GM Stock A Buy? General Motors Could Be Worth This Much, Analyst Says

GM stock surged in Thursday and Friday’s stock market action, thanks to a delayed boost boost from General Motors‘ (GM) big Wednesday investor presentation. The company revealed “growth ambitions well ahead of any expectations,” noted Jefferies analyst Philippe Houchois, with a plan to more than double revenue and at least triple operating earnings by 2030.  So is now a good time to buy GM stock?


GM Stock Investor Day

Other highlights included GM’s announcement that it will offer Ultra Cruise, a high-end version of its Super Cruise driver assistance system, starting in 2023. While Super Cruise now provides hands-free driving on 200,000 miles of highway, Ultra Cruise will launch with coverage of 2 million miles of road.

GM also revealed plans for a Chevrolet Equinox crossover priced around $30,000. Its Silverado EV pickup will go on display at the CES on January 5, but no launch date was announced.

GM’s plan to more than double its recent average of $140 billion in revenue by 2030 includes adding $50 billion from its Cruise autonomous division. Software and services could add another $25 billion, including as much as $6 billion from the recently launched OnStar Insurance.

GM’s BrightDrop commercial delivery van and logistics business, which will launch its first vehicle by the end of the year for initial customer FedEx, could generate $10 billion a year.

EV revenue should grow from $10 billion in 2023 to $90 billion by 2030, GM says.

Analysts Update GM Stock Views

Despite those lofty ambitions, GM stock still may be a show-me stock.

“It may take time for markets to digest” how realistic GM’s roadmap is, Houchois said. He kept a hold rating on GM stock, suggesting its expectations may be too bullish about market opportunities and its competitive position.

JPMorgan analyst Ryan Brinkman wrote that GM doesn’t have to achieve anywhere near these ambitions to exceed Wall Street expectations. Given how GM stock’s low valuation “clashes” with its high-growth opportunities, Brinkman has a buy rating and 77 price target.

Wedbush analyst Daniel Ives sees GM’s targets as “achievable and ultimately beatable.” He kept an outperform rating and 85 price target.

Citi analyst Italy Michaeli kept a buy rating and 90 price target for GM stock. But he said GM’s 2030 outlook could support a 200 stock price based on a sum-of-the-parts valuation.

GM Stock News

GM is trying to turn the page on a period of negative news. On Oct. 1, GM said its Q3 sales in the U.S. fell by 218,195, or nearly one-third, from a year ago to 446,997 amid the chip shortage.

However, Steve Carlisle, president of GM North America, said that chip supply disruptions that bedeviled Q3 results “are improving.” He added that key crossover and car plants are restarting production. On a negative note, GM said the 2022 Cadillac Escalade will initially be produced without the hands-free Super Cruise option due to the chip shortage.

On Sept. 20, GM said partner LG had resumed production of the Chevy Bolt battery after resolving manufacturing problems. On Aug. 20, GM expanded its Bolt EV battery recall to cover every vehicle built since 2016, at a cost of $1.8 billion.

GM also is partnering with the South Korean company to manufacture the new Ultium batteries that will be used for all future EVs, starting with the launch of the Hummer EV this fall.

Cadillac’s first EV, the Lyriq SUV, opened for reservations on Sept. 18 and sold out in about 10 minutes. Production begins in early 2022.

On Sept. 30, the California DMV approved Cruise’s permit to operate a driverless taxi service in San Francisco between 10 p.m. and 6 a.m. at speeds of up to 30 miles per hour. Google’s Waymo has a permit to operate at speeds up to 65 mph, but only with a safety driver. Cruise still needs approval from the state Public Utility Commission before charging for rides.

GM Stock Chart Technical Analysis

GM stock surged 10.2% last week, closing at 58.57, after retaking its 200-day moving average. On Friday, GM stock edged past a 58.70 buy point from a double-bottom base, closing just out of buy territory, according to a MarketSmith analysis. But Monday morning’s action saw GM stock rise 0.5% to 58.88, back into buy range.

On Thursday, IBD noted that aggressive investors could use GM stock’s Thursday move to 56.44 on high volume as an entry point. That day’s action saw GM stock rise into the upper half of its trading range, while moving clear of its 200-day line and its downsloping trend line from the June all-time high of 64.30.

After a failed breakout in early June, GM stock fell as much as 27%, badly lagging a rising stock market. But a rally off the 47.07 floor hit Aug. 23 has erased two-thirds of its drawdown.

The double-bottom buy point is a pretty attractive set-up, because it can offer a buy point well below the 52-week high.

GM stock now has an 84 Relative Strength Rating from IBD, meaning it has outperformed 84% of all stocks over the past 12 months.

Analyst: GM Stock Could Get Tesla-Like Multiple

On July 8, Wedbush’s Ives touted GM’s “game-changing battery technology” and said it’s in the best position to challenge Tesla (TSLA) and other EV pureplays.

Ives called it a “disruptive technology play that can start to trade at multiples similar to the likes of Tesla and other pure-play electric vehicle companies as GM executes on its vision.”

He highlighted GM’s Ultium battery technology, saying it will be “the first automaker to use an almost completely wireless battery system,” allowing for more power per square inch.

He called GM’s technology stack “another competitive advantage,” with over-the-air updates able to enhance battery management and motor settings,” while boosting revenue.

“Instead of having to build a new engine each time the company rolls out a new model, the Ultium Platform paired with the Vehicle Intelligence Platform will push out higher profit margins on each car.”

GM Stock: The Bull Case

GM plans to leverage massive scale and capital efficiency as a competitive advantage.

GM’s one-million EV sales target floor for 2025 translates to roughly 240 million Ultium battery cells per year. That doesn’t include batteries for EVs that GM will build for Honda, or for other collaborations, like its work toward emissions-free locomotives with Wabtec (WAB).

GM intends to stay near the forefront of technological progress toward a low-cost, long-range battery. But its focus on scalability will let GM spread costs across massive output, helping drive down the cost of EV’s most expensive piece.

Likewise, GM has a single, flexible Ultium platform, designed alongside a range of drive units and motors that can accommodate its entire portfolio, from passenger car to pickup truck.

That single platform has enabled GM to reengineer its business at “ventilator speed,” cutting vehicle development time in half. GM adopted that phrase early in the pandemic, as it quickly shifted factory capacity to produce key medical equipment. BrightDrop, the logistics startup revealed on Jan. 12, exemplifies GM’s accelerated pace. BrightDrop’s EV600 commercial delivery van gives GM entry into a large, fast-growing market for which it has no ICE offering.

GM is demonstrating a level of technological and engineering excellence and creativity that support the GM stock investment case. A video of the Hummer EV in CrabWalk mode, allowing it to move diagonally to get through tight off-road spots, went viral last fall. Now GM’s Cruise unit is setting the pace among autonomous vehicle entrants in California, where it was the first company to win a permit to give passenger rides with no safety driver on board.

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GM Stock: The Less-Bullish Case

GM’s transition isn’t without risk, even apart from the chip shortage. As GM funds itself mainly through internal-combustion-engine (ICE) profits, pure-play EV automakers, including Tesla and a host of Chinese rivals, have built up big EV war chests by issuing stock. Meanwhile, Toyota (TM) and EV battery startup QuantumScape (QS) have highlighted their separate progress toward a solid-state EV battery that has potential to offer faster charging, longer distance and greater safety.

Apple (AAPL), with far greater resources, also is working toward its own EV battery breakthrough and could reportedly produce an electric, autonomous vehicle in 2024.

Recent news from Honda (HMC), Ford and Stellantis (STLA) underscores the breadth of the competition GM will face.

GM’s ride to an EV future also could be bumpy, if demand for ICE vehicles falls off more abruptly than expected as EV costs fall and tax credits entice consumers and businesses.

Silverado Vs. F-150 Vs. Tesla Cybertruck Vs. Rivian

GM is sitting on much-anticipated news about its EV pickup strategy: How will GM compete with the F-150 Lightning EV pickup truck’s surprisingly low starting price? And how long after F-150 EV production starts next spring will GM’s Silverado EV roll off the assembly line?

GM now sells close to 600,000 Silverado pickups per year with a starting price around $29,000, about the same as the 2021 F-150.

Will the EV version be similarly competitive? The F-150 Lightning will start with a $39,974 price.

Tesla’s Cybertruck, delayed until late 2022, starts at about the same price as the F-150. However, the Wall Street Journal reported, “A version of the Cybertruck with two electric motors as well as four-wheel-drive capability similar to that of Ford’s truck will cost about $49,900.” Tesla has stated that the Cybertruck will have a range of 250 miles to 500 miles. Tesla has not yet released a finished Cybertruck design, while the price points and specs could depend on 4680 batteries coming to fruition with promised improvements.

Rivian’s R1T pickup, which saw its first deliveries in September, starts with a $67,500 price and 300-mile range. Then, early next year, Rivian will release a version with a 400-mile range.

The F-150 will have a 230-mile range at the entry level and 300 miles at the high end, while GM has said that high end versions of the Silverado will reach up to 400 miles on a charge.

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Fleet Sales Are Key To GM’s Near-Term EV Strategy

GM’s strategy to win with scale makes fleet sales, or sales to business and government agencies, a key focus of its near-term strategy. Such customers not only buy in bulk, but they have a somewhat clearer path to fast adoption of EVs, since they don’t generally face the same mileage and charging constraints as families going on road trips.

Fleet sales of EV600 delivery vans and EV pickup trucks are both key markets.

Among GM’s planned entries into the EV market, the Silverado stands out as “one of a few or several getting into the high-volume segments that obviously we need to do,” CEO Mary Barra said on the May 5 earnings call.

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BrightDrop And FedEx

GM announced in late June that it will double first-year output of its BrightDrop unit’s EV600 delivery van to “keep pace with anticipated demand.” The electric van is on track to begin production by the end of 2021, with initial orders going to FedEx.

FedEx (FDX) has only committed to buy 500 EV600 vans. Yet BrightDrop CEO Travis Katz hinted in a March 22 Bank of America investor presentation that there may be much more news to come about the depth of its ties with FedEx. BrightDrop’s organization as a startup within GM appears tailor-made for an investment by a foundational customer like FedEx.

BrightDrop’s delivery vans are designed for rapid, automatic loading of its EP1 electric pallets that make it a breeze to move up to 200 pounds of packages down the sidewalk and from sorting center to delivery van.

FedEx has said its drivers were able to handle 25% more packages per day with Brightdrop’s EP1 in the first pilot. That’s a “game changer,” Katz said.

Katz said Brightdrop is seeing “tons of excitement and tons of interest from customers.” So far, just one other customer has been announced. Merchants Fleet has ordered 12,600 EV600 vans.

On Sept. 28, GM unveiled the BrightDrop EV410 mid-sized commercial van, saying that Verizon (VZ), among the largest fleet operators, is the first customer to sign up and plans to put it to work as a field maintenance and service vehicle. The EV410 is slated for production in 2023.

Ford also will have an electric version of its popular Transit van out in late 2021. Workhorse Group (WKHS) is another EV delivery van play.

Is Ford Stock A Buy Now?

Cruise Self-Driving Progress

In addition to progress in San Francisco, Cruise was tapped in April as Dubai’s exclusive provider of robotaxi service starting in 2023. GM will deploy its six-passenger Cruise Origin EV.

Preproduction versions of the Origin, which has no steering wheel, are now being built. Cruise has a $5-billion line of credit from GM Financial to ramp up commercialization.

On Jan. 19, GM announced a partnership with Microsoft to accelerate self-driving vehicles. Microsoft joined in a $2-billion funding round for Cruise, along with GM, Honda and institutional investors. Walmart later joined the investment round, which grew to $2.75 billion, Cruise said on April 15.

The investment gave Cruise an implied valuation over $30 billion. That would make GM’s stake worth about $19 billion, equating to roughly $13 per share in GM stock.

Apple, Alphabet (GOOGL)-unit Waymo, Uber (UBER), Ford and Tesla are among a large field of well-funded competitors in the autonomous-vehicle market.

Tesla, meanwhile, has released a Full Self Driving beta version to select drivers. Despite the name, Tesla FSD is still a Level 2, hands-on system, while Cruise and Waymo are Level 4.

SuperCruise, an offering on some GM vehicles, is a Level 2, hands-free system.

GM Stock Priced Like An Underdog

As of Oct. 6, GM stock had a market cap of $82 billion compared to $781 billion for Tesla. Ford stock is valued at $60 billion.

While GM sales still dwarf those of Tesla, most are ICE vehicles. That business could be headed for the scrap heap by 2035, GM announced on Jan. 18.

While Tesla Soars, Electric Cars Face A Huge Test

Is GM Stock A Buy?

GM stock has a solid 82 IBD Composite Rating, but fundamental metrics don’t yet tell the full story.

The Covid hit to earnings, the recent Bolt battery recall and an industrywide chip shortage have all distorted the picture. Undoubtedly, there is lots of execution risk in relying on profits from gas-burning SUVs today to pave the way to an EV future. Competition from Tesla and other well-funded competitors will be intense. And GM can’t afford another mishap like the Bolt battery failure.

Yet if analysts now see GM as a “stable of unicorns,” as Morgan Stanley’s Adam Jonas has put it, they could begin to use a more flattering lens for valuing future earnings. GM’s investor presentation may have kicked that process into gear as the company put a focus on software and service subscriptions, a key component of future revenue.

GM stock’s break above its downsloping trend line and 200-day average on high volume gave investors the green light to hop in. Monday’s move past a double-bottom buy point flashed another buy signal. Still, the broad stock market backdrop is less than compelling right now.

Bottom line: GM stock is a buy.

Make sure to read IBD’s daily afternoon The Big Picture column to get the latest on the prevailing stock market trend and what it means for your trading decisions.

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