Cars are here to stay. They are arguably the most important form of transportation for billions of people and have been so for decades. Almost certainly they will hold that position for decades to come. However, this vitality is not expressed as much as it should be in the stock market. Some car companies have valuations the same as their yearly revenue, showing that investors do not have high expectations for the future.
Below are three auto stocks that are heavily undervalued that investors should get their hands on.
Li Auto (LI)
Li Auto (NASDAQ:LI) is a Chinese EV company dominating the market but is unfairly undervalued. A key competitive edge they possess is the range of their EVs. Using their range extenders, they make their EVs more accessible and easier to use, because they are more convenient and can be used by customers far away from chargers.
The company is using its earnings to start new initiatives. Li recently announced plans to invest more than 6 billion yuan to build 5,000 charging stations, opening new lines of revenue. At the same Li Auto constantly creates new and improved EV models, most recently launching the Li L6.
Looking at Li Auto’s financials, they also back up the buy thesis. The company should be valued higher than $22 billion, which is low considering its tremendous growth. Last year Li’s revenue grew to $17.4 billion, an impressive 173%. In the most recent quarter, revenue growth was only 36%, but still very impressive. At the same time, Li Auto is profitable and has been for a long time. This makes the company worth more as it makes it easier to keep growing without investor money and debt, while also providing it with a shield against bankruptcy.
General Motors (GM)
General Motors (NYSE:GM) is an American giant that is trading at a market cap near its yearly revenue, showing high potential for an increase in valuation. A key reason for this valuation is because of a consensus among investors that gas-fueled cars will not be popular in the future. GM solved this by heavily investing in its EV segment.
In 2023 alone, the company delivered over 75,000 EVs and expects to produce between 200,000 and 300,000 EVs just in 2024. Additionally, General Motors is investing $35 billion in EV cars through 2024. That will help it reach economies of scale and beat most smaller companies that could not fathom spending that much on development.
GM is a buy based on its financials. In just 2023, the company sold a staggering 6.2 million cars worldwide, a number is 4% larger than the year-ago figure and equivalent to 7.1% of all vehicles sold globally. It also equates to nearly $140 billion in revenue.
While costs are high in the auto industry, GM has strong margins that are generally around 7%, which gives the company massive profits to invest in R&D and setting up the company to thrive in the future by investing in EVs. They also have over $25 billion in cash, which protects them from negative economic downturns and allows them to keep growing.
BYD (BYDDY)
BYD (OTCMKTS: BYDDY) sells more EVs than any other manufacturer in the world. It recently took the title from Tesla (NASDAQ:TSLA) and owns roughly 18% of the global EV market. Despite this dominance, the company is valued at just a fraction of Tesla. BYD trades for approximately $100 billion compared to Tesla at $791 billion.
The company has many advantages to its competitors, too. Among them are its vertical integration, the fact it makes its own computer chips and also has lithium mines for battery production. BYD also continuously introduces successful models. It just developed a competitive hybrid car that can drive over 2,000 kilometers without stopping. It is also expanding its marketing. BYD became one of the main sponsors of the UEFA Euros, one of the most-watched sporting events internationally.
BYD’s financials make the company a strong buy. They are making a profit with a strong margin of around 4% versus most other EV manufacturers that lose money. However, where the EV maker experienced periods of tremendous sales growth last year of as much as 68%, sales are dramatically slowing.
In the first quarter, BYD sales rose just 2.3% year-over-year. The rest of the EV industry also got caught by the slowdown. Investors need to go in eyes wide open. Despite that, the company remains the dominant EV carmaker and is only becoming more so. It shows the market is severely undervaluing BYD.
On the date of publication, Tomas Levani 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.