Investors Don’t Care About General Motors. GM Valuation vs GM Performance
Investors Don’t Care About General Motors. GM Valuation vs GM Performance
I own General Motors stock, which I acquired over multiple dates, beginning with a buy on January 10, 2017. My cost basis for the GM shares owned is $40.26. Unfortunately, the annualized return on my GM investment is a mere 1.46% (including dividends). Over the same period, the State Street SSgA Active Trust ETF (an exchange-traded fund tracking the S&P 500) has produced an annualized return of 11.57%.
After bankruptcy, GM’s IPO (initial public offering) was priced at $33.00 per share on November 17, 2010. This week (October 16), nearly 13 years after the IPO, GM stock closed below its IPO price at $30.06 per share.
What is going on with GM?
Actually, a better question is, what is going on with GM stock? GM’s financial performance has been outstanding over the past several years. Since 2017, the company has generated nearly $921 billion in total revenue while earning over $50 billion in operating income. Importantly, this financial performance is occurring at a time when GM also is investing in the future of the company and the industry by spending $35 billion through 2025 to develop electric vehicles.
Yet, investors don’t seem to care!
That’s not all GM is doing, however. The company launched a commercial business called BrightDrop, offering an ecosystem of electric products, software, and services targeting the delivery and logistics industries for customers like FedEx. There’s a new GM Defense business specializing in developing and manufacturing military vehicles and related technologies. The company has also invested in securing important raw materials like lithium, nickel, cobalt, and graphite, which are critical to the company’s EV supply chain.
Yet, investors remain unimpressed.
GM also has Cruise, its autonomous robotaxi business. Cruise is rapidly expanding its self-driving taxi operations across multiple U.S. cities. Some sources believe Cruise will generate $1 billion in revenue this year. GM’s CEO Mary Barra recently stated that Cruise could be a $50 billion business by 2030, which would represent about 40% of GM’s current annual revenue.
Yet, investors continue to be skeptical!
General Motors has a market capitalization of $43.6 billion, while Tesla has a valuation over 18 times that of GM. With good reason, investors give Tesla a lot of "benefit of the doubt." For example, there's the continued delay of the Cybertruck. The vehicle was revealed in 2019, but it’s still not available for sale.
Tesla investors are unfazed?
There is the controversy around Tesla’s FSD feature (full self-drive). In December 2015, Elon Musk predicted that "complete autonomy" would be implemented by 2018. The world is still waiting for fully functional FSD.
Tesla investors are undeterred?
GM gets little "benefit of the doubt" from investors. History might suggest that GM skepticism is warranted. However, in 2021, well-known investor Bill Miller told Barron’s that he liked General Motors. Miller believed that GM’s valuation did not match the sum of its parts. On that basis, Miller thought GM could be worth 50% to 100% of its price at the time (GM’s stock price was nearly $58 per share then).
Many investors seem to believe the future of the auto sector is a zero-sum game, with Tesla winning, and all legacy automakers losing. “Winner-take-all” rarely exists in business, however. Tesla will not be the exception to this rule, even with its first-mover advantages. For every Coke, invariably there’s a Pepsi. While Apple gets the lion's share of mobile phone profits, Alphabet’s Android operating system secures most of the mobile device ad revenue.
Can GM be the Pepsi to Tesla’s Coke? Today, investors find it hard to imagine such a scenario. Yet, it seems to me GM is developing a portfolio of businesses and capabilities that might eventually surprise the market. Bill Miller’s “sum-of-parts” view of GM might be the best way to project the company’s future valuation.
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.