What Wall Street and Investors Lack About General Motors


Wall Street has seen many incumbents overwhelmed by high-tech upstarts, so it’s easy to assume that old-guard companies are relegated to mediocrity or decline. However, this mentality has led investors to primarily miss the technical advances of General Motors (GM) and its privileged positioning for the future.

GM has an ambitious vision, which it predicts can double revenues by the end of the decade. The company’s underappreciated technological advancements and business potential make GM stocks an attractive investment opportunity.

For a business, doubling its revenue in nine years can be thought of as just 8% growth per year, which is barely noticeable and easily dismissed by fast-growing peers. It misses GM’s transformation under the hood. As GM shifts to electric vehicles, it is moving into the higher-margin areas of autonomous driving, software, and services.

Speed ​​regulator

For starters, Wall Street completely misses the value and technological sophistication of GM’s self-driving subsidiary, Cruise, which in a few years could easily be worth more than all of GM’s current market capitalization. GM owns about 75% of Cruise, with most of the remaining stake held by Honda (HMC), Walmart (WMT), Microsoft (MSFT) and SoftBank (SFTBF).

Cruise is exiting the development phase and is poised to commercialize two important initiatives with a plan to advance autonomous technology around the world in driverless delivery and robots.

Cruise currently operates a stand-alone pilot delivery service with Walmart in Arizona and is seeking final approval to launch a stand-alone taxi service in San Francisco. Services are being rolled out with modernized Chevy Bolts, but in the years to come they will transition to a specially designed vehicle, Cruise Origin. An agreement for a robotaxi service has already been signed with Dubai from 2023.

The potential of these scalable, high-margin-generating services is significant and largely ignored by Wall Street. Additionally, Cruise’s technology can help GM gain a competitive advantage by selling electric vehicles with advanced autonomous driver functionality.

There are logical reasons to separate Cruise as a state-owned company in the future, with GM retaining a stake or ceding the unit entirely to shareholders. A separate state-owned company would potentially facilitate fundraising more efficiently, compensating Cruise employees with stock options and helping all stakeholders realize the value of the entity. Now that marketing at Cruise is about to begin, it doesn’t take a lot of imagination to value the company at over $ 30 billion, the purchase price of the last round of investment in January.

There is much more

Cruising isn’t the only reason to buy GM.

The company is making massive investments and competitive advancements in electric vehicles, and plans to roll out 30 models by 2025. Wall Street is unwilling to recognize GM’s progress in electric vehicles out of hand for several reasons, including the black eye the company suffered for the 140,000 Chevy Bolts recall to replace potentially defective batteries. Fortunately for investors, this leaves stocks cheap and the investment opportunity intact.

GM and LG Chem have made strides in creating a battery platform, Ultium, with an improved architecture that simplifies manufacturing and dramatically reduces costs. The chemical construction of the Ultium battery uses 70% less cobalt than current cells while increasing battery capacity by over 50% by increasing energy density. The continued evolution of efficiency on the Ultium platform will help GM’s competitive positioning in the years to come.

Finally, GM has created a new company, BrightDrop, to target the e-commerce delivery market with electric vehicles. The vision of creating an end-to-end software and services ecosystem is nascent but is rapidly developing into commercialization with initial orders from FedEx (FDX) and Verizon (VZ).

A re-tariff is in order

Wall Street has anointed electric vehicle upstarts such as Rivian (RIVN) and Lucid Motors (LCID) willing to pay 10-20 times sales for potential revenue in 2023, valuing those companies near or above GM’s market cap. . You’d be hard-pressed to find a lot of bonus from high-value new income streams in GM stocks, which are trading at 0.75 times sales with a P / E below 10.

With the prospect of Cruise becoming a better recognized asset, including stand-alone services and the provision of high-value software and services to GM for inclusion in passenger vehicles, all the pieces are in place to reassess inventory to a multiple. higher.

There is an opportunity to buy before Wall Street begins to appreciate how well GM is positioned for the future.

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