By Jeff Reeves
In 2009, General Motors recorded the largest industrial bankruptcy in history with over $170 billion in liabilities. But it emerged from Chapter 11 less than two months later and then quickly re-IPO’ed in 2010.
Unfortunately, General Motors /zigman2/quotes/205226835/composite GM -0.27% returned to public markets just a few months after a little electric vehicle company named Tesla Inc. /zigman2/quotes/203558040/composite TSLA +0.18% listed its stock. And ever since, investors have largely written off the once-iconic automaker and piled into its more dynamic competitor instead.
Since Jan. 1, 2011, GM’s share price has only risen about 50% compared with more than 200% gains for the broader S&P 500 (GSPC) in the same period. As for Tesla, the upstart EV manufacturer has delivered jaw-dropping gains of 15,000% when you adjust for its recent split. Even more impressive, Tesla has a market capitalization that’s now 10 times that of GM.
It’s difficult to see these numbers and think GM will ever be worth your attention as an investor. However, the company has notched some significant wins lately that could mean things are turning around.
It may never deliver Tesla-like gains, but increasingly 2021 is looking like the year GM finally proves it has a place in the future of the automotive sector — and that could result in a nice bump for its share price in the short term.
Here’s why General Motors may have a chance of holding its own in the coming months:
Recent momentum: Believe it or not, GM has tacked on very impressive gains over the last year or so. Shares are up more than 50% compared with pre-pandemic levels from early 2020, and have more than tripled from their March lows.
The momentum isn’t slowing, either, with a short-term uptrend of 35% in the last 30 days. Those admittedly aren’t Tesla-like numbers, but they are significantly better than the broader market’s performance.
Cruise partnership: A big reason for the most recent gains in GM stock is news of a partnership with tech powerhouse Microsoft /zigman2/quotes/207732364/composite MSFT -0.86% on the automaker’s autonomous vehicle project known as Cruise. Specifically, Microsoft has joined a $2 billion funding round and pledged to provide software, hardware, and cloud computing expertise to the project along with deep relationships with suppliers to facilitate the actual production and manufacturing of self-driving cars at scale.
This has a lot of Tesla-like potential, as it points to a clear plan to commercialize the technology in a mass market instead of just seeing autonomous vehicles as a niche project. Regardless of how the field shakes out in the long term, investors clearly like the fact that GM is at the front of the pack at this moment.
EV evolution: The Chevy Volt was one of the first plug-in hybrids, debuting back in 2010 when most people thought electric vehicles had a very limited future. And while the Volt never sold significant numbers and is no longer in production, leaving GM mostly out of the electric “car” market, the company recently showcased an all-new EV600 electric delivery van — with an amazing 250-mile range — through its subsidiary BrightDrop.
This shows there are many different ways to be a player in the electric vehicle market beyond competing with the Model S or Model 3, and GM continues to grow and evolve to meet the market.
Valuation: Don’t worry, I’m not going to lecture anyone on why Tesla is overvalued. Instead, I’ll simply point out that Wall Street is still largely valuing GM as a boring old automaker. That is an opportunity investors may want to exploit.
There’s a lot under the hood beyond the mainstream operations that sells over 2.5 million vehicles annually in North America alone. The aforementioned Cruise and Brightdrop units are separately branded subsidiaries, which may give GM big potential even if they are not as visible to traditional investors. Consider that Cruise alone, in which GM maintains a majority stake, is now valued at $30 billion . GM has an overall market cap of less than $80 billion.
Truck margins matter: While investors love to talk about electric cars, the business of GM is not really “cars” at all. In 2020, the automaker sold roughly 210,000 passenger cars in North America under the Chevrolet nameplate, including the Sonic, Camaro, Corvette, Malibu and Impala. Its pickup truck line consisting of the Chevy Silverado and its cousin the GMC Sierra sold 850,000 units last year. And not only did it sell four times the units, it enjoyed much better margins on its truck business thanks to higher price points.
Beyond its profitable truck line, GM also has some high-margin SUVs. As one extreme example, the price of more than half of all the recently redesigned luxury Cadillac Escalade SUVs sold in the fourth quarter top $100,000 after all the options were added on. Appealing to this kind of higher-end customer will continue to serve GM well in 2021.
Jeff Reeves is a MarketWatch columnist. He doesn’t own shares in GM or Tesla.
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