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Key Takeaways for GM Stock:
- ‘New’ GM (GM) looks more different than ever, compared to its ‘Old’ GM predecessor. The company has drastically reduced its break-even point through cost-cutting and electrification.
- In the past, recessions have proven challenging for cyclical stocks, such as GM, which may be deterring investors. But for any future recessions, GM now has a relatively diversified business that has yet to be put to the test.
- Management has big ambitions for GM’s growth by 2030. We like that a three-year average return on invested capital of 20% is a key part of management's compensation package.
Andrew Willis: Compare 10 billion in operating profit today with high-margin revenue of around 80 billion projected by the end of the decade. Investors may be missing out as they take ‘new GM’ for granted as they worry about a potential downturn.
It may take a recession to show investors that old GM is out. The company is leaner, more high tech and North American market-focused, where it commands a premium. Not to mention the 80 billion-dollar figure mentioned earlier is based on new businesses adjacent to the auto lineup, such as insurance and subscriptions.
GM’s Not Your Average Automaker Anymore
Sector strategist David Whiston also sees advancements like a joint venture making EV batteries enabling more flexibility and scale at the company and notes the company targets $50 billion in revenue from the Cruise autonomous vehicle segment by 2030, up from just $1 billion targeted in 2025.
GM is moving fast, and management aims to nearly double margins overall, by 2030, which makes for some big ambitions. That said, we do like that goals for returns on invested capital are tied to executive compensation packages.
For Morningstar, I'm Andrew Willis.
GM Bulls Say
- GMNA's breakeven point of about 10 million-11 million units is drastically lower than it was under old GM.
- Management is not afraid to buy back large amounts of stock.
- GM can charge thousands of dollars more per vehicle in light-truck segments. Higher prices with fewer incentive dollars allow GM to get more margin per vehicle, which helps mitigate a severe decline in light-vehicle sales and falling market share.
GM Bears Say
- GM may have to see a U.S. recession to prove it can do much better than old GM before the market will award the stock a higher P/E multiple. The recession came in 2020, and may again in 2024 or 2025, but the P/E multiple well after the downturn is uncertain.
- Auto stocks often sell off severely because of macroeconomic concerns, even if the bottom-up story looks attractive.
- The U.S. auto market is becoming more crowded each year. Hyundai-Kia, Tesla, and other firms such as new entrants from China and EV startups may take more share over time from existing players such as GM.
The author or authors do not own shares in any securities mentioned in this article.
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