Can General Motors Talk Its Way to a Higher Market Value?
General Motors CEO Mary Barra went to New York on Wednesday to hold an investor conference. The day’s theme was: convincing everyone that GM deserves a higher valuation because, like Tesla, it’s supposed to be more than a car company.
While it seems slightly presumptuous for GM to expect the same overblown share price when Tesla probably doesn’t deserve it, either, the Good Book is supposed to say something about getting what you ask for. Still, having not read it in a while, I sincerely doubt it was referencing giant corporations or huge amounts of money.
Barra and company are attempting to show that GM hasn’t sat back on electrification and the same kind of advanced automotive technologies that wooed Tesla investors. Nobody said the rival automaker’s name during their speech, of course. Of course, they wouldn’t really need to, either.
“Our goal today is to leave you with a clear understanding of our vision and our strategy for the future,” Barra told investors. “We hope that you believe as we do that General Motors is uniquely positioned to take the industry forward.”
Hopefully, the future looks a little better than the present. General Motors just lost $194 million in its fourth quarter, resulting in a net profit of $6.7 billion for 2019 that takes into account the substantial amount of money lost due to the prolonged UAW strike (about $2.6 billion). Adjusted earnings before interest and taxes fell 96 percent in Q4 from a year earlier, to $105 million. The company’s profit margin declined 7 points to 0.3 percent as revenue dipped 20 percent to $30.8 billion.
GM currently trades fairly close to the $33 share price debuted in the IPO from 2010. That has left it with a market cap nearing $50 billion, whereas Tesla’s valuation is closer to $140 billion. However, it’s not all roses for the American EV brand. After peaking hard on February 4th, Tesla’s stock fell nearly 18 percent with losses continuing throughout the day. Wednesday will definitely end as the worst percentage decline the stock has endured in years. That’s leading many to believe that Tesla’s valuation is about much more than simply delivering technology — an issue we discussed earlier in the week.
While GM’s battery tech still seems to be a step or two behind what Elon Musk’s team has managed to offer, its autonomous program is likely years ahead. Despite plenty of developmental hiccups, General Motors is still presumed to be the legacy automaker leading the self-driving charge. And it’s that commitment to technology Barra is hoping to make investors see. Some have already.
“The market’s got it wrong,” Chris Susanin, co-portfolio manager with Levin Easterly Partners, told Reuters at the meeting, “GM should be the $150 billion market cap, not Tesla.”
The bulk of GM’s profits is still derived from the fuel-hungry pickup trucks and SUVs sold in the United States. The Chinese market has been the source of a steady $2 billion in profits a year, but that is threatened by a market slowdown, rising costs for electrification and now the disruption caused by the coronavirus outbreak.
While China will deliver lower equity income to GM in the near term, its remains a solid contributor that is profitable and dividend paying, and will play a key role in the development of EVs globally, officials said. GM also sees growth for its Cadillac brand in both volume and profits in China.
Cadillac has already announced plans to make most (potentially all) models sold under its banner electric by 2030. North America will presumably be less eager to scoop up alternative-energy vehicles than, say, Europeans, but GM says it anticipates the self-driving market to eventually be worth over $8 trillion. If those numbers turn out to be correct, and the company takes a commanding lead, then that should more than make up for the United States’ slow EV adoption rate and those extravagant development costs.
The General currently has plans with South Korea’s LG Chem to construct a multi-billion-dollar battery factory in Ohio to provide cells for EVs coming out of the retooled (to the tune of $2.2 billion) Detroit-Hamtramck assembly plant — including the electrified Hummer that’s slated for 2021.
During the investor meeting, Barra ramped up the automaker’s timeline to source all electricity from renewable sources by 2040. She also reminded everyone that GM intends to reduce manufacturing complexities for 2020, by eliminating 1/4 of the parts currently required for assembly, and that Super Cruise would become more broadly available over the next two years.
While the business is doing just about everything it can to position itself favorably, that doesn’t ensure the future is as GM sees it. The public’s interest in AVs seems to be on the wane; meanwhile, battery-powered vehicles aren’t being adopted quite as quickly as everyone hoped. But we don’t have an sound alternative strategy. You either drive through tech like a pile of cardboard boxes in a 1970s cop drama, hoping it will pay off before you’re broke, or you hold off and save yourself a bunch of cash at the risk of falling behind the rest of the industry. Having the same cachet as Tesla won’t change that, even if it’s worth striving for.
“We believe we’re a compelling investment opportunity,” said GM CFO Dhivya Suryadevara, “From a share-price standpoint, we’re very bullish on the future.”
[Image: General Motors]
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