GM Jettisons Dinosaur Image as Investors Buy Into Its Mobility Bets

Updated on
  • Cruise Automation staking claim as a self-driving leader
  • Tesla’s Model 3 delay gives Wall Street reason to relook at GM

GM Will Hang on to Tech Units, Ammann Says

General Motors Co. may have been founded in 1908, but investors long treated the automaker as though it were born in the Jurassic period -- until now.

The shares have rallied 15 percent over the past month after hovering near their 2010 initial offering price for years, following a parade of analyst reports lauding its technology chops. Investors are betting that GM’s test fleet of self-driving electric cars can be converted into a lucrative robotaxi operation worth billions.

“Investors and the startups in Silicon Valley assume that GM and the other car companies are dinosaurs and it’s just not true,” said Morningstar Inc. analyst David Whiston, who’s had a buy rating on the stock since January. “It’s not like they just started working on autonomous cars because of Tesla.”

Until recently, Wall Street viewed GM as a likely victim of a revolution brought about by self-driving vehicles that will render ride-hailing and car-sharing supreme over auto ownership. Companies with tech prowess like Tesla Inc., Uber Technologies Inc. or Alphabet Inc.’s Waymo would lead the autonomous road race. These views are changing, according to Barclays analyst Brian Johnson.

Tesla is stumbling in its early effort to get out its more affordable Model 3, while Waymo has concentrated its efforts on self-driving systems rather than building its own cars. Uber is dealing with a series of legal troubles and regulatory setbacks.

GM, meanwhile, is growing its Maven car-sharing business, planning 20 new electric models by 2023 and testing autonomous vehicles in several U.S. cities. Its Cruise Automation unit has said the company is able to mass produce self-driving Chevrolet Bolts. Add those pieces together, and GM has what it needs to build a robotaxi business.

‘Evolving Mammal’

There’s been a “fundamental shift in attitude which may very well prove to be permanent,” Johnson said in a report this month.

“Traditional automakers, and GM especially, are fundamentally better businesses today than they have been in the past,” he wrote in an Oct. 13 note to clients. “Whereas previously investors viewed GM as a dying dinosaur, investor attitude seems to be rotating that GM is instead an evolving mammal.”

Johnson raised his price target for GM shares to $55 from $41, the highest compiled by Bloomberg. Longer term, some analysts are even more bullish, with Citigroup Inc.’s Itay Michaeli writing this month that GM has a “path to $134” with its strong core auto business complementing a robotaxi head start.

GM slipped 0.2 percent to $45.51 as of 11 a.m. Monday in New York. The shares are still up about 31 percent this year, outpacing the benchmark S&P 500 Index.

Rival Ford Motor Co. has advanced just 0.2 percent this year, as new Chief Executive Officer Jim Hackett struggles to replicate the change in sentiment surrounding his crosstown competitor.

“Our job is to make sure that we do tell a story that people understand, but at the same time not get too far ahead of ourselves and be grounded in reality,” Joe Hinrichs, Ford’s executive vice president of global operations, said Monday in an interview from the National Minority Supplier Development Council conference in Detroit. “There’s a lot of bluster out there around all this new technology,” and Ford’s management wants to “make sure we deliver on the things we say we’re going to do.”

Spinoff Speculation

Bullish analysts may be getting ahead of GM’s own plans. The stock rallied for weeks based on Deutsche Bank’s Rod Lache speculating that GM could spin out its mobility business and estimating a separate unit could be worth $30 billion, nearly half of GM’s value today.

GM President Dan Ammann downplayed the possibility of a spinoff. For the time being, the company plans to keep all its capabilities under one roof, he said last week on Bloomberg Television.

Still, the chatter about spinning off a mobility business shows that GM has become a leader in developing the technology, Whiston said.

“GM doesn’t even have a ride-hailing business,” he said. “Why would they spin this off now? There’s so much potential.”

— With assistance by Jeff Green

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE