GM stock broke out to its first record high in more than three years on Jan. 10 as General Motors (GM) surprised Wall Street by revealing the existence of BrightDrop, its EV commercial delivery vehicle and logistics startup that already boasts FedEx (FDX) as a committed customer.
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After going nowhere for nearly a decade, GM stock moved into the fast lane in the final quarter of 2020 as it unveiled the Hummer EV. Meanwhile, GM earnings and sales shifted into overdrive in the back half of 2020, helping finance an accelerated transition to EVs.
This week, GM has grabbed the limelight, as it shows off its modernized brand logo and makes the case that it has a winning EV strategy at the Consumer Electronics Show. So is now a good time to buy GM stock?
IBD’s SwingTrader added GM stock to its portfolio on Jan. 6.
GM Stock Priced Like An Underdog
GM says it’s headed for the front of the pack, yet it’s still priced like an underdog.
As of Jan. 12, GM had a $71.5 billion market cap, compared to $783 billion for Tesla (TSLA), despite having roughly four times the sales in the third quarter.
Yet those sales of vehicles with internal combustion engines come from a business which Morgan Stanley analyst Adam Jonas describes as a “melting ice cube,” destined for a long-term decline.
Wall Street analysts argued in recent months that GM should spin off its Ultium electric vehicle operations to get a more proper valuation. Deutsche Bank’s Emmanuel Rosner had said that a spinoff could fetch a value of $20 billion to $100 billion, while easing access to capital and top talent.
Yet GM CEO Mary Barra killed that idea at the Nov. 19 Barclays Global Automotive Conference. “Our integrated strategy is a competitive advantage for GM.”
As GM funds itself through profits, pure-play EV automakers, including Tesla and a host of Chinese rivals are building up huge EV war chests by issuing stock. Meanwhile, Toyota (TM) and EV battery startup QuantumScape (QS) have surged lately on evidence of their separate progress toward a solid-state EV battery that has potential to offer faster charging, longer distance and greater safety.
Reuters reported on Dec. 21 that Apple (AAPL), with far greater resources, is working toward its own EV battery breakthrough and could produce an electric, autonomous vehicle in 2024. “If Apple were to really throw its weight around and intensify competition,” that would strengthen the “old autos bear case” for GM stock and others, Jonas wrote.
In early January, Hyundai confirmed that it’s in talks with Apple regarding electric vehicles. But any such Apple EV car would be years away.
It’s hard to know where GM stands in the EV hierarchy, because such big technology breakthroughs may not be ready for the production line until mid-decade or later. Meanwhile, GM also has made some head-turning claims about its next-generation EV battery.
EV Transition
On Nov. 19, GM mapped out its road to launching 30 EV models globally by 2025, while topping its prior goal of 1 million EV sales and achieving big EV battery cost-reductions and efficiency gains.
Barra said GM will realize $2 billion in cost efficiencies from shared engineering, manufacturing, marketing and corporate cost. Cash flow from GM operations will fund an accelerated $7 billion in EV investment through 2025, while still allowing General Motors to reinstate its dividend in 2021.
Barra also said that GM’s flexible Ultium EV architecture has helped cut vehicle development time by nearly 50%. She said the launch of the Cadillac Lyriq SUV, which features an all-glass roof, had been moved up to the first half of 2022, about nine months earlier than initially announced. GM will speed up the launch timing of 12 EV models, some by as much as 40 months.
“We’re committed to fighting for EV market share until we are number one in North America, achieving margins similar to or higher than our ICE business and exceeding our previous target of selling 1 million vehicles globally by mid-decade,” Barra said.
GM Stock Chart Technical Analysis
GM stock soared in October and November on the Hummer EV launch and stepped-up EV factory and production plans.
Shares then reversed as much as 13%, including a 2.7% drop in Nov. 30’s stock market action on a scaled-back deal with Nikola. Yet GM stock twice found support at its 10-week and 50-day line. IBD SwingTrader took advantage of an early entry point, establishing a position as GM stock cleared its Dec. 23 intraday high that came on the first bounce above its 50-day line.
On Jan. 12, GM stock broke through a more traditional 46.81 buy point, 10 cents above its Nov. 24 high. General Motors stock jumped 6.2% to close at 47.81, breaking above the October 2017 all-time high of 46.76. GM stock is now extended from a buy zone that runs through 49.16.
GM stock now sports an 87 Relative Strength Rating, meaning it has outperformed 87% of all stocks over the past 12 months.
Meanwhile, the relative strength line, which shows how GM stock performs vs. the S&P 500 index, is at a 17-month high. The technical picture has improved dramatically since July, when GM’s RS line hit a historic low.
General Motors Earnings And Sales Trends
General Motors earnings haven’t seen steady growth in the past couple of years, as auto sales peaked in the U.S. and hit a pothole in China. A UAW strike hurt results in the second half of 2019. Then Covid-19 marred the first half of 2020.
But in Q3, everything seemed to fall into place. General Motors earnings per share surged 65% to $2.83, as GM “showcased the benefit from its deep structural cost reductions,” Rosner said. Revenue of $35.5 billion was flat from a year ago and in line with estimates.
GM sales remained on a roll in Q4. GM deliveries in the U.S. rose to 771,323, up 5% from a year ago. General Motors said it gained market share as the average transaction price rose to a record $41,886.
General Motors appears well-positioned in the U.S. market, seeing demand for pickup trucks and crossover SUVs.
Meanwhile, GM sales in China remained on the upswing for the second straight quarter, after a weak couple of years. General Motors and its Chinese joint-venture partners saw deliveries rise 14% to 954,325.
GM’s ‘Stable Of Unicorns’
Even before the Jan. 12 reveal of the BrightDrop commercial EV unit, Morgan Stanley’s Jonas had referred to GM as having a “stable of unicorns.”
BrightDrop’s first 500 EV600 delivery vehicles, which go 250 miles per charge, will go to FedEx (FDX). The global delivery giant also has tested BrightDrop’s EP1 pallet electric pallet, designed to move up to 200 pounds in goods over short distances. FedEx said its drivers were able to handle 25% more packages per day in the first pilot.
Beyond consumer and commercial EVs, GM has a controlling stake in Cruise, its autonomous vehicle startup. GM’s Ultium EV battery and vehicle architecture also has become something of a business in its own right. In April, GM reached a deal with Honda Motor (HMC) that will see it jointly develop two electric vehicles for the Japanese automaker using GM’s Ultium battery.
On Nov. 30, GM announced revised terms of a deal to supply fuel cells to Nikola’s heavy-duty trucks. The deal opens up another potential market opportunity for GM, though prospects remain clouded by Nikola’s reputational hit as its founder left the company amid allegations of being a huckster and of personal misconduct.
General Motors’ GM Defense unit won a $214-million contract in June — its first win — to build Infantry Squad Vehicles for the U.S. Army based on the Chevrolet Colorado ZR2 midsize truck architecture.
GM also showed off a model it has designed of an electric flying car to target the air mobility market as it develops over the next decade or more.
Hummer EV Buzz
GM unveiled the Hummer EV truck during the World Series, touting “maneuverability and traction unlike anything GM has ever offered.” The Hummer’s CrabWalk mode, allowing it to move diagonally to get through tight off-road spots, quickly went viral.
“I think investors are crab-walking back to the stock,” Morgan Stanley’s Adam Jonas said on an Oct. 21 analyst call with management.
The Hummer EV, which will take on the Tesla Cybertruck, is due out next fall. GM says the Hummer EV can travel 350 miles on a full charge and reach 60 miles per hour in three seconds. The Hummer also will take on upcoming electric trucks from Ford (F) and Amazon (AMZN)-backed Rivian.
The Rivian RT1 will likely be released before the GM Hummer, but the Tesla Cybertruck will not be out until 2022.
Prices for the initial Hummer EV version start at $112,595. General Motors said all available reservations for the Hummer EV sold out within 10 minutes. GM reportedly received 10,000 pre-orders and is considering boosting production plans.
GM plans cheaper Hummer EV versions in future years.
General Motors’ Ultium Battery Future
GM had a puzzle to solve: How could it compete broadly in the still relatively small EV market, en route to an all-electric future, without frittering away its financial strength? The answer came with the March 4 unveiling of its Ultium battery and flexible platform.
The Ultium stands apart for its ability to be stacked either vertically or horizontally in the battery pack, to optimize the layout of each vehicle. The biggest stack is said to have the power to reach 450 miles on a full charge. The platform can accommodate a wide range of trucks, SUVs and cars.
CEO Mary Barra has said that GM’s multisegment EV strategy has “economies of scale that rival our full-size truck business with much less complexity and even more flexibility.”
The first generation of GM’s coming EV lineup “will be profitable,” the company said. Since then, GM has detailed a much more complete vision of its EV future.
In September, GM unveiled its strategy to produce electric drive systems that are designed in-house to deliver cost and performance benefits. GM says the five drive units and three motors will offer the power and versatility to work with the full range of some 20 different EVs it plans to produce by 2023.
GM said these Ultium Drive systems “will be more responsive than its internal combustion equivalents with precision torque control of its motors for smooth performance.”
The Honda deal created a partnership model that GM hopes will entice other rivals. Barra said that supplying GM technology to rival automakers would build “scale to lower battery and fuel cell costs and increase profitability.”
Now GM is highlighting progress in testing its next-generation Ultium battery chemistry. “We believe we are on the battery-cost frontier today and we intend to set the pace for the future,” said GM product development chief Doug Parks.
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GM Cruise Vs. Tesla And Alphabet Waymo
In November, General Motors’ Cruise autonomous vehicle division began testing five driverless cars in parts of San Francisco, a big step forward after a period of reduced expectations.
“We’ll be the first doing it in a complex urban environment,” Barra said on the Q3 call. “And why that’s so important is, if you think about even today’s ride sharing, the opportunity for profitability is in dense urban environments.”
On Nov. 10, Walmart (WMT) said it will begin a pilot test with Cruise in Scottsdale, Ariz., allowing contactless customer deliveries.
In January, General Motors unveiled its six-passenger Cruise Origin, which has no steering wheel. But the company laid off 8% of its workforce in May as it paced itself for a future that is still just over the horizon.
Apple, Alphabet (GOOGL)-unit Waymo, Uber (UBER), Ford (F) and Tesla are among a large field of well-funded competitors in the autonomous-vehicle market. Yet so far there’s been one detour after another. Covid-19 is yet another obstacle to shared rides.
Cruise had hoped to launch a robotaxi service in San Francisco late in 2019. GM and others were too optimistic about how fast they could solve what Barra has called “the greatest engineering challenge of our lifetime.” She remains optimistic about unlocking “the multitrillion-dollar market potential” of self-driving cars, though some experts now think that market might not develop until late this decade.
GM bought Cruise Automation for $1.1 billion in 2016. Key investors include Honda, which in 2018 put $750 million into the venture and agreed to put up $2 billion more over 12 years.
Tesla, meanwhile, has released a new Full Self Driving beta version to select drivers. But despite the name, Tesla FSD is still a Level 2, hands-on system, while Cruise and Waymo are Level 4.
While Tesla Soars, Electric Cars Face A Huge Test
Is GM Stock A Buy?
GM stock is on its best run since the automaker launched an IPO in 2010 following a government bailout. The technical picture has improved dramatically. GM’s 87 IBD Composite Rating is now solid, though that still puts it in the second tier behind Tesla, with a stellar 99 IBD Composite Rating. IBD research shows that all-time stock winners often have a Composite Rating of at least 95 near the start of big runs.
Still, fundamental metrics don’t tell the full story. The Covid hit to earnings, a restructuring and strike are all in the rearview mirror. Meanwhile, GM’s traditional business faces a long-term decline. The biggest unknown is whether GM will be able to keep pace with Tesla, which aims to drive down the price of its EVs to $25,000 in three years, and others on the cutting edge of EV battery development — including Apple.
Investors should be aware that GM stock is a hybrid play, depending on profits from gas-burning SUVs today to pave the way to an EV future. Undoubtedly, there is lots of execution risk and uncertainty, but GM appears to be executing quite well, and Wall Street sees plenty of promise developing. If analysts see GM as a “stable of unicorns” with high-growth potential, as Morgan Stanley’s Jonas has said, they could begin to use a more flattering lens for valuing future earnings.
Bottom line: GM stock is not a buy, extended from the 5% chase zone after breaking out to a new high. But the strong technical action, improving fundamentals and a brighter EV future all suggest General Motors is worth considering if it sets up again.
Investors may find better buying opportunities in younger, faster-growing companies. To find the best stocks to buy or watch, check out IBD Stock Lists and other IBD content.
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