Root, Al. Barron's (Online); New York (Oct 6, 2021).
Electric vehicles are going to be big –big enough to transform a century-old auto maker into a growth company. Benefits for shareholders could be big, if GM is successful.
General Motors (ticker: GM) met with investors Wednesday and put some numbers behind its bold EV goals. The company expects to lead in the transition from gas-powered to electrically-power cars. And it expects leadership to translate into growth.
The goal is incredible: GM plans to double sales by 2030. Double.
Cars, in America, are a mature business and car companies tend not to grow as fast as the economy. General Motors numbers are skewed by asset sales and a bankruptcy. Ford Motor (F), however, illustrates the point.
Ford generated about $164 billion in sales back in 2003. The company is expected to generate $161 billion in sales during 2022. Sales have been flat for nearly a generation. And why 2003? The U.S. economy is roughly double the size it is today compared with back then.
GM is spending money to make money. The company plans to spend about $35 billion between 2021 and 2025 to build EV assembly and battery capacity as well as launch 30 new all electric models around the world.
That spending guidance isn't new. The projected impact on sales is what was outlined Wednesday. GM is talking about generating an extra $150 billion in sales.
To get there GM needs a few things. First, it needs leading EV market share in the U.S. The company announced a $30,000 EV, with a body type like a Tesla (TSLA) Model Y. Lower cost EVs are key to gaining share. A Model Y starts at about $40,000 today.
Products are as important as costs. GM also announced that an all-electric Chevy Silverado light duty pickup will make its "debut" at the start of 2022. Production should start later. Ford, Rivian and Tesla have light duty pickups on sale in 2022.
GM also unveiled its more advanced self driving features and unveiled "ultra cruise" as well as additional services for commercial fleet operators and GM-branded insurance. Those are all recurring-type sales that scale as GM builds its fleet of EV and smarter vehicles.
GM, of course, also owns Cruise, a self driving technlolgy company, which plans to have a network of self driving robotaxis and delivery vehicles by the end of the decade.
"Our early investments in these growth trends have transformed GM from automaker to platform innovator," said CEO Mary Barra in a company news release. "With customers at the center. GM will use its hardware and software platforms to innovate and improve their daily experience, leading everybody on the journey to an all-electric future."
GM wants to be more than an auto maker. It's a bold vision. One worthy of Tesla. Elon Musk's company thinks of itself like a platform tech company, too. Tesla sells cars, insurance, self driving software and solar roofs as well as battery back up power for houses and utilities. Tesla having multiple business lines is one reason investors have made it the most valuable car company on the planet.
Investors have to get used to the idea of GM growing again, though. They arent convinced yet, which is one reason shares aren't reacting to the new revenue goals. GM stock is down about 0.9% in late trading. The S&P 500 and Dow Jones Industrial Average are both up about 0.1%.
GM stock doesn't trade like a growth stock. Shares tend to trade trade for single digit price to earnings ratios. Shares today trade for about 8 times estimated 2022 earnings while the S&P 500 trades for closer to 20 times earnings.
The reason is growth–or the lack of growth, historically speaking.
Still, GM shares are up almost 30% year-to-date. Strong vehicle demand and pricing coming out of the 2020 Covid-induced recession has boosted investor sentiment.
Write to Al Root at firstname.lastname@example.org
EVs Can Turn GM Into a Growth Company, Just Like Tesla
Credit: By Al Root