motors (GM)

Source: Jonathan Weiss / Shutterstock.com

General Motors (NYSE:GM) generated upbeat results for the second quarter of 2023, with revenue rising 25% to $44.7 billion, fueled by solid demand for its vehicles. Adjusted EPS increased more than 67% to $1.91 on higher revenue and improved margins. Additionally, the company raised its earnings guidance for the second time this year.

The company highlighted that it met its target to produce 50,000 EVs in North America in the first half of 2023. It continues to expect to produce about 100,000 EVs in the second half of this year. However, shares fell following the Q2 earnings call for several reasons, including an unexpected charge of $792 million related to the recall of the General Motors’ Chevrolet Bolt EV model.

Nevertheless, Citigroup analyst Itay Michaeli increased his price target for General Motors to $95 from $89 and reiterated a “buy” rating on the stock. The analyst explained that the “unwarranted” post-earnings selloff was due to the unexpected Q2 Bolt charge, the delay in the ramp-up of EV production due to issues at a supplier of automation equipment, and concerns arising from the interpretation that the return of the Bolt model implies less Ultium volume in first half of 2024.

Michaeli contended that the “noise” in the quarter does not seem to be significant, given the upside in the company’s fundamentals. The analyst expects material upward consensus estimate revisions over the next six months.

With six buys, seven holds and one sell, General Motors scores a Moderate Buy consensus rating. At $50.71, the average price target indicates about 32% upside potential.

To conclude, while Wall Street is cautious about Tesla and Ford, several analysts find General Motors to be attractive at current levels. Analysts see higher upside potential in General Motors shares than the other two EV stocks. General Motors’ solid execution, continued innovation and cost-control measures make it attractive.

On the date of publication, Sirisha Bhogaraju did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Sirisha Bhogaraju has over 15 years of experience in financial research. She has written in-depth research reports and covered companies across various sectors, with a primary focus on the consumer sector. Sirisha has a master’s degree in finance.

Articles You May Like

Top Wall Street analysts recommend these dividend stocks for higher returns
My Top 10 Stock Market Predictions for 2025
Quantum Computing Revolution: The Gargantuan Opportunity Investors Shouldn’t Ignore
Starboard sees an opportunity to create value at Riot Platforms amid growth in hyperscalers
An options strategy to generate income on this ‘Dog of the S&P 500’ – and perhaps buy it cheap