Owning Tesla is Smart. Ignoring GM is Not!
Ignore GM at your own investment peril
Chris Isidore had the nerve to write an article for CNN Business insinuating that General Motors could be a better investment bet than Tesla. Immediately, Twitter Tesla dismissed the idea. For Tesla’s many investment fans, electric vehicle success is a zero sum game where Tesla wins and all others lose. While Tesla is an important component of any portfolio designed to profit from a future transportation world, investors should not ignore GM anymore. In fact, GM might be the top company (other than Tesla) best positioned to profit tremendously in a world of electric vehicles, autonomous technology, and mobility solutions.
GM’s stock is up more than 100 percent since the coronavirus-induced, near total automotive industry shut-down earlier in the year. During this time, GM has proven it can execute on two very important aspects of its business.
- Profit today on the strength of its pickup trucks, SUVs and China business.
- Promote and invest in the company’s future vision of Zero Crashes, Zero Emissions and Zero Congestion.
General Motors has outperformed Wall Street’s expectations for 22 consecutive quarters. In the latest 2020 third quarter, GM’s earnings increased 74 percent from the same period last year. Vehicle sales have recovered better than expected in the company’s most important markets, North America and China. The company has an incredible cash cow in its pickup trucks and full-size SUVs. GM earned $8.2 billion in North America last year with the primary source of this profit coming from those trucks and SUVs. Barclays has estimated that 72 percent of GM’s North American profits come from these vehicles. While Tesla can utilize capital markets to continue funding technology development, GM can use profits generated from these most important vehicles to fund its future.
While North America provides the majority of GM’s profits, China provided $1.1 billion of the company’s profits in 2019. China is the world’s largest automotive market. And GM sells more vehicles in China than any non-Chinese car company other than Volkswagen. The future of automotive is primarily being driven by China. The Chinese government is mandating the introduction of electric vehicles over the next several years. Investor Business Daily suggested the Chinese government could require that 60 percent of vehicle sales be electric by 2035. Globally, GM will introduce 20 new electric vehicles by 2023. The company has a goal of selling 1 million electric vehicles in China and the U.S. by 2025.
GM has more electric vehicle and autonomous driving technology than many people realize. While the recent reveal of the all-electric GMC Hummer EV is generating a lot of buzz, GM has been producing and selling the fully-electric Chevrolet Bolt since 2016. GM has developed an all-new electric vehicle architecture along with critical advancements in battery technology developed with LG Chem, their battery partner. With this technology, every GM brand will add electric vehicles to their portfolio of consumer offerings.
GM acquired self-driving startup company, Cruise Automation, in 2016 for $1 billion. The Cruise acquisition is quickly pushing GM toward an autonomous driving and mobility solutions future. The best evidence of this future is represented by Cruise Origin. Origin embodies GM’s commitment to a “zero crashes, zero emissions, zero congestion” future. Revealed in January 2020, Origin is a fully-electric vehicle designed to travel autonomously with no steering wheel or pedals. The vehicle has a large interior with seats that face each other. Origin is designed to transport people clearly within a mobility business solution. January’s reveal was not some over-the-top concept vehicle. It was introduced as a production-ready vehicle that will be produced at a dedicated electric vehicle manufacturing facility in Detroit.
As if to validate the importance of GM’s Cruise subsidiary, Softbank’s Vision Fund announced a $2.25 billion investment in Cruise in May 2018 combined with another $1.1 billion from GM. Then in October of 2018 Honda announced a $750 million investment in Cruise to be followed by another $2 billion over the next 12 years. And this week, Walmart announced a pilot with Cruise to launch next year in Scottsdale AZ where Cruise will deliver groceries to customers purchased from a Walmart store.
Some on Wall Street now seem to believe that GM is “an aggressive electric vehicle company” versus a traditionally slow-growth legacy automaker as Patrick Hummel of UBS described GM recently. He believes (as I’ve stated for months) that GM will begin to get credit for it electric vehicle strategy. While the company is not a pure play electric vehicle company like Tesla, GM’s significant capital allocation toward autonomous and electric vehicle technology will pay dividends for the patient investor.
Tesla has a great first mover advantage in creating the future of automotive. However, being first may not mean all others will fail who come afterwards. Some have predicted that a future mobility solutions industry represents an $8 trillion market opportunity. Even legacy automakers like GM that have the technology, the strategy, and the leadership can profit from that large of a new industry. Just like Microsoft transitioning to profit within a new cloud industry created by Amazon, GM is quickly transitioning to an autonomous, electric vehicle business that’s primarily being driven by Tesla today.
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