There's now more than one potentially winning bet when it comes to the electric vehicle segment of the automobile market. Lately, investors have started looking beyond Tesla (NASDAQ:TSLA), focusing instead on the traditional U.S. automakers who have grand plans to win this race. One such contender is General Motors (NYSE:GM).
Shares of the Detroit-based GM are up more than 40% this year, far outpacing the return that the EV market leader Tesla has delivered during the same period. One big reason behind this momentum is the company’s ambitious plan to transform itself into a leading EV maker over the next five years.
GM announced last month that it was boosting its investment in new technology for a second time in eight months with plans to spend $35 billion on more than 30 plug-in vehicles by 2025 and four battery plants.
As part of this expansion, the U.S.'s largest automaker will build two battery plants, one in Tennessee and another in northeastern Ohio near their Lordstown assembly factory. GM plans to add two more plants in addition to these, but didn’t disclose locations.
According to media reports, GM’s EV plans will accelerate starting later this year as a Hummer pickup truck and Cadillac Lyriq sport utility vehicle begin rolling off its production lines. An electric Chevy Silverado pickup is also on the way.
In China, GM’s lower-priced Hongguang Mini EV, which it’s producing with two state-owned companies, has been a hit. More than a quarter of a million of the models have been sold since the vehicle launched last July, outperforming international rivals like Tesla’s Model 3 and local competitors including Great Wall's (SS:601633) Ora Black Cat, according to a report in Bloomberg.
In a recent statement, GM's Chief Executive Officer Mary Barra said:
“GM is targeting annual global EV sales of more than 1 million by 2025, and we are increasing our investment to scale faster because we see momentum building in the United States for electrification, along with customer demand for our product portfolio.”
Analysts Bullish on GM Stock
Wall Street analysts seem to be cozying up to the largest U.S. automaker, assigning higher price targets for its shares. Based on 15 Wall Street analysts' estimates, the average price target represents a 25% upside from GM’s Friday closing price of $58.06, according to TipRanks.com.
Wedbush analyst Dan Ives told clients in a note last week that the stock had significant upside after initiating the GM coverage with an “Outperform” rating.
“We believe as GM proves out its EV vision over the coming years the stock will be re-rated more as a disruptive technology and EV play, rather than its traditional auto valuation,” the note said, adding that the company’s battery program will allow it to take market share from pure-play electric vehicle companies.
Wedbush set a price target of $85 per share for GM, which is roughly 52% above $58.76, where the stock closed on Friday. On a slightly longer time horizon, Wedbush sees the stock rising even higher.
“With the software and services business complementing the advancing battery technology, we believe GM is in a great position to double its market cap in a [sum of the parts] valuation by the end of 2022,” the note said.
With the company’s electric push, its sales and profit are also showing strength, benefiting from the pandemic-driven demand surge. Higher revenue and earnings growth from its GM Financial lending unit will lift first-half adjusted earnings before interest and taxes from an earlier estimate of $5.5 billion to as much as $9.5 billion, GM said in its latest guidance.
Bottom Line
From among the group of traditional carmakers, GM stock is a sound bet on the future of transportation. Its existing EV models are in demand, while its future plans are coming into shape more quickly and earlier than expected.