Mar 15, 2021
[4 min Read]
General Motors Company is one of the pioneers in the automotive industry with almost a century of pedigree in making vehicles. The company was the largest automaker from 1931 to 2007, with its peak market share in its home market in the U.S at 50 percent.
GM has several brands, which include Cadillac, GMC, Buick, and Chevrolet. It also has manufacturing operations in various countries. It also has a stake in foreign brands such as Jiefang, Baojun, and Wuling.
Evaluating GM's performance and upside potential
GM closed the latest trading session at $54.65, which means that the stock price is currently trading in its upper range. However, some analysts remain optimistic about the company's future and performance. Some analysts that expect GM to continue performing include Dan Levy, a Credit Suisse analyst, and Adam Jonas, Morgan Stanley analyst.
Analyst Price Targets:
Investing heavily in EV production
So, why are the analysts banking on GM's upside potential? The answer has to do with its balance of its current portfolio and the transition towards the EV market. GM still boasts of a robust portfolio of vehicles powered by internal combustion engines. However, it also recognizes the rapidly changing automotive landscape, and as such, it is investing heavily into EVs as the future of the industry.
GM is so committed to the EV market that it plans to invest $27 billion geared towards rolling out 30 EV models in the next four years. Part of that investment will go towards the ongoing construction of a battery production plant in Ohio. The automaker's senior executive Dane Parker revealed that GM is also considering setting up other battery production sights in the U.S.
The aggressive push towards the EV market will also allow the company to align itself with strict emissions regulations, courtesy of the Environmental Protection Agency's executive order recently signed by President Joe Biden. GM plans to complete the transition to 100 percent EV production by 2035.
There have been some concerns that the transition to EVs would hurt traditional ICE vehicle manufacturers, but GM is one of the companies proving that it might not be the case. The transition will require a lot of investment, but GM is optimistic about its ability to rapidly transform its existing production facilities to fit EV manufacturing requirements. This means that it will not have to spend as much as a company kicking off production from the ground-up.
GM's short-term securities and cash amount to $37 billion, while its long-term debt stands at $26 billion and retirement obligations worth $17 billion. This means that the company has a healthy debt-to-equity ratio that is further supported by the fact that it has $37 billion worth of property according to its balance sheet.
The automotive manufacturer's investor base is also another key aspect that supports the positive outlook by investors. Institutional investors constitute the company's biggest investor base. Some of the largest shareholders include Blackrock Inc., which owns 106.30 million GM shares worth roughly $4.43 billion. Berkshire Hathaway Inc holds 72.50 million shares, while Vanguard Group owns 90.64 million GM shares.
The huge collective institutional ownership is a good sign because it indicates that the major investors remain optimistic about its trajectory. If the situation were any different, the big investors would likely start selling off their shareholding in the company.
The ongoing semiconductor shortage has affected many automotive manufacturers' production activities, but the situation has somewhat favored GM. The company announced that it would temporarily shut down some of its plants that make crossovers in Mexico, Canada, and Kansas. The company also revealed that it would prioritize production to corvettes, SUVs, and trucks, which currently constitute its best-selling and most profitable segments.
The shutdowns will reduce production costs, while the priority production will allow the company to focus on its strengths. The automaker also announced a partnership with Navistar International Corp through which it will provide fuel-cell-powered heavy-duty vehicles. The announcement aligns with the company's transition to vehicles powered by cleaner energy.
GM executives believe that the company is on the right track, especially with the growing demand for electric vehicles and the incoming strict emissions regulations. It is also not worried about Tesla, which is already miles ahead in terms of production. The market for EVs is huge, which means there is plenty of growth to be had, and GM is ready to tap into that growth.