This content has been produced by Opto and was originally published on the Opto Blog.
GM plans to invest $35bn in electric vehicles in the next three years, with the aim of overtaking Tesla [TSLA] as the largest US-based EV maker by 2025. This aggressive growth strategy has hurt profits in the short term, with pretax adjusted earnings in Q4 coming in at $2.839bn, down from $3.712bn in the year-ago quarter.
The ongoing semiconductor shortage and higher commodities and logistics costs also put pressure on GM’s earnings, though CEO Mary Barra remained optimistic in the Q4 earnings call.
“We’re just going to keep going full out because we see the opportunity for substantial EV volume growth,” Barra said. The executive told shareholders that GM expects investments in the electric vehicle portfolio to help bring “meaningful revenue growth starting in 2023”.
GM stocks slump
Despite the company’s positive longer-term vision, the GM share price has been under pressure in 2022. It has fallen 14.2% since the start of the year to close at $50.34 on 10 February, while in comparison its rival Ford [F], which is also making moves in the EV space, was down 12.5% over the same period.
The EV acceleration means that stockholders should not expect a dividend any time soon. The auto firm cut its dividend in April 2020, in the early months of the pandemic, and Barra confirmed that General Motors is preserving capital to spend on developing its electric vehicle offering. The company expects annual capital spending of between $9bn and $10bn this year and for this to continue in the medium term.
“As we move forward, we will consider all opportunities to return excess capital to shareholders, but we will not reinstate a dividend at this time,” Barra said in the Q4 earnings call. “Our clear priority is to accelerate our EV plan and drive growth.”
EV demand surge
GM hopes to tap into the booming EV market by developing 30 new global EV models by 2025 and aims to only sell zero-emission vehicles by 2035. However, it is a long way off achieving this target, with a total of 26 EVs sold in the fourth quarter of 2021.
Nevertheless, Barra pointed out that General Motors has 110,000 reservations for its electric Silverado, 59,000 for the GMC Hummer EV pickup and SUV, and 25,000 cargo vans for its new BrightDrop electric commercial vehicle business. She also highlighted growing customer demand for its Ultium battery, which forms an integral part of the company’s plans to develop efficient and affordable EVs.
The firm is expected to announce the site for a fourth electric vehicle battery plant by the end of June, and is also in the process of converting its existing production capacity to pivot away from internal combustion engine vehicles and towards EVs.
Despite the global shortage of semiconductors, the company estimated production to increase by 25–30%, surprising many Wall Street analysts. It also expects net income in 2022 in the range of $9.4bn to $10.8bn, in line with its $10bn profit in 2021.
Analysts are mostly optimistic
Although GM’s EV ambitions have failed to rally its share price so far, some analysts are more positive.
According to 23 analysts polled by MarketScreener, General Motors stock has a consensus rating of ‘buy’ and average price target of $76.11, representing a potential upside of 51.2% from the current value.
RBC analyst Joseph Spak raised his price target on the GM stock from $74 to $85 on the back of the company’s forecast for 25–30% wholesale volume growth in 2022. Spak also cited GM’s confidence that the chip crunch is easing enough for it to achieve its quarterly production target.
However, others are still unconvinced. Nomura analyst Anindya Das downgraded General Motors from ‘buy’ to ‘neutral’ with a price target of $56. However, Das expects the company will recover from chip shortages by Q3 2022, and calls its plans to invest in EVs and its driverless car subsidiary Cruise “a prudent strategy”, The Fly reported.
Disclaimer Past performance is not a reliable indicator of future results.
CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.
*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.
Guest Author at MyWallSt
The investment universe is changing beyond all recognition, and with a thematic focus, investors can capitalise on this wholesale disruption. From Genomics to Artificial Intelligence, disruptive innovation empowers companies to displace industry incumbents, and secure majority market share. Opto exists to identify those businesses, and help investors to invest in the next big idea.
Is the Automotive Industry in a State of Peril?
Sales are expected to decline for the auto industry across Q1, and with most major manufacturers’ stocks suffering, is it time to sell?
Apr 1, 2022
Are Self-Driving Cars About to Take Over the Automotive World?
Federal regulators have announced new rules that will allow self-driving vehicles to be produced without the need for manual controls.
Mar 15, 2022
What General Motors’ New Fleet of Electric Trucks Means For The Company
As the race for electric vehicle supremacy looks set to heat up throughout 2022, General Motors unveils two new offerings to the market.
Jan 6, 2022