Company analysis and valuation of the toyota motor corp , volkswagen ag, stellantis and mercedes benz agn companies listed on vietnamese stock market

Introduction 1.1 Overview of the automotive industry The global automotive industry is a major player in the world economy, encompassing manufacturing, sales, and distribution of vehicl

Introduction

Overview of the automotive industry

The global automotive industry plays a crucial role in the world economy, involving the manufacturing, sales, and distribution of vehicles In 2022, the automotive market was valued at approximately USD 2,086 billion and is projected to grow at a CAGR of 2.79%, reaching USD 2,460 billion by 2028 Key players such as Toyota, Volkswagen, and Mercedes Benz AG lead the industry, competing for market share across diverse segments worldwide.

The automotive industry is globally established, with significant manufacturing and sales operations located in the United States, China, Japan, Germany, and South Korea Additionally, the rising demand for vehicles in emerging Asian markets is contributing to the industry's growth.

The automotive industry features a wide variety of vehicles, such as passenger cars, commercial vehicles, and two-wheelers A notable trend is the growing shift towards electric vehicles (EVs), hybrids, and alternative fuel-powered options, driven by increasing environmental awareness and stringent government regulations.

Modern vehicles are heavily influenced by technological advancements, incorporating features such as autonomous driving, connectivity, and enhanced safety systems Current research is dedicated to advancing battery technology for electric vehicles (EVs), aiming to extend their range and minimize charging times.

Environmental concerns drive the need for reduced emissions and sustainable practices Governments enforce stricter regulations to promote higher fuel efficiency and the adoption of EVs and hybrids

The industry's supply chain is complex, with components sourced globally Geopolitical events and disruptions like COVID-19 highlight vulnerabilities

Challenges include volatile commodity prices, changing consumer preferences, regulatory compliance costs, and intense competition However, these challenges create opportunities for innovation and investment in green technologies

As countries increasingly aim to ban internal combustion engine vehicles in the coming decades, the transition to electric mobility is accelerating This shift presents both challenges and opportunities for manufacturers, prompting them to adapt their business models and invest in electric vehicle technologies.

Shared mobility services and ride-hailing platforms disrupt traditional ownership patterns, with younger generations embracing shared options

The automotive industry experienced a decline during the COVID-19 pandemic, but is now recovering as economies reopen and the demand for personal transportation increases Emphasizing digitalization and e-commerce channels has become essential for boosting car sales in this evolving market.

Overall, the automotive industry continually evolves, driven by technology, consumer preferences, and environmental factors The future will see further transformations with a focus on sustainability and advanced mobility solutions

Area of the study

This study aims to analyze the performance and intrinsic values of four major automotive companies: Volkswagen AG (VWAGY), Toyota Motor Corp (TM), Stellantis (STLA), and Mercedes Benz AG (MBGYY) The purpose of this research is to enhance understanding of these influential firms and offer investment recommendations to potential investors.

Study objective

The objectives mentioned below have been developed for the purpose of analyzing the whole picture of the automotive industry and based on that to deliver valuable investment recommendation

- To provide insight of the automotive industry

- To analyze key macroeconomics factors of the main economies where automotive products are consumed the most, including: the US, Europe and Asia pacific

- To analyze the automotive industry in the US, Europe and Asia pacific

- To analyze financial ratios of four companies chosen based on their financial statements, with the main focus is on profitability ratios, gearing ratios, investment ratios

- To calculate the intrinsic value for these 4 chosen companies with the help of valuation model

- To make financial investment recommendation following the analyses and valuation of intrinsic value

Method of the study

To evaluate a company's profit potential, this study employs a top-down analysis method, beginning with an examination of the macroeconomic and industrial contexts, specifically focusing on the national economic environment of the automotive industry Subsequently, the analysis shifts to assess individual company performance, culminating in a price recommendation derived from the valuation models utilized.

This study employs PEST analysis to identify key issues by examining critical macroeconomic indicators such as real GDP, nominal GDP, CPI, inflation, and exchange rates across the selected countries.

This study analyzes key factors influencing market competition in the global automotive sector, highlighting significant trends that drive business growth within the industry.

The report highlights essential financial ratios to evaluate the profitability and financial solutions of companies, utilizing data from their financial statements and reputable financial databases such as Euromonitor, Datamonitor, Datastream, and OSIRIS.

5 different financial websites, including WB, IMF, MarketLine, and Global Insight Additionally, the report uses specially created valuation models to calculate the intrinsic values of the organizations

The first chapter offers an overview of the study's subject and objectives, while the second chapter analyzes the current global economy, focusing on the US, Europe, and Asia-Pacific regions The third chapter delves into key automotive industry indicators and the factors affecting market competition Chapters four through seven provide insights into the leading four companies, detailing their business operations, financial performance, and future prospects, along with an assessment of their intrinsic value and investment recommendations The report concludes with a summary in the eighth chapter.

Macroeconomic analysis

World economic outlook

The International Monetary Fund (IMF) projects a slowdown in global growth, estimating a decline from 3.5% in 2022 to 3.0% in both 2023 and 2024 While the 2023 forecast shows a slight improvement compared to the April 2023 World Economic Outlook, it remains low by historical standards Central banks' ongoing policy rate increases to address inflation are negatively affecting economic growth Global headline inflation is expected to fall from 8.7% in 2022 to 6.8% in 2023, and further to 5.2% in 2024, with upgraded forecasts indicating a slower decline in underlying (core) inflation.

The recent resolution of the US debt ceiling and proactive measures to stabilize US and Swiss banking have reduced the immediate risk of financial sector unrest, leading to a more positive outlook However, global growth risks remain tilted to the downside, particularly if shocks from the Ukraine conflict or severe weather events occur, potentially keeping inflation high and prompting cautious policymaking As markets react to tighter central bank policies, financial instability could resurface Additionally, unresolved real estate challenges in China may hinder recovery and create negative cross-border effects, while sovereign debt distress could impact more economies Conversely, stronger domestic demand and a quicker-than-expected decline in inflation might require a shift towards looser monetary policy.

In many economies, the primary objective is to maintain financial stability while addressing prolonged deflation Central banks must focus on restoring price stability and improving financial oversight and risk management It's crucial for countries to swiftly provide liquidity during market tensions while minimizing moral hazard risks Additionally, creating budgetary buffers is essential, ensuring that fiscal adjustments offer targeted support to the most vulnerable populations Enhancing the supply side of the economy will facilitate a more gradual reduction in inflation towards target levels and promote fiscal consolidation.

The US economy

The United States is recognized as a leading global power, exerting significant economic and political influence on international policy However, the World Bank rates the U.S political stability at 0 on a scale from -2.5 to 2.5, indicating substantial room for improvement This lack of political stability contributes to rising issues, including an increase in racially motivated attacks against minority groups, higher unemployment rates, and heightened threats of terrorism, all of which pose challenges for businesses.

The United States, a leading global economy, has faced challenges as inflation surged from 3.2% in 2011 to 8.3% in 2022, eroding the purchasing power of the dollar and potentially causing consumers to reduce spending, which could decrease demand for goods and services However, following the COVID-19 pandemic, the U.S GDP experienced significant fluctuations from January 2021 to April 2023, with growth improving in 2023 compared to late 2022 Additionally, the unemployment rate dropped to 3.5% in July 2023, signaling a recovery in the economy post-COVID.

The United States boasts a rich tapestry of diversity, attracting individuals from across the globe seeking higher education and rewarding career opportunities While this multicultural society enhances the nation's strengths, it also presents certain challenges that need to be addressed.

A diverse society brings together top experts in various fields, reinforcing the United States' position as a global superpower However, this diversity can also lead to intercultural conflicts and a perceived erosion of traditional American culture.

The population growth rate significantly impacts a nation's economy According to Worldometers, the slow population growth in the USA could lead to a potential labor shortage in the coming years, posing serious challenges for the country.

Additionally, the large aging population may be a serious issue for the USA in the near future For instance, approximately 17% of Americans were 65 years of age or older in 2020 (Statista, 2023)

As a result of the illnesses of so many older individuals, the US healthcare system may face difficulty

The Internet plays a crucial role in education and income generation, making it essential for every nation In the USA, a significant number of individuals have access to online resources.

Over 92% of Americans now have internet access, significantly boosting the growth of the IT sector This increased connectivity is also driving a rise in IT sector exports, highlighting the expanding influence of technology in the economy.

Research is a cornerstone of innovation in the USA, leading to significant investments in R&D by businesses Numerous American research institutions regularly publish cutting-edge studies, highlighting the nation's commitment to advancing knowledge This robust research infrastructure provides the United States with a competitive edge, as few countries can match its research capabilities.

Between January 2021 and April 2023, the U.S GDP experienced significant fluctuations, with growth rates rising in 2023 compared to late 2022 However, Goldman Sachs has revised its 2023 U.S GDP growth forecast down to 1.1% in response to the Federal Reserve's aggressive tightening policy.

The World Bank projects a 1.1% growth for the U.S economy in 2023, but this is expected to slow to 0.8% in 2024 This deceleration is primarily due to the lasting effects of significant interest rate hikes over the past year and a half, which have impacted economic performance and are contributing to the anticipated slowdown.

Between 2020 and 2022, inflation rates surged, reaching levels not seen since the early 1980s As of September 2022, the inflation rate slightly decreased to 8.2%, yet it still exceeded market expectations With the Federal Reserve poised to increase interest rates, the future trajectory of inflation in the U.S remains uncertain.

In July 2023, the Federal Reserve Board reported a 1.0 percent increase in total industrial production in the USA, following two months of declines Manufacturing output rose by 0.5 percent, with motor vehicle and parts production surging 5.2 percent, while other factory outputs saw a slight increase of 0.1 percent Mining and utility indices also experienced growth, rising 0.5 percent and 5.4 percent respectively, driven by high demand for cooling due to elevated temperatures Despite this increase, total industrial production was 0.2 percent lower than the previous year, standing at 102.9 percent of its 2017 average Capacity utilization reached 79.3 percent in July, remaining 0.4 percentage points below the long-run average from 1972 to 2022.

2.2.3 Summary of the US economy

The recovery of the economy after the pandemic, as indicated by GDP growth and reduced unemployment, suggests a potentially favorable environment for automotive companies

However, the uncertainty around inflation and potential interest rate hikes by the Federal Reserve could impact consumer spending and purchasing power, which might influence the demand for vehicles

The challenges associated with an aging population and potential labor shortages might affect the long-term demand for automotive and related services

In conclusion, despite the mixed signals in the US economy, the automotive market presents significant opportunities for growth Automotive companies must stay vigilant regarding key factors such as inflation, interest rates, and demographic shifts to make strategic and informed business choices.

The European economy

Key European nations, including France and Germany, play a pivotal role in global politics and can significantly impact multinational organizations like the IMF and World Bank.

The European Union (EU) economy, comprising 27 countries, boasts a gross domestic product (GDP) of approximately €14.5 trillion as of 2021 In that year, the EU was responsible for €4,300 billion in global trade, positioning it as a major player alongside the USA and China The effectiveness of the EU market stems not only from its size but also from the elimination of tariffs and streamlined administrative processes, facilitated by a unified regulatory framework across member states Additionally, the EU has established 40 free trade agreements with over 70 countries, allowing member states to engage in tariff-free trade on most goods.

The European Union is dedicated to preserving and promoting the continent's diverse cultural heritage By allowing residents of EU member states the freedom to move, work, and settle across borders, the EU fosters stronger connections among its citizens and encourages the exchange of various subcultures.

The European Union is facing several pressing social issues, notably the disparity in employment rates between men and women in various member states Factors such as family responsibilities and a lack of accessible childcare services often hinder women's participation in the workforce (Schmidt, 2019).

The European Union's population comprises an average of 21 percent elderly individuals aged 65 and over (Statista, 2023), which can place significant strain on the healthcare system due to the health challenges faced by this demographic.

The European Union (EU) stands out as a key global player, especially in the fields of science and technology Countries such as Germany, Sweden, Finland, and France are recognized as some of the most technologically advanced in the world The EU's substantial influence in the science and technology sectors is undeniable.

The European Union is currently trailing behind major economic powers like the United States and China in the technology and information technology sectors Leading companies such as Apple, Alphabet, Alibaba, and Amazon predominantly hail from these countries, highlighting the need for the EU to cultivate its own competitive enterprises To remain relevant, it is crucial for the EU to enhance its involvement in the artificial intelligence revolution.

In the first quarter of 2023, Eurostat reported a seasonally adjusted GDP increase of 0.1% in the euro area and 0.3% in the EU The European Commission's Spring 2023 Economic Forecast has revised the EU GDP growth projections to 1.0% for 2023 and 1.7% for 2024.

In June 2023, the inflation rate in the European Union stood at 6.4 percent, a decline from the peak of 11.5 percent recorded in October 2022, the highest in the given timeframe Historically, the EU's inflation rate reached a peak of 4.4 percent in July 2008 and fell to a low of -0.5 percent in January 2015 Among EU member states, Hungary experienced the highest inflation rate at 26.2 percent, while Luxembourg reported the lowest at 5.8 percent.

In 2021, the European Union experienced an 8% increase in industrial production compared to 2020, followed by a 5% rise in 2022, signaling a robust recovery in the EU's industrial sector post-Covid-19.

2.3.3 Summary of the European economy

The European economy is demonstrating a gradual recovery despite high inflation rates, with key economic indicators indicating a rebound from the disruptions of the COVID-19 pandemic Significant factors driving this recovery include improving GDP growth and an increase in industrial production Although inflation continues to pose challenges, policymakers are actively seeking to balance price control with economic growth.

10 increases and sustaining economic growth This resilience reflects the European Union's ability to adapt and navigate challenges, instilling optimism in the region's economic future.

Asia-pacific economy

Many Asia-pacific countries have developed trade relationships with other countries recently Indeed, many Asia-pacific nations are now members of international organizations such as WTO,

The growing political influence of Asia-Pacific nations, particularly China and Japan, is evident through the UN and the Trans-Pacific Partnership Agreement (TPP) These countries are emerging as significant players on the global stage, alongside superpowers like the USA and Russia.

The IMF's May 2023 Regional Economic Outlook for Asia and the Pacific projects a growth increase to 4.6% in 2023, up from 2.8% in 2022, contributing approximately 70% of global growth This growth is largely attributed to China's recovery and India's robust performance, while other Asian economies are expected to stabilize in 2023 Despite improvements in inflation since 2022, rates remain above targets in many countries within the region Although the impact from recent turmoil in European and US banking sectors has been minimal, vulnerabilities to global financial tightening and market volatility, particularly in corporate and household sectors, are still significant Furthermore, growth is anticipated to decline to 3.9% over the next five years.

The OECD's Society at a Glance: Asia/Pacific 2022 report highlights that social protection programs in the region are largely underdeveloped, with only 7% of GDP allocated to public social programs in 2018-19, significantly lower than the 20% average in OECD countries Most social benefits are directed towards formally employed workers, who are relatively affluent compared to those in the informal sector, thus limiting the redistributive impact of social spending Informal employment remains prevalent in Asia and the Pacific, leaving many without access to social insurance payments.

Population ageing is a critical policy issue in North East Asia, driven by significant increases in life expectancy and steep declines in fertility rates By 2060, it's projected that at least 20% of the population in Asia/Pacific economies will be aged 65 or older, with Korea facing the highest impact, where 40% of its population is expected to fall within this age group.

In the Asia/Pacific region, only one-third of individuals of retirement age are covered by mandated pension systems, leading to a greater reliance on family support compared to older adults in OECD countries To prevent an increase in poverty among the elderly, it is crucial to urgently address the shortcomings in social protection systems.

A report by Tonby et al highlights that Asia has rapidly enhanced its technological capabilities and infrastructure over the past decade, contributing significantly to global growth in technology company revenues, startup funding, R&D spending, and patent filings The report also identifies key technological growth indicators and outlines four major sector opportunities where Asia can achieve significant technological leapfrogging, despite facing various challenges in each area.

The Asia-Pacific region is projected to experience stronger growth in 2023 than in 2022, primarily driven by China's recovery and India's robust economic performance.

A recent study by GlobalData, a London-based data and analytics firm, indicates that the inflation rate in the Asia-Pacific (APAC) region is projected to decrease to 3.9% in 2023, down from 4.2% in 2022, due to stringent monetary policies Despite this improvement, inflation rates continue to surpass target levels in most countries within the region, indicating that inflation remains a significant concern for APAC.

In 2023, S&P Global reported a notable recovery in the manufacturing sector across various Asia-Pacific economies, primarily driven by growth momentum in mainland China Economic data from the first two months indicated a year-on-year industrial production increase of 2.4% Additionally, the Caixin China headline PMI rose from 49.2 in January to 51.6 in February, signaling improved business conditions in China's manufacturing sector This modest growth marks the first expansion in seven months and represents the second-highest reading since May 2021.

2.4.3 Summary of the Asia-pacific economy

The Asia-Pacific economy is experiencing significant growth, with improved GDP rates and industrial production signaling a strong recovery from pandemic challenges This resurgence positions the region as a vital contributor to global economic development, highlighting its resilience and growth potential Consequently, the automotive industry should prioritize this dynamic market, recognizing its potential to drive substantial growth and opportunities in the near future.

The Asia-Pacific region is emerging as a key growth area for automotive companies, offering significant potential for expansion As businesses seek to lessen their dependence on the USA and European Union markets, the dynamic opportunities in Asia-Pacific make it an attractive destination for investment and development in the automotive sector.

The following chapter deliver an insight into the performance and prospects of the automotive industry in each market

Industry analysis

The global automotive industry outlook

The global automotive manufacturing market was valued at approximately 2.86 trillion U.S dollars in 2021, with projections indicating growth to around 2.95 trillion U.S dollars in 2022, according to Statista Tecnovaglobal anticipates significant expansion in the automotive industry driven by several key factors.

The increasing prevalence of online auto sales is significantly transforming consumer buying habits, offering enhanced convenience and accessibility Additionally, the integration of wireless technology in vehicles, such as in-car Wi-Fi and advanced networking features, is further enriching the driving experience.

The introduction of connected and autopilot-capable vehicles marks a significant breakthrough in the automotive industry, with modern technology enabling real-time data sharing and autonomous driving As consumer demand for these advancements grows, automotive businesses must adapt their strategies, including developing an electric vehicle (EV) division With the shift towards cleaner transportation, companies should consider manufacturing EVs or collaborating with experts in electric vehicle technology Strategic acquisitions can enhance their presence in this expanding market, while investing in automation can boost productivity and reduce costs in both fossil fuel and electric vehicle production Additionally, reassessing the supply chain is crucial for adapting to the rapidly changing automotive landscape, as an efficient supply chain can provide a competitive advantage Companies should also explore opportunities in high-growth EV markets to position themselves as early entrants, capitalizing on the transition to electric vehicles.

The automotive sector is experiencing transformational growth driven by the rise of connected and autopilot-enabled vehicles, digitization of sales, and the increasing adoption of electric vehicles (EVs) To thrive in this evolving landscape, businesses must proactively transform their models by seeking collaborations, investing in automation, enhancing supply chains, and strategically expanding into new regions This proactive approach will not only ensure survival in the competitive automotive industry but also contribute to shaping the future of transportation.

The automotive industry’s market share

In 2022, Toyota emerged as the leading car brand globally, holding approximately 11.5 percent of the market share, according to Statista Owned by Japan's Toyota Motor Corporation, it surpassed the Volkswagen Group, which was the largest manufacturer in 2020.

As environmental awareness grows, automotive manufacturers face new challenges, including a shift to lighter materials and the rise of electric and autonomous vehicles Tesla Motors, based in Palo Alto, leads the electrification trend, while competitors like Google and Apple may soon join In 2022, Tesla delivered approximately 1.3 million vehicles, significantly trailing Volkswagen Group, which sold over six times that amount, giving Tesla an estimated U.S market share of around two percent.

Competition drives in the automotive industry

In order to recognize the economic structure and assess the profit potential of the automotive industry, the report uses Porter’s five forces model

Entering the automotive sector presents significant challenges for new brands, primarily due to the substantial financial investment required Establishing manufacturing facilities, developing a distribution network, and hiring skilled employees necessitate considerable upfront capital Moreover, extensive resources are essential for marketing and advertising efforts aimed at educating consumers about the brand's products.

The automotive industry presents significant challenges for new entrants due to intense competition from established companies that have already built strong customer bases and understand consumer preferences (Athanasopoulou et al., 2019) Existing brands benefit from their solid reputation and positive brand image, making it difficult for newcomers to gain market share To succeed, new brands must offer innovative and unique products that differentiate them from established competitors.

Intense competition from established businesses poses a major barrier to entry in the automotive sector, as these companies already possess a loyal customer base and a deep understanding of consumer preferences (Athanasopoulou et al., 2019).

A strong brand reputation and positive image are significant advantages for most current brands For a new brand to successfully capture a substantial market share, it is essential to introduce innovative and unique products.

New firms face significant barriers to entry in competitive markets, including increased legal requirements that hinder their success Despite greater access to raw materials, small companies struggle to achieve economies of scale Additionally, entering new markets proves challenging, leading new brands to prioritize engineering and product quality Furthermore, stringent government regulations, such as high import taxes, discourage foreign brands from entering domestic markets.

New businesses face significant challenges in competing with established rivals due to various obstacles Recent increases in legal requirements have made it harder for new entrants to thrive, despite the improved availability of raw materials Small businesses struggle to achieve economies of scale, and breaking into new markets remains a daunting task, leading them to prioritize product engineering and quality Furthermore, government policies, such as high import taxes, discourage global brands from entering local markets.

In the automotive sector, suppliers possess limited bargaining power due to the abundance of suppliers, with many being small-scale operations Despite a few large suppliers, the overall market is fragmented, leading to a substantial demand for raw materials that does not require extensive resources Additionally, suppliers pose a low threat of forward integration, as automakers can easily switch suppliers if they fail to adhere to established guidelines.

In the automotive industry, buyers hold moderate bargaining power, primarily driven by small business owners who often purchase single vehicles However, larger clients, such as government entities and big corporations, frequently acquire fleets, enhancing their negotiating leverage This dynamic allows all customers, regardless of size, to seek price reductions, as they can easily switch brands or transportation methods Consequently, most consumers tend to favor purchasing from companies that offer lower prices.

Shifting consumer preferences and intense competition in the automotive sector have empowered consumers in negotiations To retain loyal customers, companies are focusing on improving product quality, introducing innovative designs, and maintaining competitive pricing Despite this dynamic, neither large corporations nor individual buyers pose a threat to backward integration in the industry.

Automotive companies focus on ensuring seamless commuting experiences for customers Despite the availability of various transportation modes like trains, buses, and taxis, none match the comfort and accessibility of personal vehicle ownership This growing preference for personal vehicles has led to an increase in both production and usage in the automotive sector (Genzlinger et al., 2020).

Due to the lack of viable substitutes for the existing demand for the vehicle transportation system, the threat of substitutes is also low

The automotive industry faces intense competition, driven by the lack of prominent brands and increasing exit barriers Various factors influence the competitive landscape among existing businesses, as noted by Ariffin and Sahid (2018) Companies tend to remain in the industry throughout their existence, as exiting can lead to substantial financial losses, compounded by a scarcity of alternatives Additionally, industry concentration heightens competition, with numerous equally capable competitors providing similar products in a saturated market.

Market expansion significantly influences competition levels, with rapidly growing industries experiencing less intense rivalry among firms Conversely, limited growth markets see heightened competition due to fewer customers Differentiation also plays a crucial role; businesses offering unique products face less competition, while those with similar offerings encounter fiercer rivalry To thrive in a competitive landscape, companies must implement strong strategies, including aggressive cost-cutting or product differentiation to stand out from competitors.

The automotive industry faces a low threat of new entrants due to significant investment requirements, challenges for small businesses in achieving economies of scale, intense competition from established brands, and legal restrictions While there are many suppliers, their bargaining power is limited as most are small, and they pose a moderate threat of forward integration Conversely, buyers hold a strong bargaining position due to their ability to easily switch brands or transport methods, with pricing heavily influencing their purchasing decisions Alternatives present minimal risk due to their lack of convenience compared to car ownership However, the industry experiences high competition with few brands and significant customer loyalty, as companies invest heavily in enhancing customer satisfaction.

The major automotive market outlook

3.4.1.1 Market value and market volume

In 2021, the North American car manufacturing industry experienced significant growth, expanding by 14.7%, with the United States contributing a substantial 74.1% of the total market value, which reached an impressive $422.5 billion Forecasts indicate that this industry will continue to thrive, with an expected market value of $528.6 billion by 2026, representing a notable 25.1% increase from 2021 The sector is projected to grow at a robust compound annual growth rate (CAGR) of 4.6% from 2021 to 2026.

A comprehensive study by MarketLine indicates that the North American car manufacturing sector is projected to achieve a production output exceeding 31.3 million units by 2026, reflecting a significant 18.4% increase from 2021 levels The industry is anticipated to grow steadily at a CAGR of 3.4% from 2021 to 2026.

The North American automotive manufacturing sector, driven primarily by the United States, is poised for continued growth, making it a lucrative opportunity for businesses in the automotive industry The US market remains a vital hub for automotive ventures, evidenced by significant increases in both market value and production volume This evolving landscape offers numerous opportunities for companies to thrive and play a pivotal role in shaping the future of the automotive industry in the US.

According to Statista, General Motors was the market leader in terms of U.S light vehicle sales in

In 2022, General Motors sold approximately 2.3 million vehicles in the United States, capturing around 17.09 percent of the automotive market during that year.

The U.S automotive market is highly competitive, with Toyota Motor closely following General Motors As of June 2022, Buick, a General Motors division, achieved the highest initial quality, followed by Dodge and Chevrolet Lexus, a Toyota subsidiary, ranked sixth in quality but excelled in overall consumer satisfaction, outperforming BMW by seven points in 2022 In contrast, General Motors brands, including its namesake, ranked lower, with the General Motors brand placing nineteenth.

3.4.2.1 Market value and market volume

According to the ACEA Economic and Market Report, in 2022, global new car registrations reached 66.2 million units1 However, demand is still trending well below 2019 pre-pandemic

17 levels Registrations in the European region declined by 10.4% during 2022 to 12.8 million units, impacted by semiconductor shortages and the Russia-Ukraine conflict

In 2022, the European Union experienced a significant 4.6% decline in new passenger car registrations, largely due to severe component shortages in the first half of the year, marking the third consecutive year of decreases Despite some signs of market recovery with increased registrations from August to December, the total for the year reached only 9.3 million units, the lowest level since 1993, when registrations were at 9.2 million units.

Looking ahead to 2023, the EU auto market shows a more promising outlook, with projections indicating a 5% increase in new automotive registrations despite ongoing economic challenges and component shortages affecting production If this forecast materializes, registration volumes would align closely with 2020 figures, yet remain significantly lower than the pre-pandemic peak of 13 million units recorded in 2019 (ACEA, 2023).

In 2022, the Volkswagen Group dominated the European automotive market, capturing 25% of new car registrations, as reported by Statista The company achieved impressive sales of approximately 2.79 million units, surpassing its nearest competitor by around 737,000 units.

Stellantis, the second-largest automotive group, encompasses 14 brands, including Opel and Vauxhall, which were acquired from General Motors in 2017 Formed through the merger of FCA and PSA, Stellantis benefited from French government incentives that boosted demand in its home market However, the French automotive market experienced a significant downturn in autumn 2020, while Germany maintained its dominance in the European passenger car sector By May 2021, Volkswagen, along with competitors Daimler and BMW, collectively held nearly 40% of the European market share.

In 2020, Europe experienced a significant decline in passenger car sales, dropping approximately 24% to around 12 million units due to the COVID-19 pandemic Sales plummeted by 57% year-on-year in May, but began to recover as economies reopened, with month-on-month sales more than doubling in May and continuing to rise in June By September and October, sales had returned to normal levels; however, subsequent COVID-19 outbreaks in Autumn hindered a positive conclusion for the automotive industry that year (Statista, 2023).

3.4.3.1 Market value and market volume

According to the ACEA Economic and Market Report, new car registration in Asia reach 34.4 million units in 2022, which is 4,4% more compared to 2021

In more details, Japanese passenger car sales decreased by 5.1% from 2021 to 2022 as a result of rising energy costs, yen depreciation, and a decrease in real disposable income In a similar vein,

In 2022, new car registrations in South Korea decreased by 3.0%, while China experienced a 7.6% increase in demand, resulting in 21.7 million cars sold, driven by consumers rushing to buy before the end of government electric vehicle subsidies Meanwhile, Indian passenger car sales surged by 23.1% to 3.8 million units, fueled by rising consumer savings and lower financing rates, alongside a growing preference for individual mobility.

In 2022, Toyota Motor Corporation emerged as the leading automaker in the Asia-Pacific region, securing a market share of 22.2%, as reported by Statista The Volkswagen Group followed as the second-largest automaker with a 14.5% market share Other notable players included Hyundai-Kia with 8.3%, Honda at 7.6%, and Nissan with 6.4% This data highlights the dominance of Asian automotive companies in the Asia-Pacific market.

The traditional automotive markets in the US and Europe are undergoing significant reassessment as the industry experiences considerable upheaval Historically dominant, these regions are losing their status as the primary focus of the automotive sector In contrast, the Asia-Pacific market has emerged as a vibrant and rapidly growing area, offering unparalleled growth potential due to its expanding middle-class population, urbanization trends, and increasing automotive demand As a result, it is essential for automotive companies to strategically shift their focus towards the Asia-Pacific market while maintaining their presence in the US and Europe.

Toyota Motor Corporation (TM)

Company overview

Toyota Motor Corporation is a leading manufacturer and seller of a diverse range of vehicles, including mid-size, luxury, sporty, and specialty cars, as well as SUVs, pickup trucks, minivans, lorries, and buses The company also ventures into real estate, banking, telecommunications, and information technology Toyota markets its products under the brand names Lexus, Toyota, and Hino With manufacturing facilities in various cities across North America, Latin America, Europe, Africa, Asia Pacific, and the Middle East, Toyota also operates research and development centers in the US, Japan, and China The company's headquarters is located in Toyota City, Aichi, Japan.

The company reported revenues of (Yen) JPY37,154,298 million for the fiscal year ended March

In FY2023, the company experienced a revenue increase of 18.4% compared to FY2022, reaching JPY10,546,831 million in the first quarter ending June 2023, which was an 8.8% rise from the previous quarter However, the operating margin decreased to 7.3% from 9.5% in FY2022, and the net margin also fell to 6.6% compared to 9.1% in the prior year.

Tearsheet

SWOT analysis

4.3.1.1 Focus on innovation provides competitive advantage

Toyota prioritizes innovation to expand its product range and enhance usability, quality, safety, and environmental compatibility The company's research activities, conducted by Toyota Central Research and Development Laboratories in Japan, focus on developing advanced technologies in energy, environment, IT, telecommunications, and materials, while minimizing accidents and environmental impacts Key areas of development include advanced safety technology, electric vehicles (EVs), fuel cell vehicles (FCVs), automated driving technologies, and improvements in hybrid systems and internal combustion engine fuel economy Toyota invests significantly in R&D, spending JPY1,124,262 million in FY2022, which represents 3.6% of its revenue, and operates research centers across the US, China, Asia Pacific, Japan, and Europe.

4.2.1.2 Strong market position and brand image creates value for the company

Toyota holds a significant market share across various international regions, commanding 51.1% in Japan, 11.8% in Asia (excluding China), and 6% in Europe.

Toyota holds a significant market share across Oceania, Africa, South and Central America, and the Middle East, positioning it for international growth and competitive advantage With a diverse portfolio that includes notable brands such as Lexus, Prius, and Camry, Toyota operates in all automotive market categories, including buses, trucks, SUVs, and spare parts These premium brands are among the most recognized globally, contributing to Toyota's strong market presence and enabling the company to achieve sustainable business results that enhance overall value.

Toyota's profitability and competitiveness are being adversely affected by a significant rise in trade receivables, which increased from JPY 9,026,579 million in FY2021 to JPY 9,607,601 million in FY2022 The tightening of credit markets has led the company to extend credit to more customers and offer improved credit terms, resulting in heightened exposure to customer credit risks This increase in receivables could further deteriorate the company's working capital, especially if new or existing customers fail to meet their payment obligations, ultimately impacting Toyota's operations, financial stability, liquidity, and overall performance.

The global automotive industry is projected to thrive, positively impacting businesses like Toyota, which produces a diverse range of automotive components As the industry expands, the demand for Toyota's products is expected to strengthen its financial standing According to MarketLine's research, the global automotive manufacturing market is forecasted to reach $1,604.5 billion by 2024, with significant contributions from truck manufacturing (17.2%), motorcycle manufacturing (39.3%), and car manufacturing (43.4%) The Asia-Pacific region leads the market, accounting for 55.6% of its value, followed by Europe (21.2%), the United States (13.1%), the Middle East (0.2%), and the Rest of the World (9.9%).

4.3.3.2 Growth in global electronic vehicles market

Toyota, a leading global automaker, stands to benefit from the increasing sales of electric vehicles (EVs) According to the Edison Electric Institute and the Institute for Electric Innovation, it is projected that the number of EVs on US roads will reach 18.7 million by 2030 Furthermore, annual EV sales in the United States are expected to hit 3.5 million vehicles by the same year.

Electric vehicles (EVs) now represent over 20% of annual vehicle sales in the country, prompting automakers to expand their offerings In response to growing consumer demand, manufacturers are introducing a wider range of EV models, including both battery-powered and plug-in hybrid options (MarketLine, 2023).

4.3.4.1 Intense competition from large players impacts market share and margins

The global automotive sector is experiencing intense competition, particularly for Toyota, which faces challenges from major international automakers such as Nissan, Ford, Hyundai, Honda, Volkswagen, General Motors, Maruti Suzuki, Mitsubishi, PSA, and Renault As globalization and consolidation continue, the rivalry among car manufacturers is likely to intensify, influenced by factors such as product features, quality, innovation timelines, pricing, reliability, safety, fuel economy, customer service, and financing options This heightened competition may lead to decreased vehicle sales and increased inventories, potentially exerting downward pressure on prices and adversely affecting Toyota's financial performance and operational results.

Rapid technological advancements significantly influence the technology market, compelling companies to adapt or risk obsolescence As new products and industry standards emerge, existing offerings may become unmarketable, necessitating continuous innovation and timely product launches to maintain competitiveness To succeed, businesses must understand customer needs, embrace emerging technologies, and consistently introduce new goods and services that resonate with the market.

Ratio analysis and forecasted financials

This report aims to provide investment recommendations by analyzing key financial ratios, specifically focusing on profitability, gearing, and investment ratios These ratios offer a comprehensive overview of the firm's financial performance, associated risks, and potential return on investment.

TM's financial performance in terms of profitability has shown fluctuations since 2019 Following a recovery from the adverse impacts of the Covid-19 pandemic, TM's profitability ratio improved in 2022 compared to 2021, but experienced a decline in 2023 This drop can be attributed to the financial crisis stemming from rising inflation and interest rates, which increased the company's operating costs Nevertheless, there is potential for TM's profitability to improve in the coming years as the economy stabilizes.

The table presents TM's gearing ratio over the past five years, showing a stable trend that reflects the company's effective management of financial risk despite challenges such as the Covid-19 pandemic and rising inflation and interest rates This stability suggests that TM maintains a balanced approach to borrowing, indicating that the company is not overly reliant on debt for its operations Consequently, it can be concluded that TM is currently not facing significant financial risks.

The investment ratio of TM has shown consistent improvement over the past five years, with a notable 53% increase in Book Value per Share from 2019 to 2023, reflecting a greater share of the company's net assets Although the Earnings Per Share (EPS) in 2023 is lower than in 2022, it still represents an upward trend compared to earlier years, indicating that TM's earnings potential remains strong.

According to MarketLine, the market value of the automotive industry is expected to grow to

The automotive industry is projected to reach $2,381 billion, reflecting a significant 27% increase since 2022 This optimistic forecast indicates a promising future for all companies within the sector, anticipating robust growth over the next five years.

To evaluate the future stock value of TM, we will utilize the Free Cash Flow to Equity (FCFE) model This involves forecasting key financial metrics, including EBITDA, current assets, current liabilities for net working capital, and total short-term and long-term debt for net borrowings, using the average growth rates from the past five years The EBITDA forecast will specifically rely on the average growth observed over the last two years, reflecting a period of stability post-COVID-19 Similar assumptions will be applied to all other companies analyzed in this study, with the detailed financial forecasts available in Appendix 1.

Valuation model

The two valuation model employed by the report will be FCFE (free cash flow to equity) and multiple valuation

Free cash flow to equity (FCFE) represents the total cash available to a company's equity shareholders after all expenses, including investments, debts, and interest payments, have been settled.

All the cash flow in the future was discounted to present value by using weighted average cost of capital (WACC), which is calculated in the appendix 2 below

The equity value of a firm is determined by calculating the total discounted free cash flow to the firm, adding the current cash holdings, and subtracting any interest-bearing debts.

The intrinsic value per share is calculated by dividing the equity value by the current number of shares Thus, the intrinsic value per share of TM is JPY 13,742

The valuation of TM is determined by three key ratios: Price-to-Earnings (P/E), Price-to-Sales (P/S), and Price-to-Book (P/B), leveraging the average values of TM's peers within the automotive industry.

The P/S ratio measures a company's stock price relative to its annual sales revenue per share, while the P/E ratio compares the stock price to its earnings per share (EPS) Additionally, the P/B ratio assesses the stock price against its book value per share (BPS) To determine the equity value of a company, one can calculate the average of these three financial ratios.

The intrinsic value per share is calculated by dividing the equity value by the current number of shares Thus, the intrinsic value per share of TM is JPY 2,088.

Recommendation

Investors may find it advantageous to buy and hold TM stock for the long term, as projections suggest the share price could rise to JPY 10,911 However, in the short term, TM's current share price has exceeded the calculated mean market value based on comparable companies, prompting current shareholders to consider selling their stocks.

Volkswagen AG

Company overview

Volkswagen AG, a leading automotive manufacturer in Europe, develops a wide range of vehicles including passenger cars, light commercial vehicles, trucks, buses, and motorcycles The group markets its diverse lineup under several prestigious brands such as Audi, SEAT, Skoda, Bentley, Bugatti, Porsche, Ducati, Volkswagen Commercial Vehicles, Scania, and Cupra In addition to vehicle manufacturing, Volkswagen offers various services including dealer and customer financing, leasing, banking, insurance, and fleet management The company also produces marine and industrial engines, with manufacturing facilities located in Salzgitter, Germany, and China.

27 business presence in the Americas, Europe, Asia-Pacific and the Middle East The company is headquartered in Wolfsburg, Germany

Tearsheet

SWOT analysis

5.3.1.1 Strong global market presence caters to wide customer base

Volkswagen maintains a strong presence in both developed and emerging markets, holding leading market positions across the Americas, Asia, and Africa As reported by MarketLine, the company commands a significant market share in various regions, supported by its manufacturing facilities located in China, Germany, and Salzgitter With 120 production facilities operational as of December 2021, Volkswagen's revenues in FY2021 were distributed as follows: Europe/Other (58.1%), Asia Pacific (19.4%), North America (18.1%), and South America (4.4%) This extensive geographical reach enhances Volkswagen's brand image and provides a competitive advantage, facilitating the launch of new services and entry into new markets.

5.2.1.2 Broad product portfolio drives top-line growth

Volkswagen boasts a diverse brand portfolio that spans nearly every market sector, offering products ranging from buses and large trucks to motorcycles and compact cars The company markets its vehicles under various names, including Volkswagen, Audi, Skoda, Porsche, SEAT, Bentley, Scania, Bugatti, Lamborghini, and Volkswagen Commercial Vehicles, while also providing consumption-optimized engines With a presence in all major global automotive markets, Volkswagen's primary sales regions include Western Europe, China, Brazil, the US, Russia, Argentina, and Mexico, giving the firm significant competitive advantages.

As of December 2021, Volkswagen Group showcased a diverse portfolio of vehicles, delivering 4,575,415 Volkswagen, 1,572,019 Audi, 801,910 Skoda, 423,597 SEAT, 14,788 Bentley, 8,303 Lamborghini, 283,128 Porsche, and 63 Bugatti vehicles The company also delivered 90,286 MAN, 92,718 Scania, and 270,210 Volkswagen Commercial vehicles This extensive range of products not only enhances Volkswagen's market share in key global markets but also leverages the strength of its brand to drive significant top-line growth.

Product recalls can significantly damage a company's reputation and diminish consumer trust In April 2022, over 100,000 plug-in hybrid vehicles were recalled due to a fire risk associated with inadequately insulated high-voltage batteries Volkswagen's plug-in hybrids, which combine a traditional combustion engine with an electric drive and are charged via a socket, were identified as posing this fire hazard (MarketLine, 2023).

Volkswagen Passenger Cars has established strong partnerships with leading technology providers to enhance sales and increase market share In November 2022, the company collaborated with car-sharing startup MILES Mobility, resulting in the sale of UMI Urban Mobility International GmbH to MILES This strategic move aims to position Volkswagen in the growing market for innovative mobility services.

5.3.3.2 Expansion of TRATON Financial Services

Volkswagen is set to enhance its business operations and increase returns through strategic measures aimed at accelerating growth In January 2022, the company established a captive and integrated financial services unit in Scania, Germany, positioning itself to provide tailored financing solutions to its brands and customers With deep insights into future customer needs regarding hardware, software, and services, TRATON's expanding financing business will deliver a comprehensive suite of innovative and personalized financing options.

5.3.3.3 Positive outlook for the global automotive industry

Volkswagen provides an extensive range of car parts, positioning itself to benefit from the global automotive manufacturing market, which is projected to reach USD 1,733.1 billion by the end of 2024 The Asia-Pacific region dominates this market, contributing 55.6% of the total industrial value, followed by Europe at 21.2%, the US at 13.1%, and the Middle East at 0.2%.

30 world (9.9%) By 2024, the market is anticipated to have grown to 154.7 million units in volume (MarketLine, 2023)

The automotive sector globally is significantly influenced by stringent regulations on exhaust fume pollution, fuel economy, noise levels, recycling, and safety standards The Federal Clean Air Act in the US imposes strict limits on pollutants from new vehicles, with the EPA's Tier 3 regulations gradually tightening emission standards starting from the 2017 model year California has the authority to set its own vehicle emissions regulations, which other states can adopt, and mandates the production of zero-emission vehicles (ZEVs) Similarly, the EU enforces strict limits on regulated pollutants from new vehicles, with recent directives introducing diesel engine particle filters and tightening nitrogen oxide limits As nations adapt to evolving US and EU legislation, any significant regulatory changes could adversely impact their economies.

Ratio analysis and forecasted financials

This report aims to provide investment recommendations through a detailed ratio analysis, concentrating on three key categories: profitability, gearing, and investment ratios These ratios offer a comprehensive overview of the company's financial performance, associated risks, and potential return on investment.

Volkswagen's financial performance has shown significant improvement in profitability since 2020, as indicated by various ratios in the table above Notably, the Return on Capital Employed, Return on Assets, and Net Profit Margin ratios for 2022 have surpassed those recorded in previous years.

In 2018, prior to the COVID-19 pandemic, Volkswagen's profitability ratios were significantly higher than in 2021, where a decline was observed across almost all metrics This downturn can be attributed to a stagnating economy, marked by rising inflation and interest rates, which increased the company's operating costs compared to previous years Nonetheless, when compared to 2020, a year heavily affected by the pandemic, Volkswagen shows an upward trend in financial performance, suggesting that profitability may improve in the future.

The table displays Volkswagen's gearing ratio trends over the past five years, highlighting a consistent improvement This positive shift indicates Volkswagen's effective management of financial risk, particularly in light of challenges posed by the Covid-19 pandemic, as well as rising inflation and interest rates.

Since 2018, Volkswagen's Debt to Capital ratio has declined, indicating a reduced reliance on borrowed funds for its operations Consequently, it can be asserted that Volkswagen currently faces minimal financial risk.

The investment ratio of Volkswagen has shown consistent improvement over the past five years, with notable increases in key metrics The Book Value per Share ratio rose by 41% from 2018 to 2022, signifying that each share now represents a larger portion of the company's net assets Additionally, the Earnings Per Share (EPS) ratio climbed from 30 in 2018 to 36.94 in 2022, reflecting the significant earnings growth Volkswagen has achieved in recent years Overall, the investment ratios for Volkswagen present a promising outlook.

All the forecasted indicators are made with the same assumption as TM The forecasted finical indicators are presented in Appendix 1.

Valuation model

Free cash flow to equity (FCFE) represents the total cash available to a company's equity shareholders after all investments, debts, and interest obligations have been settled.

All the cash flow in the future was discounted to present value by using weighted average cost of capital (WACC), which is calculated in the appendix 2 below

The equity value of a firm is determined by calculating the total discounted free cash flow to the firm, adding the current cash on hand, and subtracting any interest-bearing debts.

The intrinsic value per share is calculated by dividing the equity value by the current number of shares Thus, the intrinsic value per share of Volkswagen is EUR 259.46

The valuation of Volkswagen is determined through three key ratios: Price-to-Earnings (P/E), Price-to-Sales (P/S), and Price-to-Book (P/B) These ratios are calculated using the average values of Volkswagen's peers within the automotive industry.

The P/S ratio evaluates a company's stock price in relation to its annual sales revenue per share, while the P/E ratio assesses the stock price against its earnings per share (EPS) Additionally, the P/B ratio compares the stock price to its book value per share (BPS) To determine the equity value of a company, one can calculate the average of these three financial ratios.

The intrinsic value per share is calculated by dividing the equity value by the current number of shares Thus, the intrinsic value per share of Volkswagen is EUR 28.01

Recommendation

Investors may find it advantageous to buy and hold Volkswagen stock for the long term, as projections suggest a potential price increase to JPY 259.46 per share However, from a short-term perspective, the current share price has exceeded the average market value based on comparable companies, prompting current shareholders to consider selling their Volkswagen stocks.

Stellantis NV (Stellantis)

Company overview

Stellantis NV, previously known as Fiat Chrysler Automotives NV, is a leading automotive company formed from the merger with PSA Group The corporation specializes in designing, engineering, manufacturing, distributing, and selling vehicles, parts, and production systems In addition to its automotive offerings, Stellantis provides leasing, renting, and retail financing services to dealers through its subsidiaries, joint ventures, and external financial institutions The company boasts a diverse portfolio of well-known brands, including Alfa Romeo, Citroen, Dodge, Fiat, Jeep, and Chrysler.

Stellantis operates under various automotive brands, including Vauxhall, and provides service contracts, parts, and luxury vehicle sales through its Mopar division The company also offers premium cars under the Maserati name and manages a used car marketplace called Spoticar With a global presence in regions such as the Middle East, Africa, North and South America, Asia Pacific, and Europe, Stellantis is headquartered in Amsterdam, the Netherlands.

The company reported revenues of (Euro) EUR179,592 million for the fiscal year ended December

In FY2022, the company experienced a significant revenue growth of 20.2% compared to FY2021 The operating margin improved to 11.1%, up from 10.1% in the previous year However, the net margin slightly decreased to 9.4%, down from 9.5% in FY2021.

Tearsheet

SWOT analysis

Stellantis is committed to developing eco-friendly products through focused research and development initiatives The company aims to improve the design, performance, consumer perception, fuel efficiency, reliability, safety, and sustainability of its offerings Key areas of focus include advancing powertrain technology and autonomous driving, enhancing integration, reducing energy loss, and optimizing vehicle performance.

36 efficiency The company spent EUR5, 200 million on R&D in FY2022, which represented 2.9% of revenue and increased by 15.9% year over year (MarketLine, 2023)

Stellantis distinguishes itself from competitors through its strong brand portfolio, driving sales and offering reliable consumer solutions Leveraging its industrial expertise and technological innovation, the company delivers high-quality vehicles, including utility vehicles, pickup trucks, and minivans under the Dodge, Ram, Jeep, and Chrysler brands in North America According to the J.D Power 2022 Automotive Performance Execution and Layout Study, Dodge and Ram were the top brands in the US mass market (MarketLine, 2023) Additionally, Stellantis showcases luxury automotive through its Maserati brand and provides parts and manufacturing systems via Comau and Teksid.

Stellantis leverages its global presence to gain insights into local markets, ensuring prompt and efficient service for consumers With manufacturing facilities in key countries such as the US, Canada, Mexico, France, Germany, Italy, Spain, the UK, Brazil, and Argentina, the company is well-positioned to meet rising global demand as sales continue to gain momentum.

In FY2022, global sales reached 5.8 million units, with Enlarged Europe leading at 44.8% North America contributed 31% to the total sales, while South America accounted for 13.8% The Middle East and Africa represented 6.9%, and both China and the Asia Pacific region, including India, made up 3.4% of the sales figures (MarketLine, 2023).

Stellantis has significantly enhanced investor confidence through its improved operational performance, showcasing a promising outlook for the future In FY2022, the company reported a remarkable 20.2% increase in revenue, totaling EUR179,592 million, compared to FY2021 Operating income also surged by 32.3%, rising to EUR19,998 million from EUR15,116 million in the previous year This growth contributed to an 18.3% year-over-year increase in net income, reaching EUR16,799 million Furthermore, Stellantis achieved an operating margin of 11.1% in FY2022, up from 10.1% in FY2021, reflecting that revenue growth outpaced expense increases.

Stellantis faces potential cost increases and reputational damage due to product recalls and operational issues Recalls are necessary for products with defects or safety hazards that have been distributed to customers, highlighting the importance of maintaining quality and reliability in their offerings.

In February 2023, 37 businesses recalled approximately 340,000 Ram diesel pickup trucks due to reported fires linked to faulty electrical connectors This recall affects several models, including the Ram 2500, 3500, and 3500/4500/5500 cab chassis trucks Additionally, in January 2023, 76,000 plug-in hybrid electric minivans were recalled because of a short circuit issue that posed a risk of sudden engine shutdown (MarketLine, 2023).

Through strategic partnerships and collaborations, the organization can enhance its capabilities and gain operational benefits In March, a memorandum of agreement was signed between the business, the Industrial Development Corporation, and the Department of Trade, Industry and Competition.

In 2023, the company announced plans to establish a manufacturing facility in South Africa, aiming to expand its presence in the Middle East and Africa and solidify its status as a key player in the region The facility is expected to be completed by 2025 Additionally, a partnership with GlobalLogic was formed in February 2023 to create a software factory in Poland, focusing on the automotive sector This collaboration will enable the development of customizable open automotive platforms, facilitating the transition of the company's vehicle fleet to a software-defined architecture that integrates seamlessly with customers' digital lives and enhances their ability to receive over-the-air (OTA) updates for new features and services (MarketLine, 2023).

The expansion of electric vehicles (EVs) presents significant opportunities for Stellantis, as the International Energy Agency (IEA) forecasts that by 2030, there will be 130 million EVs in production globally Key markets for EV development include Canada, Norway, France, Germany, and China, driven by supportive government policies, enhanced charging infrastructure, and decreasing costs of EVs The European Union has established new fuel economy benchmarks and CO2 emission norms for heavy-duty vehicles by 2030, which include incentives for electric vehicles Furthermore, initiatives from various organizations, including the IEA, are expected to accelerate global EV adoption.

The global automotive manufacturing market is set to expand significantly, benefiting Stellantis as it adapts to new technologies and evolving consumer demands With rising consumer spending, the market is projected to reach a value of approximately US$1,733.1 billion by the end of 2024, according to internal research.

38 industry is dominated by Asia-Pacific (55.6%), followed by Europe (21.2%), the US (13.1%), the Middle East (0.2%), and the rest of the world (9.9%) (MarketLine, 2023)

Stellantis' financial performance may be adversely affected by fluctuations in raw material costs, impacting its operations and profitability Key raw materials include steel, copper, lead, aluminum, resins, and platinum group metals, along with glass, consumables, fuels, and plastic finishes Furthermore, the company's manufacturing facilities rely on energy sources such as electricity and natural gas.

In a highly competitive marketplace, the business must effectively compete to maintain profitability, focusing on product quality, safety, pricing, dependability, and customer service Key competitive factors also include fuel efficiency, innovation, and production timelines, alongside favorable financing conditions Major rivals include Bayerische Motoren Werke AG, General Motors, Ford, Mercedes-Benz, Volkswagen, Hyundai, Nissan, Honda, Toyota, and Renault, with emerging market competitors increasingly challenging established firms Many of Stellantis' competitors benefit from longer operational histories, greater brand recognition, established customer and supplier relationships, and superior financial resources.

Stellantis' operations are significantly influenced by various regional and economic factors, including the health of local and global economies, consumer confidence, and government industrial spending Prolonged global financial crises can adversely affect the company, as concerns about international trade, pandemics, energy price fluctuations, and terrorism may hinder clients and suppliers from obtaining necessary financing This can lead to changes, delays, or cancellations in their plans to purchase or provide goods and services, ultimately impacting Stellantis' business performance.

Ratio analysis and forecasted financials

This report aims to provide investment recommendations through a detailed ratio analysis, concentrating on three key categories: profitability, gearing, and investment ratios These ratios offer a comprehensive overview of the firm's financial performance, associated risks, and potential return on investment.

Stellantis has demonstrated improved financial performance in profitability since 2020, as indicated by various ratios Notably, metrics such as Return on Capital Employed, Return on Assets, and Net Profit Margin show that the 2022 figures surpass those of previous years.

In 2018, prior to the COVID-19 pandemic, Stellantis exhibited strong profitability ratios; however, by 2021, these ratios had significantly declined This downturn can be attributed to a stagnating economy, marked by rising inflation and interest rates, which increased the company's operating costs Nevertheless, when compared to 2020, a year severely affected by the pandemic, Stellantis shows an upward trend in financial performance, indicating potential for improved profitability in the future.

The table highlights Stellantis' improved gearing ratio over the past five years, reflecting the company's effective fund management despite challenges such as the Covid-19 pandemic and rising inflation and interest rates With a decreasing Debt to Capital ratio since 2018, Stellantis demonstrates its ability to operate independently of borrowed funds, indicating that the company currently faces no significant financial risks.

The investment ratio of Stellantis has shown consistent improvement over the past five years, as evidenced by the data presented in the table Notably, the Book Value per Share ratio surged by 81%, rising from €12.61 in 2018 to €22.90 in 2022, signifying that each share now represents a greater portion of the company's net assets Additionally, the Earnings Per Share (EPS) ratio experienced significant growth, increasing from €3.15 in 2018 to €6.31 in 2022.

2018 indicating the higher earning that Stellantis has generated in the recent years Overall, all the investment ratios of Stellantis is very promising

All the forecasted indicators are made with the same assumption as TM The forecasted finical indicators are presented in Appendix 1.

Valuation model

Free cash flow to equity (FCFE) represents the total cash available to a company's equity shareholders after all investments, debts, and interest payments have been settled This financial metric is crucial for investors as it indicates the amount of cash that can be distributed to them, reflecting the company's financial health and profitability Understanding FCFE helps investors assess the potential returns on their investments.

All the cash flow in the future was discounted to present value by using weighted average cost of capital (WACC), which is calculated in the appendix 2 below

The equity value of a firm is determined by calculating the total discounted free cash flow to the firm, adding the current cash holdings, and subtracting any interest-bearing debts.

The intrinsic value per share is calculated by dividing the equity value by the current number of shares Thus, the intrinsic value per share of Stellantis is EUR 243.28

Stellantis's valuation is derived from three key financial ratios: Price-to-Earnings (P/E), Price-to-Sales (P/S), and Price-to-Book (P/B) These ratios are calculated using the average values of Stellantis's peers within the automotive industry.

The P/S ratio measures a company's stock price relative to its annual sales revenue per share, while the P/E ratio assesses the stock price in relation to its earnings per share (EPS) Additionally, the P/B ratio compares the stock price to the book value per share (BPS) The overall equity value of a company is determined by averaging these three financial ratios.

The intrinsic value per share is calculated by dividing the equity value by the current number of shares Thus, the intrinsic value per share of Stellantis is EUR 30

Recommendation

Stellantis shares are currently undervalued based on recent calculations, presenting a favorable opportunity for investors to either purchase additional stocks or maintain their existing holdings, as the price is likely to continue increasing.

Mercedes-Benz Group AG (MBAG)

Company overview

Mercedes-Benz Group AG (Mercedes-Benz Group or ‘the company’), formerly Daimler AG, is involved in the development and manufacturing of passenger cars, trucks, vans, and buses It offers

Mercedes-Benz operates under various brand names, including Mercedes-Benz, Maybach, and AMG, offering a wide range of financial and automotive services such as vehicle inventory finance, insurance brokerage, fleet management, and mobility services Headquartered in Stuttgart, Germany, the company has a strong presence in North America, Western Europe, and Asia, providing innovative solutions like vehicle subscriptions and car rental services.

The company reported revenues of (Euro) EUR150,017 million for the fiscal year ended December

In FY2022, the company experienced a 12% revenue increase compared to FY2021, with an operating margin rising to 12.3% from 10.7% the previous year However, the net margin decreased to 9.7% in FY2022, down from 17.2% in FY2021 For the second quarter ending June 2023, the company reported revenues of EUR 38,241 million, reflecting a 1.9% growth over the prior quarter.

SWOT analysis

7.3.1.1 Robust research and development capabilities

Daimler's robust research and development (R&D) capabilities provide a significant competitive advantage, allowing the company to maintain a technological lead and stay ahead of market trends By prioritizing R&D, Mercedes-Benz differentiates its products from competitors while enhancing usability, reliability, safety, and environmental sustainability The company is committed to leveraging advancements in technology for series production and protecting the integrity of its brand.

It continually makes investments in research projects to stay up to date with new developments and technology The company spent EUR9,105 million on research and development in FY2021,

In October 2021, the company invested RMB 1,100 million to establish a new Tech Center in Beijing, aimed at enhancing its R&D capabilities This facility is expected to employ around 1,000 engineers and features a new testing building equipped with seven specialized testing facilities, including an eDrive lab and a charging lab, which will significantly bolster the company's research and development efforts.

Mercedes-Benz strategically operates across Asia Pacific, North America, and Europe to mitigate regional dependency risks and enhance revenue The company maintains a global presence with offices in various countries, including Spain, the Netherlands, Russia, and the UK, ensuring effective product distribution and access to a broad consumer base Its production facilities are located in Asia, Africa, Europe, and the Americas, with specific manufacturing sites for the Mercedes-Benz Vans division in Germany, Spain, the US, and Argentina Additionally, as of December 2021, the Trucks & Buses division boasts over 40 production facilities across the Americas, Europe, and Asia (MarketLine, 2023).

In FY2021, Mercedes-Benz achieved a revenue of EUR 133,893 million, reflecting a 9.9% increase from EUR 121,778 million in FY2020, driven by an 11.2% rise in sales from Mercedes-Benz Cars and Vans and a 1% increase from Mercedes-Benz Mobility The company reported an operating margin of 23.4%, up from 16.9% in the previous year, indicating a strong focus on effective cost management as operating costs decreased from 95.3% of sales in FY2020 to 89.3% in FY2021 Additionally, the net profit margin surged from 2.9% in FY2020 to 17.2% in FY2021, while return on equity rose significantly from 5.9% in FY2020 to 31.9% in FY2021 (MarketLine, 2023).

Low liquidity indicates that a company's ability to fund its daily operations is becoming increasingly challenging, limiting its potential for market growth By the end of FY2021, the company's current ratio stood at 1.2, which was notably lower than its competitors, PACCAR Inc and Honda Motor Co Ltd., whose current ratios were 4.2 and 1.5, respectively Additionally, the company's total current assets saw a decline of 10.7%, dropping from EUR 115,264 million in FY2020 to EUR 102,929 million in FY2021, contributing to the decrease in its current ratio.

7.3.3.1 Growth opportunities from contracts and agreements

Mercedes-Benz is poised for growth and market consolidation through numerous projects and contracts In January 2022, the company partnered with Luminar Technologies to enhance LIDAR technology for future automated driving systems in its passenger vehicles Additionally, a collaboration with SSAB, initiated in September 2021, focuses on developing fossil fuel-free steel for automotive applications.

The global automotive market is poised for growth, presenting significant opportunities for Mercedes-Benz, which manufactures buses, trucks, vans, and passenger vehicles Driven by technological advancements, changing consumer preferences, and increased spending, the automotive manufacturing sector is projected to reach a value of $1,733.1 billion by the end of 2024, with a CAGR of 1.6% from 2019 to 2024 The Asia-Pacific region leads the market, accounting for 55.6% of its value, followed by Europe (21.2%), the US (13.1%), the Middle East (0.2%), and others (9.9%) The industry is expected to grow at a CAGR of 1.1%, achieving a volume of 154.7 million units Mercedes-Benz is actively pursuing new opportunities, having launched the all-electric EQS SUV in August 2022 at its Alabama facility, as part of a broader strategy to produce eight all-electric vehicles this year across seven locations on three continents.

7.3.3.3 Demand for fuel efficient vehicles

The retail market for fuel-efficient vehicles, including hybrids, clean diesel engines, flexible-fuel ethanol vehicles, and turbocharged direct injection systems, is poised for significant growth MarketLine projects that by 2035, unconventional vehicles will account for 40% of all light-duty vehicle sales, according to the Energy Information Administration Factors such as the implementation of the GST, lower borrowing costs, improved Rabi crop yields, the Pay Commission, pent-up demand from demonetization, and a modest budgetary boost are expected to drive this growth Additionally, the increasing earning population, supported by improved access to financial services, will further contribute to this trend.

The markets for automotive around the world are very cutthroat Other automakers compete fiercely against Mercedes-Benz in a variety of markets Given the ongoing globalization and

As the global automotive industry experiences market consolidation, competition among major car manufacturers is expected to intensify Key factors influencing this competition include product development efficiency, manufacturing systems, sales and service frameworks, financing options, product quality, safety features, pricing, and environmental performance Mercedes-Benz, particularly in its vans and buses divisions, faces significant challenges from a range of international competitors, including larger companies with greater resources Notable rivals include AB Volvo, BMW, Fiat Chrysler, Ford, General Motors, Honda, PSA Peugeot Citroen, Paccar, Renault, Tata Motors, Toyota Motor, and Volkswagen.

7.3.4.2 Flexibility in prices of raw materials

Mercedes-Benz faces significant risks from fluctuating commodity prices due to its reliance on essential manufacturing inputs and raw materials The increasing demand for commodity investments, driven by institutional investors, has heightened price volatility in raw material markets In the highly competitive global automotive industry, manufacturers often struggle to transfer rising costs of materials and components to consumers through higher vehicle prices Consequently, a sharp increase in raw material costs can lead to a substantial decrease in operating profitability for the company.

Mercedes-Benz operates globally, with approximately 58.5% of its revenue generated outside Europe, exposing the company to significant currency risks Fluctuations in demand, refinancing needs, and currency rate changes directly impact earnings, particularly linked to currencies such as the US dollar, Japanese yen, British pound, and Chinese yuan Additionally, shifts in foreign exchange rates can influence the value of the company’s investments in international markets Notably, after reporting a loss of EUR2,477 million in FY2020, Mercedes-Benz achieved a gain of EUR3,019 million from foreign currency translation adjustments in FY2021.

Ratio analysis and forecasted financials

This report aims to provide investment recommendations by analyzing three key categories of ratios: profitability, gearing, and investment ratios These ratios offer a comprehensive overview of the company's financial performance, associated risks, and potential return on investment.

Mercedes-Benz has shown an improvement in profitability since 2020, with key ratios like Return on Capital Employed, Return on Assets, and Net Profit Margin in 2022 surpassing those of 2018, prior to the COVID-19 pandemic However, when compared to 2021, many profitability ratios have declined due to a stagnating economy influenced by rising inflation and interest rates, which have increased the company's operating costs Despite these challenges, the financial performance in 2020 was notably affected by the pandemic.

19 pandemic, Mercedes-Benz is still on the upward trend and the profitability of Mercedes-Benz can still be better in the future

The table above illustrates the gearing ratio of Mercedes-Benz over the course of the last 5 years

Over the past five years, Mercedes-Benz has demonstrated significant improvement in all its gearing ratios, reflecting effective fund management despite challenges posed by the Covid-19 pandemic, rising inflation, and increasing interest rates.

Since 2018, Mercedes-Benz has successfully reduced its Debt to Capital ratio, demonstrating its ability to operate independently of borrowed funds This trend indicates that the company currently faces no significant financial risks.

The investment ratio of Mercedes-Benz has shown consistent improvement over the past five years, with a notable 31% increase in the Book Value per Share ratio, rising from €60.45 in 2018 to €79.84 in 2022 This growth signifies that each share now represents a larger portion of the company's net assets Additionally, the Earnings Per Share (EPS) ratio surged to €13.1 in 2022, up from €6.84 in 2018, reflecting the company's enhanced earnings performance Overall, the investment ratios for Mercedes-Benz indicate a strong and promising financial outlook.

All the forecasted indicators are made with the same assumption as TM The forecasted finical indicators are presented in Appendix 1.

Valuation model

Free cash flow to equity (FCFE) represents the total cash available to a company's equity shareholders after all investments, debts, and interest payments have been settled This metric is crucial for investors as it indicates the financial health and profitability of a business, showcasing the cash that can be distributed to shareholders.

All the cash flow in the future was discounted to present value by using weighted average cost of capital (WACC), which is calculated in the appendix 2 below

The equity value of a firm is determined by calculating the total discounted free cash flow to the firm, adding the current cash reserves, and subtracting any interest-bearing debts.

The intrinsic value per share is calculated by dividing the equity value by the current number of shares Thus, the intrinsic value per share of MBAG is EUR 232.17

The valuation of MBAG relies on three key ratios: P/E, P/S, and P/B, utilizing the average values of its peers in the automotive industry.

The Price-to-Sales (P/S) ratio evaluates a company's stock price relative to its annual sales revenue per share, while the Price-to-Earnings (P/E) ratio assesses the stock price in relation to its earnings per share (EPS) Additionally, the Price-to-Book (P/B) ratio compares the stock price to its book value per share (BPS) The overall equity value of a company is determined by averaging these three financial ratios.

The intrinsic value per share is calculated by dividing the equity value by the current number of shares Thus, the intrinsic value per share of MBAG is EUR 20.01

Recommendation

Investors may find it advantageous to buy and hold MBAG stock for the long term, as projections indicate a potential share price increase to EUR 232.17 However, in the short term, the current share price has exceeded the average market value compared to its peers, suggesting that those holding MBAG stocks might consider selling.

Conclusion

Conclusion and recommendation

This study analyzed the financial performance of four leading automotive companies to assess their financial health and determine their intrinsic values The findings lead to several key conclusions regarding their economic standing.

Despite current economic challenges, the automotive industry shows a promising future with significant profit opportunities in a growing market The rising market value and the increasing consumer shift towards electric vehicles highlight a transition towards sustainable transportation solutions This evolution allows automotive companies to leverage emerging technologies and adapt to changing consumer preferences, ensuring a positive outlook for the industry.

Investors should make informed decisions about buying or selling stocks based on their investment objectives, whether aiming for short-term gains or long-term growth A thorough analysis of the company's performance and financial health is essential for guiding these decisions.

Limitations

This study acknowledges several limitations that may affect its findings Firstly, the reliance on historical financial statements for the financial analysis and valuation model can lead to outdated figures, potentially compromising the accuracy of assessments and forecasts Consequently, this data may not provide a comprehensive view of the growth potential of each company Additionally, limited access to certain data, particularly in the automotive industry, may result in inappropriate assumptions Furthermore, the complexity of the four internal companies analyzed restricts the ability to conduct an in-depth examination of each, primarily due to time constraints.

The automotive market is projected to experience significant growth by 2028, with a notable increase in market size and share in 2023 This growth is driven by various factors, including advancements in technology, consumer demand for electric vehicles, and the expansion of automotive services The report highlights key trends and forecasts that indicate a robust future for the automotive industry, emphasizing the importance of staying informed about market dynamics and opportunities.

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X5c499FvuWr_QrR9f2GwSvPHxX3ak5QzV2W3nIC6ghFXCc7IsCnw4 (Accessed: 02 September 2023)

The global economy is currently facing significant challenges due to elevated interest rates, which have created a precarious financial environment According to the World Bank, these high rates are impacting economic stability and growth prospects worldwide The situation necessitates careful monitoring and strategic interventions to mitigate potential risks associated with these financial pressures.

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Asia has the potential to significantly enhance its economic growth by embracing technological leapfrogging This approach allows countries to bypass traditional stages of development by adopting advanced technologies directly By leveraging digital innovations, Asian nations can improve productivity, create new markets, and foster sustainable development It is essential for these countries to invest in digital infrastructure and skills to fully harness the benefits of this technological advancement.

Inflation in the Asia-Pacific region is expected to decrease in 2023, primarily due to the implementation of strict monetary policies This trend reflects a broader effort to stabilize economies amid ongoing financial challenges As a result, consumers and businesses may experience a gradual relief from rising prices, contributing to a more favorable economic environment.

The APAC region is anticipated to demonstrate resilience against global economic challenges in 2023, according to a report by S&P Global This outlook suggests that despite potential international headwinds, the region's economic stability and growth prospects remain strong The analysis highlights key factors contributing to this resilience, making the APAC market an area of interest for investors and stakeholders looking for opportunities in a fluctuating global landscape.

The global automotive manufacturing market was valued at approximately 2.86 trillion U.S dollars in 2021 and is expected to reach around 2.95 trillion U.S dollars in 2022, indicating a gradual recovery from the 2019 market size Significant changes in automotive technology, driven by automation and electrification, are anticipated over the next decade, with projections suggesting that 26 percent of new car sales will be electric vehicles by 2030 Furthermore, the market is set to see the addition of about 58 million new self-driving cars to the global fleet that year These advancements are reshaping the auto supplier industry, particularly in automotive electronics, as the demand for electronic components, especially automotive semiconductors, grows alongside the rise of autonomous and electric vehicles.

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General Motors led the U.S light vehicle market in 2023, selling approximately 2.6 million vehicles, which accounted for about 16.9% of total sales The U.S automotive industry experienced a total of around 15.5 million light vehicle sales in 2023, showing a recovery from the pandemic's impact but still below pre-pandemic levels Despite challenges, GM's sales improved compared to 2022, reflecting a competitive landscape where Toyota follows closely behind Buick, a GM brand, ranked high in initial quality, while Lexus achieved notable consumer satisfaction.

The ACEA (2023) Economic and Market Report provides an overview of the EU auto industry's performance for the full year 2022, highlighting key trends and market dynamics The report is accessible online and offers valuable insights into the competitive landscape of car manufacturers in the European market For detailed statistics on market share, refer to the source available at Statista, which was accessed on 30 August 2023.

In 2022, the European market share of selected passenger car manufacturers was analyzed based on new registrations, according to Statista (2023) The data highlights the competitive landscape of the automotive industry in Europe, showcasing the varying levels of market penetration among different manufacturers For detailed statistics and insights, visit Statista's website.

Marketline 2023 Mercedes-Benz Group AG [Online] Available at: https://advantage- marketline-com.ezproxy.uwe.ac.uk/Company/Summary/daimler_ag [Accessed 29 Aug 2023]

Marketline 2023 Toyota Motor Corp [Online] Available at: https://advantage-marketline- com.ezproxy.uwe.ac.uk/Company/Summary/toyota_motor_corporation [Accessed 29 Aug

Marketline 2023 Stellantis NV [Online] Available at: https://advantage-marketline- com.ezproxy.uwe.ac.uk/Company/Summary/fiat-chrysler-automobiles-nv_2346563 [Accessed

Marketline 2023 Volkswagen AG [Online] Available at: https://advantage-marketline- com.ezproxy.uwe.ac.uk/Company/Summary/volkswagen_ag [Accessed 29 Aug 2023]

Forecasted financial indicators used in the DCF model

Forecasted financial indicators used in the DCF model

Forecasted financial indicators used in the DCF model

4 Mercedes-Benz Group AG (MBAG)

Forecasted financial indicators used in the DCF model

Weighted average cost of capital

Weighted average cost of capital

Weighted average cost of capital