GM stock slipped in early Monday stock market action after Jefferies analyst Philippe Houchois slashed his General Motors (GM) price target to 53 from 68. GM stock had rallied on Thursday and Friday after slumping 9% on Wednesday’s soft earnings guidance. Other analysts saw the earnings selloff as overdone and a chance for investors to buy GM stock at a bargain. So is now a good time to buy GM stock?
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GM Stock News
On Aug. 4, GM posted Q2 EPS of $1.97 vs. a year-ago loss, topping estimates. Sales more than doubled to $34.2 billion. Yet GM’s full-year EPS guidance of $5.40 to $6.40, though up close to $1 at the midpoint, implies weak second-half EPS of just $1.19 to $2.19. GM, which said it would idle three North American factories, is bracing for the chip shortage to continue, though some caution is built into guidance.
Jefferies analyst Houchois cut his price target for GM stock, making the case that its EV transition strategy no longer stands out from the crowd, with the likes of Ford (F) and Stellantis (STLA) also plunking down $30-$35 billion through 2025. On top of that, he wrote that GM’s 2022 launch plan seems weak relative to rivals.
GM’s transformation appears on track to cross the starting line this fall, with the launch of the first two vehicles to use its Ultium EV platform. The Hummer EV and BrightDrop EV600 delivery van are both on track to launch this year, GM confirmed on Wednesday. They’ll be followed early in 2022 by Cadillac’s Lyriq SUV, which will be open for reservations next month.
Yet there’s a lot we still may not know about GM’s plans. GM suprised everyone in January when it unveiled its BrightDrop startup, along with a deal to supply its EV600 delivery van to FedEx. Now GM has scheduled a two-day investor event for Oct. 6-7 that should offer more revelations about product launches, as well as progress on battery and fuel cell technology, efforts to monetize its SuperCruise driver-assistance technology, and the trajectory of its Cruise self-driving division.
GM Stock Chart Technical Analysis
Since its last big breakout in January, amid the unveiling of its new commercial delivery van, GM stock has essentially moved sideways for the past six months.
GM stock gapped higher on June 3 after saying prior Q2 guidance was too pessimistic. MarketSmith shows that GM stock crested a 63.54 buy point, 10 cents above its April 6 high, then rose as high as 64.30 on June 7.
Yet since then, amid a flood of news about competitors’ exciting EV plans and renewed chip-shortage worries, GM stock slumped as much as 19% to the Aug. 4 low of 52.21, near its 200-day moving average. GM stock was trying to mount a rally after the earnings selloff, but fell 2.5% to 53.67 amid Monday’s price-target cut.
GM stock has a 64.40 buy point from a 10-week consolidation. However, aggressive investors may have an early entry opportunity. If GM stock breaks clear of its downsloping trend line from the early June high, a move above the 50-day line could be actionable.
While the breakout attempt in early June didn’t pan out, GM stock has held comfortably above the 46.81 buy point, which it cleared on Jan. 12. The relative strength line, which shows how GM stock performs vs. the S&P 500 index, has backed well off its recent 3-year high, but the technical damage should remain moderate, as long as support holds at the 200-day line.
As of Aug 9, GM stock sported an 81 Relative Strength Rating, meaning it has outperformed 81% of all stocks over the past 12 months.
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 Telsa and other EV pureplays such as Nio.
Ives started coverage on GM stock with an outperform rating and 85 price target, while giving what seems to be the most full-throated endorsement yet of its EV prospects.
Ives called GM stock “a broader 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. Its modular architecture, with a single platform also has cut vehicle development time in half, “giving them a competitive advantage over other players entering the EV battlefield.”
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
On June 16, GM said it plans to spend $35 billion on electric and self-driving vehicles. The 30% boost over the prior $27-billion total partly reflects two additional EV battery plants.
GM’s revved-up investment plans track with its aim 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.” 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 recently became the first company cleared 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 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 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 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, which was slated to go into production in late 2021 but might be delayed, 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.
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, it 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?
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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 (FDX).
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.
Amazon (AMZN) is an investor, along with Ford, in Rivian, which is expected to go public with a $70 billion valuation. Amazon has a commitment to buy 100,000 electric delivery vans from Rivian by 2030.
Katz said Brightdrop is seeing “tons of excitement and tons of interest from customers.” So far, just one other order has been announced. Merchants Fleet announced an order for 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 also has revealed 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, 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. That equates to about $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 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 August 9, GM stock had a market cap of $78 billion compared to $708 billion for Tesla. However, Tesla stock has fallen by about 20% from its all-time high. Ford stock is valued at $55 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.
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Is GM Stock A Buy?
GM stock has a mediocre 69 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. 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.
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. But GM appears to be executing well, and Wall Street sees plenty of promise developing.
Constructive technical action and the accelerating transition to an EV and AV future suggest General Motors stock is worth keeping a close eye on. GM stock, though, is about 15% below an official buy point. However, if GM stock can break clear of both its downsloping trend line from the early June high and its 50-day moving average, that would provide an early entry point.
Bottom line: GM stock is not a buy, but stay tuned.
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