Breaking Up is Hard To Do. Investors should break-up with GM stock.
Breaking Up is Hard To Do. Investors should break-up with GM stock.
Is Cruise the nail in GM’s stock growth coffin?
Investors often talk about catalysts having the potential to drive a company’s stock price higher. Frequently, catalysts involve the introduction of an entirely new product or business that helps drive incremental revenue and new profits for a company.
For example, an important catalyst for Amazon and its share price growth was the introduction of Amazon Web Services (AWS), the cloud computing business launched in 2006. Today, AWS accounts for about 70% of Amazon’s operating profit. Amazon’s nearly $1.5 trillion valuation today is due in large part to AWS, which continues to drive its share price.
Does GM have an AWS?
In a TaaSMaster newsletter update recently, I described the disconnect between GM’s stock valuation and the company’s actual performance. I suggested then that investors do not care about the performance of the company’s current businesses. I even suggested that GMs’ autonomous driving subsidiary, Cruise, was failing to excite investors enough to benefit the GM shares price.
Yet, I believed that Cruise was the one GM asset having the capability to eventually excite investors about the company. I assumed that Cruise would become the AWS-like business catalysts capable of driving GM’s share price appreciably higher. Unlike its other businesses, Cruise represented a substantially new revenue source attacking a new and substantial total addressable robotaxi market. GM CEO Mary Barra seemed to agree, saying in June that Cruise could generate $50 billion of revenue by 2030.
Additionally, at the SXSW conference this year Barra adamantly stated, “self-driving vehicles are no longer science fiction – they are operating today on real roads, with real customers.”
That was then! What about now? Today, GM is facing credible questions about its Cruise technology. In San Francisco in October, a pedestrian was struck by a hit-and-run driver, and was thrown into the lane of a Cruise robotaxi. The Cruise vehicle struck, and then dragged the pedestrian for 20 feet.
California responded to the accident by suspending Cruise’s permits to operate in the state. The company has since paused driverless operations across all of its fleets nationwide. Additionally, Cruise recalled 950 of its robotaxis, as well as halted production of the fully-autonomous electric Cruise Origin vehicle.
If Cruise no longer is a GM share price catalyst, why do I continue to hold the stock? It’s a question I frequently ask myself. Today, I have much less credible reasoning for continuing to hold GM shares. I’ve been a shareholder since 2017. Holding the stock might be an example of confirmation bias by me - influenced by information confirming my beliefs about GM, while ignoring information that contradicts these beliefs.
On November 17, 2010, GM IPO’d at $33 per share after its 2009 bankruptcy. Yesterday, GM shares closed at $28.20. If confirmation bias is the reason I continue to hold these shares, maybe I need to get over it!
Disclaimer
TaaSMaster, LLC is not a registered investment advisor or broker/dealer. All investment opinions expressed by TaaSMaster, LLC are from personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors may occur.
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