GM Update - Since originally recommending GM in February the company has made significant moves that further People’s Capital long term belief in the company. The update is below.
Why We Love GM:
GM is going all electric by 2035 and promised 30 EVs by 2025, with a $27 billion investment to reach that goal.
GM’s battery Ultium is an industry leader. It delivers over 400 miles of range.
Ultium can be sold to the larger EV market. Honda has already contracted GM to build two EV’s.
Unlike many EV competitors, GM already has factories and can quickly convert them to build EVs without huge investments.
GM’s self-driving start-up, Cruise, is a leader in self-driving car technology and partnered with Microsoft.
Leadership - here at People’s Capital we love Mary Barra’s innovative leadership at GM, and trust she will continue to push GM into exciting new markets.
GM is undervalued relative to its electric vehicle competitors.
What we don’t like
The automobile industry historically offers low profit margins and requires heavy investment in manufacturing and factories that slowly lose value.
GM faces stiff competition from Tesla and EV start-ups that can dedicate their entire focus on electric vehicles.
GM may have a hard time transitioning traditional customers who tend to buy large, gas guzzling vehicles to go electric.
Moves by GM: GM in early February, GM has increased their investment in electric and autonomous vehicles by $8 billion to a total of $35 billion by 2025. At the same time, GM subsidiary Cruise became the first and only autonomous vehicle company allowed to drive its vehicles in the US without a driver in the car. They still must be approved to charge for passengers before becoming the first fully autonomous taxi system, but they are by far the closest. Cruise also has an exclusive contract with Dubia to offer autonomous taxis through 2028, locking in one of the largest taxi markets for the company. GM also announced that they expect to significantly beat earnings as the worst of the chip shortage now appears to be past. Together, GM’s increasing commitment to electric and autonomous vehicles and Cruise’s success are necessary and promising steps for the company long term while the end of the chip shortage should help earnings in the meantime.
Technical stock movement:
GM’s stock traded upwards well into the 60s as the company before recently falling back down as inflation concerns increased in the market generally. We at People’s Capital believe this pull back is a strong buying opportunity as inflation is likely transitory and the recent pull back has nothing to do with the company fundamentals.
General Motors (NYSE: GM) may not be the first company you think of when discussing electric cars and self driving technology - but that doesn’t mean it shouldn’t be. Under the innovative leadership of CEO Mary Barra, GM has transformed itself from an automaker focused mainly on gas guzzling trucks and SUVs to a powerful player in the electric vehicle and self-driving car sector. The company has committed to going all electric by 2035 and will have 30 EVs available by 2025. With the future of automobiles almost certainly being electric we are excited to see GM’s commitment.
GM’s investment in battery technology has paid off. The company’s battery Ultium, made in partnership with LG Chem, can deliver over 400 miles of range and in its largest version has a storage capacity of 200kWh--which is double Tesla’s largest battery currently available. Ultium also has a unique design that allows the battery cells to be stacked vertically or horizontally. This allows the battery to fit in nearly any car with ease. Ultium also requires 70% less cobalt than batteries of similar size currently available, meaning the company can cut costs and offer EVs for less than their competitors. Ultium also has potential to be sold to the larger EV market, with GM seeing significant profits from ownership of this revolutionary battery.
GM’s autonomous driving subsidiary Cruise has the twin goals of providing hands-free technology for GM’s cars and creating an autonomous ride hailing service similar to Uber. While Cruise’s technology currently lags industry leader Tesla, Cruise’s technology is quickly catching up and GM is promising that SuperCruise, its hands-free driving technology currently available in its Cadillac line-up, will be available in 22 cars by 2023 and is comparable to Telsa’s automated driving. Even more exciting, Cruise recently partnered with tech giant Microsoft to further its autonomous capabilities. This partnership is expected to quickly push Cruise’s capabilities and gives the company access to the incredible processing power of Microsoft’s cloud and the innovation of its engineers.
Trading at a PE of 22.7, GM trades at roughly 66 times less price to earnings than Tesla. While we expect GM won’t be likely to receive Tesla level price to earnings, we expect its PE to rise as the company pushes further into the EV market as we have seen with NIO and other publicly traded EV companies.
We at People’s Capital think GM offers an exciting investment in the EV sector and consider it a buy under a share price of $50. We believe that GM offers an exciting investment opportunity and could see its share price rise to $100. It should be noted that this is a long term position, on a 3-5 year horizon. In the short term, depending on stimulus, the state of the pandemic, and general instability in the market, GM could see declines before rising to our price target.