With apologies to fans of The Who… meet the new auto stock leaders. Same as the old auto stock leaders. Electric vehicles may be all the rage these days. But shares of Tesla (NASDAQ:TSLA), Rivian (NASDAQ:RIVN), Lucid (NASDAQ:LCID) and China’s Nio (NYSE:NIO) and Xpeng (NYSE:XPEV) have pulled back sharply in the past month. It looks like the traditional car and truck makers are gaining ground fast.
Tesla’s third-quarter earnings miss didn’t help the sector. Neither does the fact that Tesla is cutting prices to try and boost sales. And for most of the non-Tesla EV companies, profitability is still a pipe dream.
That doesn’t mean investors can’t benefit from the continued growth of the EV industry. More and more consumers are buying electric cars, or hybrids at the very least, instead of 20th century gas guzzlers. But drivers are increasingly flocking to models made by traditional European, American, and Asian auto giants.
According to figures from Cox Automotive’s Kelley Blue Book, Tesla’s share of the U.S. electric vehicle market in the third quarter was a still dominant 50%. But that’s down sharply, from 59.3% in the second quarter. Tesla’s market share was above 60% earlier in the year.
Ford (NYSE:F), Volkswagen (OTCMKTS:VWAPY), along with its Audi brand, and South Korea’s Hyundai and Kia, gained the biggest chunks of market share. But so did GM’s (NYSE:GM) Chevrolet brand, BMW (OTCMKTS:BMWYY), Mercedes (OTCMKTS:MBGYY) and Nissan (OTCMKTS:NSANY). These brands collectively added 7.2% in EV market share from the second quarter to the third quarter.
Sure, the United Auto Workers strike isn’t helping the stocks of Detroit’s Big 3 lately… and investors have been upping their short bets against GM, Ford and Chrysler owner Stellantis (NYSE:STLA) in the past month.
Still, it looks like the legacy auto companies could be a better play than Tesla and its pure-play EV competitors given their market share growth and bargain stock prices. Just look at the valuations for old-school auto companies vs. Tesla.
EV Stocks Can’t Beat Old-School Valuations
GM, for example, trades at only 4 times 2024 earnings estimates. Tesla’s forward P/E is a whopping 50x. Ford is valued at 7 times next year’s earnings forecasts. The international auto leaders are relatively cheap too. Volkswagen’s P/E is a mere 3x. Hyundai and Nissan trade at 4 and 5 times 2024 profit projections, respectively.
Of course, GM, VW and other older auto stocks don’t deserve to command the type of multiple that Tesla has given that Tesla is still the leader in EVs. But if the world’s top auto companies all continue to eat into Tesla’s market share, there’s good reason to think that their stock prices should start to gain ground at Tesla’s expense as well.
This means that investors looking to capitalize on more growth in the EV market should buy stocks like GM, Ford, VW and Nissan instead of Tesla. Not only are they less risky and more attractively valued, but they also should benefit as they continue to grow their EV businesses at Tesla’s expense.
As of this writing, Paul R. La Monica did not hold (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.
Paul R. La Monica is a veteran financial journalist with nearly 30 years experience (including more than 20 at CNN) covering the stock market and other asset classes, the economy and other corporate and business news.
This content was originally published here.
