GM stock’s resurgence since last fall came on suddenly, in part because Wall Street was slow to recognize the value of some GM assets. Yet the biggest factor has been the accelerated pace of change at General Motors‘ (GM), which keeps producing one surprise after another.
The biggest surprise has been BrightDrop. Just a kernel of an idea a year ago, GM revealed the existence of its logistics startup on Jan. 12. The first EV600 vans are on track to come off GM’s assembly line in Canada in late 2021, with initial deliveries going to FedEx (FDX).
This month’s surprises revolved around GM’s Cruise autonomous unit, which announced an investment from Walmart (WMT) and an exclusive deal to provide robotaxi service in Dubai via the Cruise Origin starting in 2023.
GM’s corporate reinvention should continue apace this year. Along with some big milestones, like the Hummer EV hitting the road this fall, there’s potential for more surprises. That could include news of deeper ties between GM’s BrightDrop unit and FedEx than previously revealed. Cruise is also hinting of a potential 2022 launch of a robotaxi service in San Francisco. So is now a good time to buy GM stock?
GM Stock Priced Like An Underdog
GM says it’s headed for the front of the EV pack, yet GM stock still appears priced like an underdog.
Yet the bulk of those GM sales are for internal-combustion-engine (ICE) vehicles. That business could be headed for the scrap heap by 2035, GM announced on Jan. 18.
That blockbuster news prompted Morgan Stanley analyst Adam Jonas to cut his discounted value for GM’s ICE business to zero. Yet Wall Street analysts continue to gain confidence in its EV, self-driving and fuel-cell future, and that’s the key to driving shareholder value. Jonas simultaneously hiked his price target for GM stock to 80 from 57 based on the increasing value of General Motors’ other parts.
GM’s transition isn’t without risk. As GM funds itself mainly through ICE profits, pure-play EV automakers, including Tesla and a host of Chinese rivals have built up huge 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.
It’s hard to know exactly where GM stands in the EV hierarchy, because companies are aiming for major technology breakthroughs which may not be ready for the production line until mid-decade or later. But GM, which has its own ambitious roadmap for a next-generation Ultium battery that promises greater range at less cost, has proved it belongs in the top tier.
GM Stock Chart Technical Analysis
GM stock soared in October and November on the unveiling of the Hummer EV and stepped-up EV production plans. Shares broke out again on Jan. 12, clearing a 46.81 buy point as GM revealed the existence of BrightDrop.
Momentum continued amid news on Jan. 19 that Microsoft (MSFT) had joined a new investment round in GM’s Cruise autonomous-vehicle unit. GM stock subsequently hit a new high of 57.05 on Feb. 8, overcoming its first report that a chip shortage would sideline some production.
While GM stock pulled back on earnings and amid broader stock market volatility, it showed strong technical action, finding support at its 50-day moving average in late February and early March. Then, as the S&P 500 recovered, GM stock remained a leader. A charge from EV battery development news helped drive GM stock to new highs, peaking at 63.44 on April 6.
The relative strength line, which shows how GM stock performs vs. the S&P 500 index, has pulled back only modestly after hitting its highest level in almost three years.
As of April 21, GM stock sported an 88 Relative Strength Rating, meaning it has outperformed 88% of all stocks over the past 12 months.
Amid more market volatility, GM stock again slipped to its 10-week and 50-day line on April 20, but reclaimed those key levels on April 21. For leading stocks a bounce off the 50-day average and above resistance can be actionable if it happens above the latest buy point.
Yet that’s the third or fourth trip to that technical signpost since GM stock broke out in January. If one takes the March 12 pseudo breakout above a 57.15 buy point from a messy 8-week consolidation, then the latest dip to the 50-day line undercut that entry point.
If GM reclaims its 21-day line and breaks a short downtrend, aggressive investors could take a small position.
But there’s no clear entry point for GM stock.
BrightDrop And FedEx
“The EV600 will be the fastest vehicle GM has ever brought to market,” BrightDrop CEO Travis Katz said in a March 22 Bank of America investor presentation. Building upon engineering work for the Hummer EV helped speed along the process, Katz said.
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.
Katz said that feedback from FedEx helped inform the design process. 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.
GM announced at its Jan. 12 unveiling that FedEx had committed to buy 500 EV600 vans. Yet Katz hinted that there may be much more to the GM-FedEx relationship.
“We see this as not just a commercial, transactional relationship, but really a partnership,” Katz said, while noting that BrightDrop has “other pilots that are underway with FedEx.”
Even before Katz’s intriguing teaser, there was reason to wonder if FedEx might be a BrightDrop investor, as well as a customer. One advantage of BrightDrop’s structure as a separate company within GM is that it provides a vehicle for such outside investment and participation in its growth. Microsoft, Walmart and Honda Motor are all investors in GM’s Cruise autonomous-vehicle startup.
Amazon (AMZN) is an investor, along with Ford (F), in Rivian, which is expected to go public with a $50 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.
GM is preparing to launch three new passenger EVs in coming months. This summer, the 2022 Chevy Bolt and new SUV version of the Bolt will debut, offering a range of about 250 miles on a charge. The EVs are seen as value plays, with starting prices of $31,995 and $33,995. This fall’s launch of the buzzworthy Hummer EV will be the first vehicle with GM’s Ultium battery.
GM says the Hummer EV can hit 60 miles per hour in three seconds and achieves “maneuverability and traction unlike anything GM has ever offered.” A video demonstrating CrabWalk mode, allowing it to move diagonally to get through tight off-road spots, quickly went viral.
The Hummer EV, with a starting price of $112,595, will take on the Tesla Cybertruck and upcoming electric trucks from Rivian.
This month, GM unveiled its Hummer SUV — a version of the supertruck with an enclosed cargo bed — and begin taking reservations. This week, GM displayed the first public version of its Cadillac Lyriq SUV, which will cost just under $60,000 and come to market in the first half of 2022. The Lyriq will have a range of 300 miles and fast-charging capability of adding 76 miles in range in 10 minutes.
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.
GM’s accelerated transformation will see it invest $7 billion in electric and autonomous vehicles this year and $27 billion by 2025. That will include a second EV battery factory built with partner LG Chem, which is set to begin production by the end of 2023.
CEO Mary Barra 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 had been moved up about nine months from the date 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.
General Motors Earnings And Sales Trends
After a bumpy few years, thanks to a UAW strike, soft sales in China and Covid-19, General Motors earnings appeared to turn the corner in the second half of 2020, helped by sales strength and cost reductions.
GM retail deliveries remained on a roll in Q1, rising 19% from a year ago, while fleet sales fell 35%. Overall deliveries of 642,250, up just 4% from a weak year-ago period.
GM said it ended Q1 with leaner inventory of 334,628 units, down 76,247 from Q4, as a chip shortage snagged production.
Meanwhile, GM sales in China remained on the upswing, after a weak couple of years. General Motors and its Chinese joint-venture partners saw deliveries rise 69% to more than 780,000, rebounding from Covid-induced weakness early in 2020.
GM’s first-quarter earnings are due on May 5. GM said on Feb. 10 that it expects to earn $4.50-$5.25 per share in 2021 vs. $4.90 in 2020. That builds in a $2-billion hit to operating profit from the chip shortage.
GM’s ‘Stable Of Unicorns’
Even before the BrightDrop news, Morgan Stanley’s Jonas had referred to GM as having a “stable of unicorns.”
In a Jan. 19 report, Jonas said that GM’s EV business is worth $52 per share of GM stock, while its controlling stake in Cruise is worth $10.
GM’s Ultium EV battery also has become something of a business in its own right. In April, GM reached a deal with Honda Motor (HMC) to jointly develop two Honda EVs using GM’s Ultium battery. Jonas figures the Ultium battery platform is worth $10 per share.
GM’s OnStar communications and security system, which has announced a move into the insurance business, and its Super Cruise driver assistance technology, offer opportunities to grow a monthly recurring revenue stream. Jonas valued GM’s connected services at $16 per share.
He also attached per-share valuations to GM’s China joint ventures ($5), the Corvette brand ($5) and GM Financial ($7).
He derived the 80 price target for GM stock by subtracting net debt, pension liability and a 20% sum-of-the-parts discount.
Jonas didn’t specify any valuation for other ventures, including GM’s Hydrotec fuel-cell business. The week after his report, GM announced a deal with Navistar (NAV) to supply fuel cells for long-haul trucks. Trucking firm J.B. Hunt (JBHT) will be Navistar’s first customer in a pilot program, with tests set to begin by end of 2022.
That followed GM’s scaled-back deal to supply fuel cells to Nikola (NKLA). However, prospects remain clouded by Nikola’s reputational hit as its founder left the company amid allegations of being a huckster and worse.
In June, GM Defense unit won a $214-million contract — its first win — to build Infantry Squad Vehicles for the U.S. Army based on the Chevrolet Colorado ZR2 midsize truck architecture.
General Motors’ Ultium Future
The key to GM’s all-electric future is its flexible Ultium battery platform that was first unveiled in March 2020.
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.
In September, GM unveiled its strategy to produce electric drive systems that are designed in-house to deliver cost and performance benefits. 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. Ultium Drive systems will be more responsive than current models, using “precision torque control” for smooth performance, GM said.
In April 2020, Honda provided validation for GM’s EV approach, saying it would use the Ultium platform for two vehicles that Honda will design and GM will build starting in 2023. 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.”
GM is still completing its Ultium battery factory in Lordstown, Ohio, but it’s already nailing down the site of its next battery plant to match the supply it will need in a couple of years.
It’s also highlighting progress toward its next-generation Ultium battery. On March 11, GM announced that it will collaborate with SolidEnergy Systems, an MIT startup, to build a manufacturing line that will produce prototypes of its next-generation lithium-metal battery by 2023. Mark Reuss, GM’s president, told a Washington Post Live forum that the next Ultium battery will have range of 500 to 600 miles and will cost one-third less than the first generation, helping to drive down EV costs.
He also said that the next-generation Ultium would be “backward compatible,” meaning EVs equipped with a first-generation Ultium battery could have them swapped out.
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GM Cruise Vs. Tesla And Alphabet Waymo
On Jan. 19, GM announced a partnership with Microsoft to accelerate the commercialization of self-driving vehicles. Microsoft joined in a $2-billion funding round for Cruise, along with GM, Honda and institutional investors. Subsequently, Walmart 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.
Walmart’s investment follows its 2020 launch of a pilot test with Cruise in Scottsdale, Ariz., allowing contactless customer deliveries.
In November, Cruise began testing driverless cars in parts of San Francisco. Initial results appear positive. On Feb. 9, Cruise President Kyle Vogt tweeted that Cruise covered 200,000 miles in California in Q4 without a safety driver once disengaging self-driving features.
In January 2020, GM unveiled its six-passenger Cruise Origin EV with no steering wheel. By 2030, 4,000 Origins could be traversing Dubai. Cruise’s deal to be the exclusive self-driving taxi service in the city runs through 2029.
Cruise CEO Dan Ammann dropped a hint in a Bloomberg TV interview that commercial service would launch in San Francisco before its 2023 launch in Dubai.
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.
Is GM Stock A Buy?
The picture for GM stock keeps getting brighter. While its solid 87 IBD Composite Rating still lags Tesla’s 95 rating, fundamental metrics don’t tell the full story.
The Covid hit to earnings, a restructuring and strike are all in the rearview mirror. The chip shortage curtailing production should clear up later in 2021. GM’s traditional business should see higher profits through 2022, but it faces a long-term decline. The biggest unknown is how well GM will be able to keep pace with Tesla 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 well, and Wall Street sees plenty of promise developing. If analysts see GM as a “stable of unicorns” with high-growth potential, they could begin to use a more flattering lens for valuing future earnings.
Constructive technical action and the accelerating transition to an EV and AV future suggest General Motors stock is worth keeping a close eye on. However, GM stock presently lacks a clear entry point.
Bottom line: GM stock is not a buy. Ideally, you’d want to see a new base form before hopping aboard.
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