At a two-day investor event between 6 and 7 October, General Motors [GM] CEO Mary Barra (pictured above) laid out her vision to overtake Tesla [TSLA].
The plan is for General Motors to become the leading automaker by electric vehicle (EV) car sales in the US by the end of the decade. But that doesn’t mean it will be giving up on combustion vehicles just yet, as those will still be key to expanding profits and raising funds to spend on developing new EV models and infrastructure.
Shareholders appeared to react positively, with the General Motors share price jumping to a one-month high of $55.50 during early trading on 6 October before closing the day at $53.93. The General Motors share price is up 38.7% in the year to date (through 13 October).
As for how the Tesla share price reacted, it did fall briefly during early trading on 6 October but quickly recovered. The Tesla share price has shown resilience in recent weeks and avoided the sell-off that has been hampering other high-growth stocks. The Tesla share price is up 9.2% over the last month (through 13 October).
Fellow EV competitor and US automaker Ford [F] saw its stock fall sharply in the first couple of hours of trading on 6 October. It too has since recovered, with the Ford share price up 76.4% since the start of the year.
Back in June, General Motors said it planned to spend $35bn on EVs and autonomous vehicles through 2025. This was a 30% budget increase on plans announced in 2020. The automaker has an initial target of selling more than 1 million EVs annually by 2025. It expects to make the full transition from combustion engine vehicles to electric cars and trucks by 2035.
According to its latest Sustainability Report, the automaker sold a total of 202,487 EVs, including hybrids, globally in 2020; Tesla delivered 499,550 units. As of the end of the first half of 2021, Tesla’s share of the plug-in EV market was 14.5%, while General Motors’ was 8.5%.
At the two-day investor event, General Motors forecast its annual revenue will have more than doubled by the end of the decade to $280bn – full-year 2020 revenue was $122.5bn. It’s also expecting operating profit margins to expand by from 12% to 14%.
General Motors’ revenue ambitions don’t rely solely on releasing new EV models, however. It also intends to market software services that can provide a recurring revenue stream. “As our services go beyond the vehicle ... GM will use its hardware and software platforms to improve the daily experience [of customers],” Barra told attendees at the event.
““We continue to believe GM offers a compelling EV strategy, with one of the most holistic and ambitious EV strategies of legacy OEMs, underlying our positive outlook on GM. That said, it’s now time for execution..." - Dan Levy, Analyst, Credit Suisse
Lowering battery costs is vital
The key to unlocking wider profit margins will be making EV production more efficient and cost-effective.
It is universally acknowledged that the answer to bringing costs down – and thus making EVs more affordable for the everyday driver – lies in battery production and optimising battery life cycles so that they last longer and can be charged less often.
To this end, General Motors is set to open a battery cell development centre in Michigan next year, where it’ll work on prototypes. The aim is to cut the cost of its next-generation Ultium batteries by 60%. The current generation of Ultium batteries offers a range of up to 400 and 450 miles with a single charge. The next generation is aiming to support a range of up to 600 miles.
In an effort to not be left behind, Ford has pledged $185m to open an EV battery research and development lab. It’s also investing $11.4bn in battery factories.
Both General Motors and Ford are hotly tipped to potentially topple Tesla to become the king of EV sales in the US in the years ahead. But as automakers race for EV dominance, investors will be keeping a close eye on which stock may pull ahead of the rest.
Credit Suisse analyst Dan Levy wrote in a note to clients seen by CNBC that “a clear case can be made” for the General Motors share price to be valued at north of $100. This implies an upside of 73.1% from its 13 October closing price.
“We continue to believe GM offers a compelling EV strategy, with one of the most holistic and ambitious EV strategies of legacy OEMs, underlying our positive outlook on GM. That said, it’s now time for execution, as we await data points indicating GM can maintain market share and profitability in an EV world,” Levy wrote.
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