By on August 7, 2020

One of the strangest anomalies in the automotive industry is the way electric vehicle startups (like technology companies in general) seem to draw limitless support from investors while established automakers don’t receive nearly the same kind of love  even when transitioning toward EVs.

There’s a logic behind this, however. Green tech is overwhelmingly trendy at the moment, even if some of it lacks a comprehensive game plan to actually save the environment, and financial backers are always looking to get in on the next big thing before anybody else  resulting in scattershot investing that sometimes coalesces into a major victory for new firms possessing sufficient moxie.

But it hasn’t helped the auto industry’s largest players, who are seen as dinosaurs using the blood of their forebears to amass their fortunes. They lack the presumed purity of brands like Tesla or Nikola (clever name), even though their financial goals seem largely the same.

A potential solution to this problem is to distance tech-focused entities from the core business.

We’ve already seen both Toyota and Volkswagen Group rebrand/expand their software and mobility development teams into slickly named side projects. Intentionally designed to have as little to do with the parent company as possible, they’re assumed to draw in outside support and fuel the companies’ push into electrification and data acquisition. General Motors participated in this behavior when it bought Cruise Automation, only to put it back on the market to sell minority stakes to others. Apparently, GM’s leadership is considering doing something with its electric vehicle program, as well.

According to Bloomberg, GM has been considering spinning off its electric ambitions for a while after seeing startups attract billions of dollars of investment without offering more than a sales pitch. Selling a bunch of real cars to customers is fine, but GM really wants to get back into the good graces of Wall Street, if that’s possible.

During last week’s earnings call, analysts asked CEO Mary Barra if GM would spin off its electric-vehicle operations as a standalone entity.

“We are open to looking at and evaluate anything that we think is going to drive long-term shareholder value,” she said, noting that no options had been removed from the table.

From Bloomberg:

GM now is war-gaming the idea as the company ponders different ways to get credit for its EV plans, though a spinoff isn’t actively being prepared, said the people, who asked not to be identified discussing internal deliberations. Barra was publicly asked about it in light of Tesla Inc.’s soaring valuation and the easy access to capital that unproven EV startups such as Nikola Corp. have pulled off by merging with blank-check companies.

“Investors are telling us every day that they are willing to invest in electric vehicles,” said Emmanuel Rosner, the Deutsche Bank analyst who asked Barra about the idea of a spinoff on July 29. “But they are doing it with electric-vehicle companies, not legacy companies.”

The outlet reported unnamed sources who claimed the view within GM is that these tech startups are attracting billions of dollars in investment while lacking the same tangible might of legacy automakers. It also said to look at the messaging used by General Motors over the last few years, in which it characterizes itself less as a carmaker and more as a technology firm that happens to build automobiles.

This is absolutely not limited to GM, however. The term “mobility company” has been thrown around quite liberally within the industry ever since former Ford CEO Mark Fields toyed with the concept half a decade ago. Despite failing in his quest, Fields’ general strategy has become so commonplace within the automotive sector that someone probably owes him an apology. This will be especially true when/if legacy automakers finally manage to convince investors that their stocks deserve to be as overblown as those belonging to some of these startups. But they’ve yet to find the secret sauce to get Wall Street’s mouth watering thus far.

[Image: General Motors]

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13 Comments on “GM Muses Spinning Off EV Operations to Better Court Investors...”

  • avatar

    Saturn Part II incoming!

  • avatar

    So, which company would get the bailout the next time they run into trouble, New GM, or New New GM???

    • 0 avatar

      Both, assuming they both have UAW workers. Steve “the rat” Rattner has all the Powerpoint slides and spread sheets from 2009, and while Harvey Miller passed away, there are still a lot of the bankruptcy lawyers at Weil Gotschal.

  • avatar
    schmitt trigger

    The perception that large companies are huge, slow moving dinosaurs which can’t react fast enough to cataclysmic events, while smaller nimbler species adapt more readily, is IMHO not very far from the truth.

    There are many, many textbook cases to illustrate this point.

    Suffice to say that, had the railroad barons understood that they were in the people and goods transportation business, and not simply into trains and tracks, we would nowadays have Santa Fe Airlines, Union Pacific Airways, and perhaps even a Burlington & Northern package delivery.

  • avatar

    Spinning off electric cars would attract funding from new investors purchasing shares. However, GM could no longer send money to subsidize the spinoff. Current shareholders would own shares of both companies. This is a good idea only if GM is short of cash.

  • avatar
    SCE to AUX

    Smells like a plan to quarantine the failure when it happens. Ms Barra says GM is all in, but this is essentially a pre-nup designed to protect GM.

    Funny how people still think of Tesla as a startup – it isn’t.

  • avatar

    The idea leaves me with more questions. Like, how would this EV company’s products be branded? Do we pick an existing brand like Cadillac or GMC/Hummer and make it all electric? Or do they do what GM does and launch yet another brand? And probably most important, what would happen to GM stock prices once the EV/Mobility Group were standing on its own? Are GM’s ICE products really holding back EV funding, or are the high tech products currently propping up GM stock? If it’s the latter, the move could backfire in a big way. Who would want GM stock if it’s all about old technology?

  • avatar

    Both Ford and GM are infected with extreme Tesla jealously, and are running the business solely to mouth buzz words they think will get investors hot for their stocks like they are for Tesla.

  • avatar

    Tesla is the largest automaker in the world and Ford and GM are shrinking small potatoes. It is because Tesla is growing fast and Ford and GM are cancelling one model after another and laying off workers and shutting down plants.

  • avatar

    Fender skirts (and squared-off rear wheelwells) on the EV1 set back any progress against climate change by at least a decade.

    (GM Design Staff – why do you hate our planet?)

  • avatar

    Basic industries like cars, steel, aluminum, energy producers, consumer durables, etc., need to discount the opinions of analysts. They cater to short term investors and rising/large-swing stock prices for large, quick returns.

    Basic industries with large capital investments and slow, steady growth over the long haul will never be favored by such analysts. There will always be investment capital available from insurance companies, retirement systems, bond trusts, and the like, who invest for the long term.

    Since even basic industries are subject to the business cycle, they should keep an eye on stock prices to buy stock when times are good and maintain dividends on a smaller stock base in bad times. That will keep the long term investors happy, and insulate them from the quick buck investors and their analysts.

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