GM stock, after stalling for close to a decade, suddenly has gotten a jolt of electricity. General Motors sales snapped back in the third quarter, both in the U.S. and China. Meanwhile, GM’s three big future bets are all looking more promising. GM’s new Ultium battery-powered 2022 Hummer EV sold out minutes after its unveiling this week. The deal to supply fuel cells for Nikola heavy-duty trucks may go forward after all. And its Cruise’s driverless vehicle unit just passed a big milestone.
While General Motors is turning heads with its EV “supertruck” and all its other progress, its stock is still priced like an underdog. So is now a good time to buy GM stock?
Hummer EV Buzz
GM unveiled the Hummer EV truck during the World Series on Tuesday, 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 (TSLA) 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 may 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, but didn’t detail how many refundable $100 deposits it accepted.
GM plans cheaper Hummer EV versions in future years.
GM Stock Chart Technical Analysis
On Sept. 8, news of the Nikola deal lifted GM stock 8% to 32.38. The rally carried GM stock past a 31.22 buy point in a cup-with-handle pattern, according to a MarketSmith analysis.
Yet as doubts grew over the Nikola deal, Tesla unveiled its new battery vision, and the broader stock market struggled. GM stock fell as low as 28.24, back near its 50-day moving average. The decline was big enough to invalidate the 31.22 buy point.
Yet GM stock showed resilience. On Oct. 16, GM stock first nosed its grille into buy range, clearing a buy point at 33.43, 10 cents above its Sept. 8 high. Then on Tuesday, ahead of the that night’s highly anticipated Hummer launch, General Motors announced that a third U.S. factory would be switched to making electric vehicles.
GM stock shifted into high gear. The stock advanced 6.75% to 35.60, clearing the 5% chase zone beyond which stock purchases carry higher risk.
The momentum continued the next two days on high volume, which often signals institutional buying.
From a broader perspective, though, GM stock is still trying to break a long slump. GM, while at a 2020 peak, hasn’t yet broken above its October 2017 all-time high and isn’t even level with its highest point in 2011, shortly after becoming public again.
Still, GM stock is rising toward the top of its decade-long trading range. Meanwhile, GM’s relative strength line, which shows how GM stock performs vs. the S&P 500 index, has recovered back to a nine-month high, after nearing a historic low in July.
GM-Nikola Deal Not Finalized
On Sept. 8, General Motors and Nikola announced a partnership that would see the top U.S. automaker build several versions of Nikola’s Badger truck using GM’s own Ultium and fuel cell technology. GM also agreed to supply fuel cells to Nikola’s heavy-duty trucks, expanding GM’s market opportunity. In exchange for the services it provides, GM was supposed to receive $2 billion worth of Nikola stock.
The news, which appeared to further validate GM’s technological relevance, sent GM stock surging. However, the deal came into question as Nikola’s stock dived as its founder left the company amid allegations of being a huckster and personal misconduct.
Yet GM President Mark Reuss sounded upbeat about being able to finalize terms with Nikola. “The opportunity to put our fuel cells into a class 7 and 8 vehicle is spectacular,” he told CNBC on Oct. 21.
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 400 miles on a full charge. The platform can accommodate a wide range of trucks, SUVs and cars.
CEO Mary Barra said that GM’s multi-segment 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.”
In April, GM reached a deal with Honda that will see it jointly develop two electric vehicles for the Japanese automaker using GM’s Ultium battery.
The Honda deal created a partnership model that the Nikola deal could follow. Barra said that supplying GM technology to rival automakers would build “scale to lower battery and fuel cell costs and increase profitability.”
Does GM Stock Need Ultium EV Spinoff?
GM’s plan has been to ride its profitable truck and crossover franchises until its electric vehicles and Cruise autonomous vehicles have proved their worth. While Covid-19 has made for a bumpy ride, GM has proved it can withstand a severe economic hit without getting off track.
Yet Wall Street has been slow to buy into GM’s future as a would-be EV powerhouse and self-driving-taxi operator. That’s why analysts began making the case this summer that GM’s best option for joining in the EV stock boom was to spin off its Ultium battery EV operations.
Morgan Stanley’s Jonas put it this way on the July 29 Q2 earnings call: “There’s so much investor enthusiasm around the 20% (compound annual growth rate) business known as EVs and not so much excitement around the negative 5%-or-so CAGR business.” Jonas referred to GM’s internal combustion engine vehicle business as a “melting ice cube, so to speak.”
On Aug. 14, Deutsche Bank analyst Emmanuel Rosner released a note calling for a GM spinoff of its EV operations. Doing so would give it access to cheap capital and help to keep and attract top talent.
Barra reiterated that GM is committed to grow shareholder value, but whether that will result in an Ultium spinoff is far from clear. She implied that GM’s focus is on building value through partnerships that help take its technology to the next level.
On Oct. 20, Citi analyst Itay Michaeli hiked his General Motors price target to 57 from 54, keeping a buy rating. He said he’s gaining confidence in his optimistic long-term 100 price target for GM stock. Michaeli noted that GM could unlock value “rather quickly.”
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GM Stock Left In Tesla’s Dust
As of Oct. 23, General Motors has a $53 billion market cap, compared with $383 billion for Tesla. That’s despite GM sales being five times that of Tesla in Q1, before the coronavirus shutdown. Nikola, despite having no sales and fending off fraud allegations, has a market cap of $8.5 billion, though that could collapse if GM pulls the plug on the deal.
GM stock has an improving 87 Relative Strength Rating, meaning it has outperformed 87% of all stocks. Tesla stock and Chinese EV maker Nio (NIO) both have 99 RS ratings, while Nikola has a 92 RS. Ferrari (RACE) has a 71 RS Rating, Fiat Chrysler (FCAU) 79 and Ford 76.
General Motors has a solid 83 IBD Composite Rating out of a possible 99. The Composite Rating combines several key fundamental and technical factors into a single score, reflecting earnings, sales, margin and stock performance trends. Still, IBD research shows all-time stock winners often have a Composite Rating of at least 95 near the start of big runs. Tesla has a 99 Composite Rating.
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GM Sales Trends
In the third quarter, GM deliveries in the U.S. recovered to 665,192 vs. 492,489 amid the coronavirus lockdown in Q2. Deliveries still fell 10% from a year ago, but GM said each month saw improvement, and September sales exceeded the year-ago total.
GM restarted factories on May 18 after a two-month coronavirus suspension. Lean inventories have held back sales, but GM said that large pickup and full-size SUV plants are now all operating on three shifts and at maximum overtime.
With cheap oil prices, General Motors appears well-positioned in the U.S. market, seeing demand for pickup trucks and crossover SUVs.
Now sales in China also are on the upswing. General Motors and its Chinese joint-venture partners saw deliveries rise 12% to 771,400. GM sales outpaced the Chinese market as a whole, a nice turnaround from Q2, when deliveries fell 5% as China’s market grew 10%.
General Motors Earnings
General Motors hasn’t seen steady earnings 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 2019. Then Covid-19 marred the first half 2020, and the effect has carried into Q3.
In Q2, General Motors fared a bit worse than expected on the top line, as revenue fell 53% to $16.8 billion. Yet rigorous cost-controls resulted in a loss per share that was much narrower than anticipated: 58 cents vs. the expected loss of $1.77.
In Q3, analysts expect revenue to bounce back to $36.97 billion, up 4% from a year ago, according to Zacks Investment Research. Profitability is expected to return in Q3, with GM earnings per share down 14.5% from a year ago to $1.47 a share. After a 45% drop in 2020, analysts see GM earnings per share up 65% in 2021.
GM Cruise Vs. Tesla And Alphabet Waymo
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 paces itself for a future that is still just over the horizon.
Alphabet (GOOGL)-unit Waymo, Uber (UBER), Ford 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 have been too optimistic about solving what GM CEO Mary Barra has called “the greatest engineering challenge of our lifetime.” She’s optimistic about unlocking “the multitrillion-dollar market potential” of self-driving cars, but some experts now think that market might not develop until late this decade.
Yet even GM’s Cruise venture has started generating some excitement. Earlier this month, the company received a permit from California’s first permit to test its driverless cars without a backup driver on the streets of San Francisco.
GM bought Cruise Automation for $1.1 billion in 2016. Key investors include Honda Motor (HMC), which last year put $750 million into the venture and agreed to put up $2 billion more over 12 years.
Tesla, meanwhile, released a new Full Self Driving beta version to select drivers. But the system is still considered a Level 2 system, while Cruise and Waymo are Level 4.
Is GM Stock A Buy?
GM stock is on its best run in year. The technical picture has improved dramatically. GM’s 83 IBD Composite Rating is now pretty solid, but that still puts it in the second tier, not an industry leadership position. IBD research shows that all-time stock winners often have a Composite Rating of at least 95 near the start of big runs.
Because GM’s traditional business faces a long-term decline, and it’s been through a restructuring, fundamental metrics don’t tell the full story. Undoubtedly, there is lots of execution risk and uncertainty., but 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.
However, there’s no indication that GM will spin off its EV operations. GM joint ventures in China could be hurt if U.S.-China tensions grow. GM Cruise could turn out to be a robotaxi leader, but don’t hold your breath. The biggest uncertainty may be GM’s ability to compete with Tesla, which aims to drive down the price of its EVs to $25,000 in three years.
Bottom line: Fundamentals are improving, but GM still depends on a business that’s destined to fade away. That makes GM a speculative play, not yet a growth stock that meets IBD criteria for successful investing. In the meantime, GM stock has passed through a buy zone, so investors should stay on the sidelines. But wait to see if it sets up again.
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