Whether you love them or hate them, cars are an unavoidable part of our lives. Last year, the global automotive market topped $1.9 trillion in revenue, marking a 12% year-over-year increase.
Tesla, known for its innovative electric vehicles, reported sales of $71.5 billion in 2022, but Ford and GM, the somewhat staid stalwarts of the Motor City, surpassed Tesla’s sales, with Ford achieving $158 billion and GM recording $156.7 billion.
In terms of market cap, Elon Musk and his skill at relentless promotion have pushed Tesla to a market cap of $870 billion, more than the next nine largest automotive companies combined. Meanwhile, the iconic names of Detroit find themselves situated in the middle of the pack, with Ford having a market cap of nearly $60 billion, while GM weighs in at $55 billion.
For an investor, this array of sales and market cap numbers can obscure the bottom line point: which automotive stock is the best buy? Tesla, Ford, and GM are all leaders in the industry, but have taken different paths to success. We’ve used the TipRanks database to pull up the recent details on their shares, and we’ll check in with the Street’s analysts to figure out which stock is the top choice.
Tesla (TSLA)
Founded some 20 years ago, Tesla has, under Elon Musk’s leadership, quickly emerged as the leader in the electric vehicle (EV) market and has become one of the world’s most valuable companies. Tesla designs and manufactures a line of EVs, and it is the leading producer of EVs in North America. While most EV producers in the American markets are speculative or list their production in the thousands or tens of thousands per quarter, Tesla built over 479,000 vehicles in Q2 of this year and delivered 466,140.
Tesla is well-known for its innovations, ranging from the use of cylindrical battery cells to its advancements in autonomous driving technology, which has recently garnered significant attention. In 2016, Musk outlined plans to introduce fully autonomous self-driving robotaxis onto the roads. Earlier this year, he further expanded on this concept, noting that privately owned passenger vehicles typically only log 10 to 12 hours of use per week. Musk proposed that the installation of autonomous ride-hailing software could enable vehicle owners to maximize the utilization of their cars and generate a passive income stream.
In short, Musk’s idea is to create a fleet of autonomous Tesla vehicles that are privately owned but available by request from service subscribers when the vehicle owner isn’t using it. These cars could be deployed for pickups and drop-offs, meeting commuter needs, and generating income for both the car owner and the company. It’s a visionary concept with the potential to significantly amplify Tesla’s profit margin per vehicle over time.
For analyst Tom Narayan, of RBC Capital, robotaxis are the likely key to Tesla’s future. The analyst sees this new tech generating as much as 70% of Tesla’s value if it is successfully implemented.
“We believe robotaxis (and autonomous vehicles in general) could potentially transform society more than anything else in our lifetimes. They could save millions of lives and trillions of hours. We believe this fact alone should motivate regulators to support their development as we anticipate private cars being banned in many cities around the globe. Importantly, given how much value and convenience they offer and low pricing, given the elimination of the driver, we see consumers switching away from private car ownership. We conservatively assume 25% Tesla robotaxi penetration in the US, 8% in Western Europe, and 7% in China. We also max out our licensing penetration assumption at 20% of non-Tesla robotaxis globally,” Narayan opined.
Unsurprisingly, Narayan rates TSLA shares an Outperform (i.e. Buy), and his $305 price target indicates room for 11% share gains in the next 12 months. (To watch Narayan’s track record, click here)
Overall, Tesla’s high market cap has generated plenty of controversy, which, in turn, has led to a split among Wall Street analysts. Of the 31 recent reviews on Tesla, 13 are to Buy, 13 to Hold, and 5 to Sell, giving the stock a Moderate Buy consensus rating. The shares are trading for $274.43, but the stock’s recent gains have pushed it well above the current $232 average price target. (See Tesla stock forecast)
Ford Motor (F)
Next up is Ford Motor, which has a long and storied history in Detroit’s auto industry. As noted, Ford was the originator of the modern assembly line, which enabled the introduction of the low-cost Model T, the first automobile affordable to the working classes. Ford’s current success is primarily built on its reputation for producing high-quality light trucks. The F-series pickups have been the best-selling trucks in the US and global markets for over 40 consecutive years.
Ford is still based in Dearborn, Michigan, the location of founder Henry Ford’s original factories. The company was the only one of Detroit’s ‘Big 3’ automakers to emerge from the 2008 financial crisis without needing rescue from the Federal government. The company in recent years has been investing heavily in electric vehicles, and has produced more than 19,800 EVs so far this year, for a 6.4% y/y increase. Total vehicle production, of 830,841 units, is up 8.8% from this time last year. The company’s truck lines, which show a 22.4% increase in output, are the strongest part of the Ford product lines.
Looking forward, Ford has made public commitments to increasing its EV production and marketing, as part of a general shift from combustion-powered cars to EVs. In the spring of last year, the company announced a $50 billion initiative in EV investments through 2026. As part of that move, the company began pumping $3.7 billion into investments in three states, including new plants in Wayne and Flat Rock in Michigan, and introduced the new electric Mustang.
More recently, Ford announced a $1.3 billion investment this year to develop an EV manufacturing hub in Oakville, Ontario. The investment will fund the expansion of an existing production plant to facilitate the construction of the company’s next generation of EVs.
Analyst Michael Ward, from Benchmark, covers Ford stock, and he believes the company is well positioned to take a leading position in the EV market. Ward writes of the company, “In our view, the global auto industry is in the early stages of one of the most significant changes in history, and unlike past industry disruptions, we believe Ford’s balance sheet, cost structure and product cadence will enable the company to capitalize on industry trends and be positioned among the leaders. Over the next five years, we believe the rate of electrification in the commercial segment of the market, especially in North America, will accelerate and Ford’s leading market position for commercial pickups and vans will justify current investment spending.”
Ward goes on to rate Ford stock as a Buy, and his $20 price target implies a 12-month upside potential of 33.5%. (To watch Ward’s track record, click here)
The rest of the Street is less confident, however; based on 4 Buys, 5 Holds and 2 additional Sells, the stock has a Hold consensus rating. Moreover, the recent gains have taken the stock beyond what most consider its fair value; at $14.30, the figure represents possible downside of 4.5%. (See Ford stock forecast)
General Motors (GM)
Last on our list is General Motors, the largest of the Detroit car giants. GM held the leading sales position among any US automaker last year and was the world’s largest automotive company until 2008 when it lost that position to Toyota. In recent years, the company has streamlined its brands and currently sells cars under the Chevrolet, Buick, Cadillac, and GMC nameplates. GM also operates an eponymous defense division, which produces vehicles for the US military, and owns ACDelco, an auto parts company. Furthermore, GM offers customer financing through the General Motors Financial Company.
GM has taken the shift to EVs seriously, and in 2021 it announced plans to end all combustion vehicle production by 2035. This commitment includes hybrid and plug-in hybrid cars. Currently, GM is working to meet carbon-neutrality goals with a combination of EVs and flex-fuel cars; the latter are capable of burning higher levels of lower emission ethanol fuels than conventional gasoline vehicles.
The story for GM, today, is based on expanding vehicle sales and financial beats. The company reported Q2 production numbers earlier this month, and showed ‘double-digit year-over-year increases’ across all four its major vehicle brands. Total deliveries in Q2 came to 691,978 vehicles in the US, for a 19% y/y gain. Deliveries for the first half of 2023 were up 18% y/y.
Those strong numbers gave GM a solid top line of $39.99 billion, up 11.1% y/y and beating the estimates by more than $605 million. The company’s earnings also beat the forecast – the non-GAAP earnings per share came to $2.21, up 5.7% from the prior year and 48 cents ahead of the forecast. GM has a record of consistently beating EPS forecasts in recent quarters.
Those earnings beats are at the heart of JPMorgan analyst Ryan Brinkman’s review of GM shares. Brinkman writes, “We are raising our 2023 estimates to the midpoint of GM’s now higher guided ranges of EPS and EBIT from roughly the midpoints prior, including given management’s impressive track record in recent years of meeting or exceeding adjusted EPS and total company EBIT guidance in a wide set of macroeconomic and industry backdrops that often tracked materially different than was assumed at the star of year (GM has now beaten consensus EBIT expectation for 12 straight quarters, and has topped consensus EPS in fully 29 of the past 32 quarterly reports).”
This gives GM, in Brinkman’s view, an Overweight (i.e. Buy) rating, and the analyst’s price target, at $55, implies the shares will gain 39.5% by year’s end. (To watch Brinkman’s track record, click here)
Overall, the 14 recent analyst reviews of GM include 7 to Buy and 7 to Hold, giving the stock its Moderate Buy consensus rating. The shares are selling for $39.61, and their $46.85 average price target suggests a one-year potential gain of 18%. (See GM stock forecast)
Bottom Line
Both Tesla and General Motors receive a Moderate Buy consensus rating from analysts, while Ford is rated as a Hold. However, according to TipRanks’ data, GM stands out with the best upside potential based on the average price target.
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
