GM stock is powering higher strong, even as red-hot EV pure plays like Tesla have come under some pressure in recent weeks. While hopes for blowout 2021 General Motors‘ (GM) earnings and resumption of a dividend have been set back by the global chip shortage, GM continues to accelerate investment in electric and autonomous vehicles.
Meanwhile, GM’s corporate reinvention should continue apace, with a number of expected milestones and potential for the unexpected that could serve as catalysts for GM stock.
GM is preparing to launch three new passenger EVs by fall. That includes the buzzworthy Hummer EV, as well as an updated Chevy Bolt and SUV version of the Bolt. By late 2021, GM will deliver its first of 500 EV600 commercial van to FedEx.
More van orders, more corporate partnerships like Honda’s use of the Ultium EV battery, and more revelations about the broad fleet of EVs slated for launch could provide fuel for GM stock. On April 3, during the NCAA basketball tournament, GM is set to reveal its Hummer SUV — a version of the supertruck with an enclosed cargo bed — and begin taking reservations. So is now a good time to buy GM stock?
GM Stock Priced Like An Underdog
GM says it’s headed for the front of the EV pack, yet it still appears priced like an underdog.
Yet the bulk of those GM sales are for internal-combustion-engine (ICE) vehicles. That business could be headed for the scrap heap by 2035, GM announced on Jan. 18.
That blockbuster news prompted Morgan Stanley analyst Adam Jonas to cut his discounted value for GM’s ICE business to zero. Yet Wall Street analysts continue to gain confidence in its EV, self-driving and fuel-cell future, and that’s the key to driving shareholder value. Jonas simultaneously hiked his price target for GM stock to 80 from 57 based on the increasing value of General Motors’ other parts.
GM’s transition isn’t without risk. As GM funds itself mainly through ICE profits, pure-play EV automakers, including Tesla and a host of Chinese rivals have built up huge 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.
It’s hard to know where GM stands in the EV hierarchy, because such big technology breakthroughs may not be ready for the production line until mid-decade or later. Meanwhile, GM also has made some head-turning claims about its next-generation lithium-metal EV battery.
On Nov. 19, GM mapped out its road to launching 30 EV models globally by 2025, while topping its prior goal of 1 million EV sales and achieving big EV battery cost-reductions and efficiency gains.
GM’s accelerated transformation will see it invest $7 billion in electric and autonomous vehicles this year and $27 billion by 2025. That could include a second EV battery factory built with partner LG Chem, which may be announced in coming months.
Barra said GM will realize $2 billion in cost efficiencies from shared engineering, manufacturing, marketing and corporate cost by maintaining an integrated strategy. That quieted Wall Street analysts who had been pushing for GM to spin off its EV business to better compete with Tesla.
Barra also said that GM’s flexible Ultium EV architecture has helped cut vehicle development time by nearly 50%. She said the launch of the Cadillac Lyriq SUV had been moved up about nine months from the date initially announced. GM will speed up the launch timing of 12 EV models, some by as much as 40 months.
“We’re committed to fighting for EV market share until we are number one in North America, achieving margins similar to or higher than our ICE business and exceeding our previous target of selling 1 million vehicles globally by mid-decade,” Barra said.
GM Stock Chart Technical Analysis
GM stock soared in October and November on the Hummer EV launch and stepped-up EV factory and production plans.
Shares subsequently pulled back on its dramatically scaled-back deal with Nikola. Yet GM stock twice found support at its 10-week and 50-day line. IBD SwingTrader took advantage of an early entry point, establishing a position as GM stock cleared its Dec. 23 intraday high that came on the first bounce above its 50-day line.
On Jan. 12, as GM surprised Wall Street by revealing the existence of Brightdrop, its EV commercial delivery vehicle and logistics startup, GM stock broke through a more traditional 46.81 buy point, 10 cents above its Nov. 24 high. General Motors stock jumped 6.2% to close at 47.81, breaking above the October 2017 all-time high of 46.76.
Meanwhile, momentum continued amid news on Jan. 19 that Microsoft (MSFT) had joined a new investment round in GM’s Cruise autonomous vehicle unit.
GM stock subsequently hit a new high of 57.05 on Feb. 8, overcoming its first report that a chip shortage would sideline some production.
While GM stock pulled back on earnings and amid broader stock market volatility, it found support at its 50-day moving average.
On March 12, GM stock surged to 59.25, clearing 57.15 buy point, 10 cents above the Feb. 8 high. Although the base is on the short side, GM stock has been consolidating since it touched an interim high of 56.97 on Jan. 21.
However, GM stock is 13% above its 10-week line, so it looks a little extended from that perspective. That makes it more likely that shares could test their buy point.
As of March 12, GM stock sported an 86 Relative Strength Rating, meaning it has outperformed 86% of all stocks over the past 12 months.
The relative strength line, which shows how GM stock performs vs. the S&P 500 index, is back to a two-plus year high.
General Motors Earnings And Sales Trends
After a bumpy few years, thanks to a UAW strike, soft sales in China and Covid-19, General Motors earnings appeared to turn the corner in the second half of 2020, helped by sales strength and cost reductions.
Then, in Q4, General Motors earnings per share cruised past estimates, surging to $1.93 vs. just 5 cents per share a year ago, helped by the launch of its full-size SUV. The year-ago period was marred by the UAW strike. GM’s Q4 EPS would have been even better if not for a 59-cent hit due to a Takata airbag-inflator recall.
Sales remained on a roll in Q4. GM deliveries in the U.S. rose to 771,323, up 5% from a year ago. General Motors said it gained market share as the average transaction price rose to a record $41,886.
Meanwhile, GM sales in China remained on the upswing for the second straight quarter, after a weak couple of years. General Motors and its Chinese joint-venture partners saw deliveries rise 14% to 954,325.
GM said it expects to earn $4.50-$5.25 per share in 2021 vs. $4.90 in 2020. The chip shortage could cut operating profit by $2 billion in 2021.
Brightdrop’s first 500 EV600 delivery vehicles, which go 250 miles per charge, will go to FedEx (FDX). The global delivery giant also has tested Brightdrop’s EP1 pallet electric pallet, designed to move up to 200 pounds in goods over short distances. FedEx said its drivers were able to handle 25% more packages per day in the first pilot.
GM said it will invest $800 million to equip one of its factories in Canada for production of the EV600 by late 2021.
GM said it sees a massive $850 billion market opportunity for parcel, food delivery and reverse logistics in the U.S. by 2025.
The timing of its commercial EV rollout looks even better following President Joe Biden’s executive order to replace the government’s fleet of 645,000 vehicles with electric vehicles.
Subsequently, Merchants Fleet announced an order for 12,600 EV600 vans.
GM’s ‘Stable Of Unicorns’
Even before the Brightdrop news, Morgan Stanley’s Jonas had referred to GM as having a “stable of unicorns.”
In a Jan. 19 report, Jonas said that GM’s EV business is worth $52 per share of GM stock, while its controlling stake in Cruise is worth $10.
GM’s Ultium EV battery also has become something of a business in its own right. In April, GM reached a deal with Honda Motor (HMC) to jointly develop two Honda EVs using GM’s Ultium battery. Jonas figures the Ultium battery platform is worth $10 per share.
GM’s OnStar communications and security system, which has announced a move into the insurance business, and its Super Cruise driver assistance technology, offer opportunities to grow a monthly recurring revenue stream. Jonas valued GM’s connected services at $16 per share.
He also attached per-share valuations to GM’s China joint ventures ($5), the Corvette brand ($5) and GM Financial ($7).
He derived the 80 price target for GM stock by subtracting net debt, pension liability and a 20% sum-of-the-parts discount.
Jonas didn’t specify any valuation for other ventures, including GM’s Hydrotec fuel-cell business. The week after his report, GM announced a deal with Navistar (NAV) to supply fuel cells for long-haul trucks. Trucking firm J.B. Hunt (JBHT) will be Navistar’s first customer in a pilot program, with tests set to begin by end of 2022.
That followed GM’s scaled-back deal to supply fuel cells to Nikola (NKLA). However, prospects remain clouded by Nikola’s reputational hit as its founder left the company amid allegations of being a huckster and worse.
In June, GM Defense unit won a $214-million contract — its first win — to build Infantry Squad Vehicles for the U.S. Army based on the Chevrolet Colorado ZR2 midsize truck architecture.
Hummer EV Buzz
GM unveiled the Hummer EV truck during the World Series, touting “maneuverability and traction unlike anything GM has ever offered.” The Hummer’s CrabWalk mode, allowing it to move diagonally to get through tight off-road spots, quickly went viral.
The Hummer EV, which will take on the Tesla Cybertruck, is due out this fall. GM says the Hummer EV can reach 450 miles on a full charge and 60 miles per hour in three seconds. The Hummer also will take on upcoming electric trucks from Ford (F) and Amazon (AMZN)-backed Rivian.
The Rivian RT1 is expected to be released before the GM Hummer, but the Tesla Cybertruck will likely not be out until 2022.
Prices for the initial Hummer EV version start at $112,595. General Motors said all available reservations for the Hummer EV sold out within 10 minutes. GM reportedly received 10,000 preorders and is considering boosting production plans.
GM plans cheaper Hummer EV versions in future years. AutoNews reported that GM may start production of the Hummer SUV in early 2023 with targeted annual output of 50,000 vehicles per year.
General Motors’ Ultium Battery Future
GM had a puzzle to solve: How could it compete broadly in the still relatively small EV market, en route to an all-electric future, without frittering away its financial strength? The answer came with the March 4 unveiling of its Ultium battery and flexible platform.
The Ultium stands apart for its ability to be stacked either vertically or horizontally in the battery pack, to optimize the layout of each vehicle. The biggest stack is said to have the power to reach 450 miles on a full charge. The platform can accommodate a wide range of trucks, SUVs and cars.
The first generation of GM’s coming EV lineup “will be profitable,” the company said. Since then, GM has detailed a much more complete vision of its EV future.
In September, GM unveiled its strategy to produce electric drive systems that are designed in-house to deliver cost and performance benefits. The five drive units and three motors will offer the power and versatility to work with the full range of some 20 different EVs it plans to produce by 2023.
Ultium Drive systems will be more responsive than current models, using “precision torque control” for smooth performance, GM said. The Honda deal created a partnership model that GM hopes will entice other rivals. Barra said that supplying GM technology to rival automakers would build “scale to lower battery and fuel cell costs and increase profitability.”
Now GM is highlighting progress in testing its next-generation Ultium battery chemistry. “We believe we are on the battery-cost frontier today and we intend to set the pace for the future,” said GM product development chief Doug Parks.
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GM Cruise Vs. Tesla And Alphabet Waymo
On Jan. 19, GM announced a partnership with Microsoft to accelerate the commercialization of self-driving vehicles. Microsoft joined in a $2-billion funding round for Cruise, along with GM, Honda and institutional investors.
The investment gave Cruise an implied $30 billion valuation, up from $19 billion in May 2019. GM’s stake is now worth $19 billion, up from $11.9 billion, JP Morgan analyst Ryan Brinkman figures.
In November, Cruise began testing five driverless cars in parts of San Francisco. Initial results appear positive. On Feb. 9, Cruise President Kyle Vogt tweeted that Cruise covered 200,000 miles in California in Q4 without a safety driver once disengaging self-driving features.
Cruise’s commercial launch is “not years away,” Barra assured on the Q4 earnings call.
On Nov. 10, Walmart (WMT) announced a pilot test with Cruise in Scottsdale, Ariz., allowing contactless customer deliveries.
In January 2020, GM unveiled its six-passenger Cruise Origin EV with no steering wheel.
GM bought Cruise Automation for $1.1 billion in 2016. In 2018, Honda agreed to put up $2 billion more over 12 years.
Tesla, meanwhile, has released a new Full Self Driving beta version to select drivers. But despite the name, Tesla FSD is still a Level 2, hands-on system, while Cruise and Waymo are Level 4.
Is GM Stock A Buy?
The technical picture for GM stock has improved dramatically. Its 89 IBD Composite Rating isn’t far behind Tesla’s 94 rating. IBD research shows that all-time stock winners often have a Composite Rating of at least 95 near the start of big runs.
Still, fundamental metrics don’t tell the full story. The Covid hit to earnings, a restructuring and strike are all in the rearview mirror. The chip shortage curtailing production should clear up later in 2021, but GM’s traditional business faces a long-term decline. The biggest unknown is how well GM will be able to keep pace with Tesla, which aims to drive down the price of its EVs to $25,000 in three years, and others on the cutting edge of EV battery development — including Apple.
Investors should be aware that GM stock is a hybrid play, depending on profits from gas-burning SUVs today to pave the way to an EV future. Undoubtedly, there is lots of execution risk and uncertainty, but GM appears to be executing quite well, and Wall Street sees plenty of promise developing. If analysts see GM as a “stable of unicorns” with high-growth potential, they could begin to use a more flattering lens for valuing future earnings.
Bottom line: GM stock is in a buy zone, though it is also significantly above its 10-week line. Strong technical action, improving fundamentals and a brighter EV future all suggest General Motors stock is worth considering.
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