In Focus: GM's EV Ambitions
This week I’m picking up where I left off last week, but I'm not digging into a rumor this week, but instead I'm writing about an ideal circulating Wall Street. Again I’m sticking with the auto industry, and electric vehicles specifically.
In October GM CEO Mary Barra confidently stated that GM could take the lead from Tesla on electric vehicles. At first the statement threw me for a loop, I actually laughed out loud when I heard it. However, after some thought, I started to believe that Mary Barra is right, and that GM could take the lead from Tesla.
In 2020 Tesla sold just under 500,000 electric vehicles, GM sold 6.8 million vehicles during the same year. Slowly, but surely, the majority of vehicles sold by GM are going to be EVs. GM's sales will be assisted by the economics of car buying, which is, I the car buyer would like to buy a Porsche, but I the car buyer can only afford a Chevy. As GM builds out its selection of EVs, it will be finances or lack thereof, and not a superior product that will help GM take the lead in electric vehicles, but what does that mean for the stock price?
GM overtaking Tesla in EV sales won’t translate into a Tesla like valuation for GM. Elon Musk, Tesla’s CEO, has been very adamant that Tesla is a tech company, not a car company. Elon’s sale’s pitch worked well on investors, and in turn investors have bid Tesla’s stock price up and pushed its valuation to over $1 trillion alongside other tech giants like Apple ($AAPL) $2.6 trillion, Amazon ($AMZN) $1.8 trillion, Alphabet/Google ($GOOGL) $1.9 trillion, and Microsoft ($MSFT) $2.5 trillion. GM could and probably will sell more EVs than Tesla in the near future, but investors will never value GM like Tesla, because we know that GM is not a tech company.
A GM Rebrand
For investors to think of GM like they think of Tesla, GM would need a major rebrand. The company wouldn’t have to change its name, it would only have to change its image. It would need to do techie things in its EVs and gas powered vehicles. GM would need to make owning a GM vehicle an experience and not just a purchase. This is something that Tesla has excelled at.
We've seen brand new Tesla's with the hood misaligned, with malfunctioning door handles, steering issues, and doors that don't open all the way, and yet, the owners still rave about the experience of owning a Tesla. Tesla's constant software updates that add new functionality to their cars was a feature that was unheard of in the automotive industry. To get investors to view GM like they view Tesla, GM has to figure out how to create a Tesla-like owner experience.
To create that Tesla-like owner's experience GM could go on a spending spree and acquire the companies needed to help transform their cars into real Tesla competitors, but I’m not sure if an automobile manufacturer would know what a good tech acquisition is.
GM could also partner with a tech company, which is something I wrote about last week. This seems like the most reasonable scenario, as it would allow GM to be a car company and another company like Apple, Google, Amazon, or another to give the car all the tech bells and whistles of a Tesla.
GM Hasn't Convinced The Markets
Tesla has made the auto industry a lot more competitive than it was 20 years ago. Investors recently awarded EV newcomer Rivian ($RIVN) a $100 billion plus valuation, which trumps GM's $86 billion market value. To add insult to injury, Rivian has delivered less than 500 vehicles.
Rivian went public on November 10, 2021 at $78 per share, and within a few days the stock price hit $179 per share before cooling down. Rivian's IPO made investors take a second and third look at other publicly traded EV companies. I'm writing this on November 28, 2021, and during November 2021 Lucid ($LCID) gained close to 30%. Fisker ($FSR) saw a 19% increase. Canoo ($GOEV) increased 50%, Gores Guggenheim ($GGPI), the SPAC that has a planned reverse merger with EV maker Polestar saw a nearly 25% increase, and GM only saw a 9% gain during November. What November's EV stock prices revealed to me is that investors are diversifying their EV bets for second place behind Tesla, and they don't have a strong conviction about GM.
The ideal that GM will take the lead in EVs is conceivable. GM has the infrastructure and resources to build EVs across multiple price ranges, which it will need to do to take the EV lead from Tesla, but I don't think that will translate into a major run up for GM's stock. In order to really compete with Tesla, in order to see a major rise in value, GM has to find a way to better the ownership experience of GM vehicles. If GM can rebrand and make owning a GM vehicle an experience, then I'll consider ranking it up there with Tesla, until then it's just GM, a traditional car maker, doing traditional car maker things.