The Fall of the Electric Giant
Tesla, the electric car magnate led by the enigmatic Elon Musk, recently took a hit in its sales figures. The company reported a substantial drop in electric vehicle (EV) sales, despite resorting to price cuts to stimulate demand in the face of mounting competition, particularly in the lucrative Chinese market.
In the first quarter of 2024, Tesla’s delivery of 386,810 electric cars marked a 20% decline from the previous quarter and an 8% decrease compared to the same period the year before. This underwhelming performance left Wall Street analysts dismayed as expectations of around 450,000 deliveries were missed by a substantial margin.
Financial analyst Dan Ives from Wedbush bluntly labeled Tesla’s quarter as an “unmitigated disaster,” leaving the company’s share price reeling with a 33% decline for the year. This downturn cements Tesla’s position as one of the worst-performing stocks in the S&P 500 Index for 2024, with its market valuation halved since reaching the lofty heights of $1 trillion back in 2021.
The Revival of the Big Three
As Tesla grapples with a sales slump, traditional automakers are making a remarkable comeback in the eyes of investors. The pendulum is swinging back towards legacy automakers as sales of EVs lose momentum and gasoline-powered cars and hybrids show resilience by continuing to drive significant revenue and dominate the vehicle market.
Once dismissed as relics in the age of EVs, the Big Three automakers – Stellantis, General Motors (GM), and Ford Motor – are experiencing heightened investor interest as they trade at a considerable discount compared to their EV counterparts. This lower valuation provides a sense of security for investors seeking exposure to the auto industry.
The Appeal of Stellantis Stock
When it comes to investing in auto stocks, the key refrain among investors is “show me the money.” Wall Street’s renewed interest in the cash flow potential of traditional car companies is underpinned by rising cash-flow projections, profit estimates, and revenue outlooks.
Unlike Tesla, which refrains from paying dividends and share buybacks, GM, Ford, and Stellantis collectively spent $22.7 billion on share repurchases and dividends in 2023. This divergence in shareholder returns, coupled with the glaring disparity in valuations, indicates a shift in investor sentiment towards the stability and income potential offered by legacy automakers.
Stellantis, the amalgamation of Italy’s FCA and Groupe PSA, has emerged as a standout choice for investors. The company’s stock has surged by about 55% over the past three years, outpacing many rivals in the industry.
Despite facing challenges such as weaker sales in North America and disruptions due to strikes, Stellantis managed to increase its net profit by 11% to €18.6 billion ($20.1 billion) in the previous year. The company also embarked on a significant €3 billion ($3.24 billion) share buyback program, demonstrating confidence in its future prospects.
Stellantis, a key player in the EV market in Europe, is set to make a splash in the U.S. with the launch of eight electric models this year. Its commitment to low emission vehicles and the impressive sales growth in the EV segment further bolster its position among investors.
With a strong balance sheet and an estimated free cash flow of €11 billion ($11.9 billion) for the year, Stellantis stands out as a compelling investment option. The stock, trading at under $28, presents an attractive opportunity for investors seeking exposure to the resurgent legacy automakers.
