EV Hype Keeps Pushing GM Higher, But It's Still Undervalued
GM's stock may not even be close to its ceiling
General Motors’ stock has traded between a range of $19 and $43 for the past 10 years, offering investors reliability and sales but little upside. When the company started pivoting to electric vehicles last year, however, the upside returned and the stock has proven that.
Since sinking to under $21 in the pandemic selloff of 2020, GM has rocketed up to over $58 and is trading near an all-time high. The company’s recent earnings report and technical analysis of the stock chart shows that it still has room to run.
GM blew past its earnings-per-share (EPS) estimate of $1.08, coming in at $2.25, all despite a semiconductor chip shortage that has plagued the automotive industry for months now.
CEO Mary Barra said the company has found a way to tread water with the shortage: put the supply of chips they already have into GM’s most in-demand vehicles, maximizing their ability for profit.
What has given GM’s stock this push towards $60 is not related to chip shortage management, though. It’s the future, namely electric vehicles.
Before getting into that, though, there was an interesting bit buried in GM’s latest earnings report. In the three months ended March 31, GM issued $2.5 billion worth of stock in Cruise, its autonomous driving subsidiary, to Microsoft and others investors. Microsoft and GM have entered into a “long-term strategic relationship,” the report says, to get Cruise’s self-driving fleet onto the road with Microsoft’s cloud business playing a part.
This was actually reported back in January, with Honda being named as another partner, along with institutional investors.
Electric vehicles get all the buzz now because, well, they are actually on the road. Self-driving vehicles only ever see the road for testing purposes. They are still years away from being safe and reliable enough to be used on a consistent basis.
The autonomous driving segment of GM’s portfolio could play a huge role in its long-term business, though, and should be considered when looking at potential future investments.
As mentioned, though, electric vehicles are here now and they will be the only form of vehicle GM makes by 2035. Well, the plan actually states that it will only make zero-emissions vehicles, meaning hydrogen and other alternative energy vehicles still have a shot. For now, though, it’s electric vehicles.
Through its Ultium Cells venture with LG Chem, GM will soon have the streets flooded with Cadillac LYRIQs and Hummers. Claiming to already have a 29.3% market share on trucks in the United States, making EV sales should be no problem for GM.
GM plans to have 20 electric vehicles for sale by 2023 and believes it can sell one million EVs per year between the U.S. and China within the next five years — something Tesla is still far away from today.
While Tesla has years of research and development in EVs over companies such as GM, GM has decades of an advantage in manufacturing and brand recognition.
Tesla has had to slowly scale up production and wait for innovation discoveries with the batteries to get to the point it is at now. More changes to the batteries will come, potentially giving Tesla the edge moving forward. But GM has acted quickly in piecing everything together. The cars still need to be made and sold, but for now, everything is looking up.
From an investment standpoint, GM is rather cheap. Its current 13.3 price-to-earnings ratio is nothing, especially considering the upside of future EV sales and autonomous vehicles. It looks ripe for a short-term run, too, trading in a range of $54 and $62 for much of the past two months.
Long term and short term, GM looks like a good bet.