GM stock hit a pothole in August, then stalled. The chip shortage dented sales, while the Bolt battery recall dinged General Motors‘ (GM) reputation for solid execution. Meanwhile, the competition isn’t staying in place. In particular, Amazon-backed Rivian is launching its hot new EV pickup this month as it heads toward an IPO with an expected $80-billion valuation — even higher than GM’s.
Rivian has yet to deliver a single vehicle. While its R1T truck is getting some great reviews and it has an enviable deal to provide Amazon (AMZN) with 100,000 delivery vans this decade, is it really worth more than GM stock?
GM Stock Investor Day
We should have much clearer idea after GM’s two-day investor presentation on Oct. 6 and 7. GM has been holding its cards close to the vest but should have a number of revelations. Battery progress, the timing and specs of its Silverado EV and other vehicles, the depth of its FedEx (FDX) relationship, and the launch timing for Cruise’s commercial robotaxi service are among potential highlights.
Investors will also learn much more about GM’s efforts to monetize its SuperCruise driver-assistance technology and the commercial prospects for its fuel cell technology.
GM stock needs recharging and the October presentation might do the job. So is now a good time to buy GM stock?
GM Stock News
On Thursday, GM said the chip shortage will force it to extend downtimes or cut production for a week or two at eight factories in the U.S., Canada and Mexico. The shutdowns will hit production of pickups and SUVs.
Sales of GM trucks slumped about 33% in August amid tight inventories, Deutsche Bank analyst Emmanuel Rosner said in a Sept. 2 note.
On Aug. 20, GM expanded its Bolt EV battery recall to cover every vehicle built since 2016, at a cost of $1.8 billion. For now, though, GM hasn’t fixed the problem, so it can’t yet provide replacements.
The Bolt batteries are produced by LG Chem. 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. GM’s BrightDrop EV600 delivery van also is track to launch this year, followed early in 2022 by Cadillac’s Lyriq SUV, which will be open for reservations this month.
GM insists that it will have control of the Ultium’s manufacturing process and make certain that there’s no repeat of the Bolt mess.
GM Stock Chart Technical Analysis
In Thursday stock market action, GM stock rose 0.4% to 49.33. Since a failed breakout in early June, GM stock has tumbled 23% from its 64.30 peak, badly lagging a rising stock market.
GM stock now has a 43 Relative Strength Rating from IBD, meaning it has outperformed just 43% of all stocks over the past 12 months.
GM stock has fallen below its 200-day moving average, though it still holds above the 46.81 buy point that it cleared on Jan. 12 amid the unveiling of the BrightDrop van. That suggests momentum has been crushed, but hope hasn’t.
There’s no buy point in sight. Still, keep an eye on the downsloping trend line from the June 7 record high. A break above that line, perhaps coinciding with a move above the 50-day line, could offer an entry point for aggressive investors.
Analyst: GM Stock Could Get Tesla-Like Multiple
On July 8, Wedbush analyst Daniel 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 started coverage on GM stock with an 85 price target. He 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.
Ives also said that GM software and services could add $20-$30 billion in value over the next 5-7 years. 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 delivery van gives GM entry into a large, fast-growing market for which it has no internal-combustion-engine 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 cleared to give passenger rides with no safety driver on board.
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 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.
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 now sells close to 600,000 Silverado pickups per year with a starting price around $29,000, about the same as 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 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 costs 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 will see initial 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.
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?
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 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. 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.
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.
Cruise Self-Driving Progress
On June 4, the California Public Utility Commission said it had given Cruise the state’s first permit to provide rides to passengers without a driver on board. Cruise can’t yet charge passengers for service.
In April, Dubai announced that Cruise will be its 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.
Tesla, meanwhile, has released a new 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 Sept. 2, GM stock had a market cap of $71 billion compared to $729 billion for Tesla. Ford stock is valued at $53 billion.
While GM sales still dwarf those of Tesla, most are internal-combustion-engine (ICE) vehicles. That business could be headed for the scrap heap by 2035, GM announced on Jan. 18.
Is GM Stock A Buy?
GM stock has a mediocre 56 IBD Composite Rating, but fundamental metrics don’t tell the full story.
The Covid hit to earnings, a restructuring and strike are all in the rearview mirror. Now GM is managing through an industrywide chip shortage. 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, Apple 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 put it, they could begin to use a more flattering lens for valuing future earnings. GM’s scheduled Oct. 6-7 investor presentation may kick that process into gear as the company puts the focus on software and service subscriptions, a key component of future revenue.
Keep your eye on GM stock, but don’t hop in yet. GM stock is stalled below its 200-day line and in need of a charge.
Bottom line: GM stock is not a buy.
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