Let’s take a look at the automotive industry, which is undergoing a dramatic transformation. We’re in the middle of a shift from traditional combustion engine vehicles to electric vehicles, and at the same time the industry is also introducing new technologies – such AI, driver assistance, and improved sensors – into the cars we drive.
In a recent report from UK banking giant Barclays, analyst Dan Levy notes that “Auto companies must balance two clocks – the ‘near’ (i.e. cycle) and the ‘far’ (i.e. secular – electrification, autonomous, and software-defined vehicles).” Levy goes on to note that some auto – and automotive-related – companies will choose one route or the other – while others will try to walk with a foot in each camp. He closes his thesis by pointing out, “This balancing act has implications for margins, capital allocation, and organizational structure.”
It’s a fascinating look at the current state of the automotive industry. Taken as a whole, the rapidly evolving automotive environment is presenting investors with a wide range of new opportunities.
So let’s take a look at two automotive stocks that fit into Levy’s framework. The analyst sees them both surging over 50% in the coming year, and that’s more than enough to justify a Buy rating. Let’s take a closer look.
Rivian Automotive (RIVN)
We’ll start in the EV sector, where Rivian has taken an innovative approach to the design of electric vehicles. Rivian has designed a ‘skateboard’ platform, a flexible EV chassis that has the electric drive system built into it. The chassis also includes pre-installed fittings for a variety of battery systems, allowing easy modification into a range of end-use vehicle types, based on the body type and seating systems chosen for the final installation. In short, it’s an EV with modularity built into it starting at the factory floor.
Currently, Rivian is actively marketing its RT1 and RS1 models, all-electric light truck and SUV models aimed at the consumer market, and an electric delivery van, the EDV, for the commercial market. The company boasts that it has over 114,000 pre-orders for its vehicles, and has built more than 24,337 as of December 31, 2022. In the company’s last production update, for 4Q22, it showed 10,020 vehicles coming out of its Normal, Illinois facility – a 36% increase quarter-over-quarter. Full-year deliveries totaled 20,332. The company has stated that these production numbers do not include the initial order it has received from Amazon for 100,000 EDVs.
It its 3Q22 quarterly report, the last financial results released, Rivian showed total revenues of $536 million, driven mainly by the delivery of 6,584 completed vehicles. That marked the second quarter in a row that the company had triple-digit revenues, although the gross profit remained negative, at a loss of $917 million.
Despite the big loss, Barclays’ Levy thinks investors should take the opportunity to pull the trigger on RIVN shares.
“While RIVN must address key challenges on its ramp / path to profitability, we nevertheless see RIVN as a best-of-breed opportunity on two of the key automotive megatrends – electrification and the software-defined vehicle. We are hard pressed to see any company in the auto landscape as the ‘next Tesla,’ as Tesla has been quite unique in its accomplishments. That said, if we were to identify any of the start-up EV automakers as the closest to Tesla (vis-à-vis defining characteristics), we believe it would be RIVN. RIVN thus far has established key moats in product and technology,” Levy opined.
This leads Levy to rate RIVN shares as Overweight (i.e. Buy), and to set a $28 price target that implies a one-year gain of ~63%. (To watch Levy’s track record, click here)
Levy’s stance represents the bulls on Rivian, which has 14 recent Wall Street analyst reviews on file. These include 10 Buys, 3 Holds, and 1 Sell, for a Moderate Buy consensus rating. The stock is selling for $17.12, and its $33.57 average price target is even more bullish than the Barclays view, suggesting ~96% upside in the next 12 months. (See Rivian stock forecast)
Mobileye Global, Inc. (MBLY)
Next up is Mobileye, a leader in both driver assistance and automotive sensor technologies. The company offers its eponymous driving safety systems, a set of sensors and alarms that help a vehicle’s operator maintain a safe distance from hazards of all sorts – other vehicles, lane markers, rough shoulders – in all directions. The company has partnered with over 25 automakers around the world for factory installations of Mobileye as an option on new cars rather than just a retro-fitted after-market product. The company is also involved in the development of autonomous vehicle systems.
Mobileye offers a range of options for its systems, for customers to choose from. At the low end is a simple driver assistance, ranging up to full autonomous driving – although that last is still in prototype stages. Options include front cameras, 360-degree camera coverage, and LiDAR sensors, for increasing sensitivity of the system. The company’s autonomous systems are under development for use in commercial deliveries, public transit, and robotic taxi services.
The company raised capital last fall, and since then has released two sets of quarterly financial data. In the most recent, for Q4 and full-year 2022, Mobileye reported a 59% year-over-year increase in revenues to $565 million, and a non-GAAP diluted EPS of 27 cents per share. The EPS was a sharp increase from the 15 cents reported in the previous quarter. Best of all, from an investor’s perspective, Mobileye has a strong balance sheet with plenty of reserves to continue funding new product development; the company had $1 billion in liquid assets, and zero net debt as of December 31, 2022.
Overall, this is a company on its way up, according to Barclays’ Levy. The analyst takes a strongly bullish stance, noting: “We believe MBLY is the highest-quality pure-play in the market leveraged to the secular megatrends of active safety/autonomous vehicles, which should drive robust earnings growth through at least the end of the decade. Moreover, we remain constructive on the catalyst backdrop this year, including continued positive momentum in SuperVision awards and potential for MBLY to exceed its FY23 guidance.”
This stance comes along with an Overweight (i.e. Buy) rating, and a $60 price target that indicates the analyst’s confidence in a 56% upside for the one-year timeframe.
All in all, MBLY shares get a Strong Buy from the analyst consensus, based on 19 recent analyst reviews, which include 14 Buys and 2 Holds. The shares have an average price target of $47.44 and a current trading price of $38.43, implying ~24% upside for the coming year. (See Mobileye stock forecast)
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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.