Brands like Chevrolet from General Motors (GM +1.64%) are about as American as drinking a Coca-Cola at a baseball game, and familiar to all U.S. investors. The name Stellantis (STLA +0.67%) is decidedly less familiar, but it is home to quintessential American brands like Jeep, Dodge, and Ram. Both companies sell some of the most popular vehicles in the U.S., but the stocks of automakers, in general, have had a tough first half of 2022.
The semiconductor shortage has hit production, and rising commodity and shipping costs have been additional curveballs automakers have had to deal with. Year to date, General Motors is down 37% and Stellantis is down 21%. Both trade at inexpensive valuations, reflecting the challenging environment they are operating in, but a lot of this uncertainty is already reflected in the stock price. Both companies are making progress on offering compelling electric vehicles and both make some of the best-selling vehicles in the United States, so the present situation could be a buying opportunity. Which automaker is the better investment for the long term?
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Sales and products
Both companies sell a fair share of popular vehicles in the U.S. and around the world. In the U.S., GM had three models on Car and Driver magazine's top 25 selling models for 2021: the Chevy Equinox, the GMC Sierra, and the Chevy Silverado. Stellantis also clocked in with three best sellers: the Jeep Wrangler, the Jeep Grand Cherokee, and the Dodge Ram pickup. Interestingly, the Ram unseated the Silverado to become the second best-selling vehicle in the U.S. in 2021, after the Silverado had enjoyed that perch for several years, so this bodes well for Stellantis. The Ram outsold the Silverado by about 50,000 units.
Electrification
Both companies are making solid progress on the electrification of their offerings. GM is scheduled to launch 30 electric vehicles (EVs) through 2025. GM wants to sell over 2 million EVs annually in North America by mid-decade. The company is also investing $35 billion into battery technology and autonomous driving. The Chevrolet Bolt is out now, the company is taking reservations for the electric version of its popular Silverado now, and the electric Hummer has drawn positive reviews.
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In its Dare Forward 2030 plan, Stellantis outlined its goal of having EVs account for 100% of its sales in Europe and 50% in the U.S. by 2030. Stellantis plans on having 25 EV models in the U.S. by 2030, and 75 globally. The company is aiming for 1 million EV sales in 2024 and 5 million by 2030. Stellantis is also investing in battery technology, partnering with LG Energy Solutions to open a $5 billion battery production facility in Canada and partnering with Samsung SDI to create one in Indiana. Stellantis currently sells 34 EVs worldwide, with 19 battery electric vehicles (BEVs) and 14 hybrids. Most of these are in Europe, with choices in the United States currently limited to the hybrid versions of Jeep Wrangler and Chrysler Pacifica, but a hybrid Jeep Grand Cherokee is on the way.
While there are some differences in approach, overall both companies are showing a strong commitment to electrification and seem to be making decent progress toward long-term goals thus far. GM may be slightly further along than Stellantis but Stellantis is not far behind.
Returns to shareholders
The newly combined Stellantis pays out an annual dividend once a year, and it currently yields 7.5% based on its most recent annual payout in April. This is different than the quarterly dividend that many U.S. investors are used to, and the dividend will change based on Stellantis' performance for the year, but it is a very solid payout. Going forward, the company is targeting a dividend payout ratio of 25% to 30%. In its Dare Forward 2030 plan, Stellantis states that it will also repurchase $5 billion worth of shares by 2025.
General Motors does not, at present, reward shareholders with a dividend payout. Like many other companies, GM halted its dividend payout in 2020 during the coronavirus pandemic. However, unlike Ford and others, GM has not resumed dividend payments, despite the fact that the company is hitting record profitability. GM used to be a prolific share repurchaser, but it also halted share buybacks at the same time.
To be fair, GM's current stance on returns to shareholders is not set in stone and they may resume them at a later date, but for now they get an incomplete grade. Based on its substantial dividend payout and commitment to shareholder returns as opposed to GM's current lack of shareholder returns, Stellantis wins this category.
Valuation
GM is attractively valued, with shares trading at just six times earnings. That is far cheaper than the broader stock market and would usually be enough to win on a valuation basis -- but not going up against Stellantis. Stellantis trades at an even cheaper valuation of just three times earnings. This is one of the most inexpensive valuations investors will come across in established markets. To be clear, all automakers are trading at depressed multiples because of the aforementioned challenges, and Stellantis has an even cheaper valuation because of its larger exposure to Europe at a time when the war in Ukraine and surging gas prices are headwinds on the minds of investors.
NYSE: STLA
Key Data Points
Conclusion
Both GM and Stellantis look like solid investment choices, but I'll take Stellantis over GM. Both stocks are inexpensive but Stellantis stands out as an even bigger bargain. Both companies are doing well in terms of creating and selling compelling offerings and are making progress toward electrification. I also give Stellantis a definitive edge because of its stronger commitment to shareholder returns and its generous dividend.
