GM stock has regained traction after a selloff sparked by the abrupt exit of Dan Ammann, CEO of General Motors‘ (GM) Cruise self-driving unit, amid strategic differences with top brass. Amid that personnel dust-up, GM’s EV future finally arrived. On Dec. 17, GM announced initial deliveries of both the Hummer EV and BrightDrop EV600 delivery van, the first two vehicles to use its next-generation Ultium battery platform. Yet Jan. 5 stands out as an even more important day for investors to assess where GM stands in the EV race.
So is now a good time to buy GM stock?
Will Silverado EV Validate GM’s EV Strategy?
GM took a big detour to get to the EV starting line, reimagining every ICE vehicle from the ground up. The result is the single, flexible Ultium battery platform, designed alongside a range of drive units and motors that can accommodate its entire portfolio, from passenger car to pickup truck.
If its plan works, GM will be able to leverage massive scale and capital efficiency as a competitive advantage. GM’s one-million EV sales target floor for 2025 translates to roughly 240 million Ultium battery cells.
Yet GM is in catch-up mode. Its single platform has enabled GM to cut vehicle development time in half, an advantage over rivals also making the transition from ICE vehicles to EVs.
The next EV, due next spring, will be the Cadillac Lyriq SUV. But GM’s EV rollout won’t be “off to the races” until 2023, Doug Parks, who directs global product development, said on a Dec. 9 investor call.
Investors are gauging whether GM can overcome its late start and Bolt battery fumble to vie for EV leadership. That’s why Jan. 5 stands out as a huge day. The first clear indication of where GM stands will come when it takes the wraps off its Silverado EV pickup.
The most important comparison may be how the Silverado EV matches up with Ford’s F-150 Lightning. That will enter production in early 2022, up to a year ahead of GM’s pickup.
Unlike the luxury Hummer EV supertruck, the EV version of the Silverado, GM’s top-selling vehicle, will have mass-market potential.
GM CEO Mary Barra boasted recently that the Silverado EV will be “unmatched.” If its combination of capability and pricing lives up to that high standard, then GM stock should rally.
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Cruise Self-Driving Mission Expands
Ammann apparently wanted to position Cruise for an IPO, which would have given him a huge payday, given the incentives in his pay package. As a result, he wanted a narrow focus on expanding its robotaxi business, which is expected to launch in San Francisco in 2022.
Coming from a Wall Street background, Ammann saw eye-to-eye with analysts pushing GM to spin off its high-growth electric vehicle and autonomous operations. The idea is to give GM a way to raise capital on the cheap and boost recruitment efforts. A spinoff would provide the type of pure-play investment that investors desire. By contrast, GM stock offers a complex marriage of high-growth vehicles with GM’s internal-combustion-engine business that’s headed for the scrap heap by 2035.
But CEO Mary Barra insists that maximizing GM’s opportunity requires keeping everything under one roof. While committed to scaling the robotaxi business, she reportedly also wants to deploy Cruise technology on a self-driving Cadillac and autonomous delivery vehicles. On Jan. 5, GM will reportedly show off a self-driving Cadillac concept vehicle, alongside its highly anticipated Silverado EV pickup.
BrightDrop And FedEx
FedEx said on Dec. 17 that it had received the first 5 BrightDrop EV600 vans of the 500 it ordered. A Michigan-based supplier built those vehicles by hand while GM retrofits its CAMI assembly plant in Ontario, Canada. Production will start at the retooled plant in November 2022.
That means output will be limited in 2022, but BrightDrop still may provide a catalyst for GM stock. The key question is how tight the relationship between GM and FedEx will be. FedEx seemed to play an integral role in the the design of the EV600, as well as the BrightDrop’s EP1 electric pallet. The EV600 automatically loads the motorized pallets, which make it a breeze to move up to 200 pounds of packages down the sidewalk and from sorting center to delivery van.
FedEx has said its drivers were able to handle 25% more packages per day with Brightdrop’s EP1 in the first pilot.
In its Dec. 17 press release, FedEx touted plans for EVs to make up 50% of new pickup and delivery vehicles by 2025 and 100% by 2030. “The collaboration with BrightDrop has created an avenue to help achieve these goals, backed by a world leader in the automotive industry,” FedEx said.
That sounds promising.
On Sept. 28, GM unveiled the BrightDrop EV410 mid-sized commercial van, saying that Verizon (VZ), among the largest fleet operators, is the first customer to sign up and plans to put it to work as a field maintenance and service vehicle. The EV410 is slated for production in 2023.
So far, just one other customer has been announced. Merchants Fleet has ordered 12,600 EV600 vans. On Nov. 18, GM said that Merchants Fleet also has order 5,400 EV410 vehicles.
GM Stock Chart Technical Analysis
The selloff triggered triggered by Ammann’s unexpected exit sent GM stock diving below its 200-day moving average. While GM stock has regained its 200-day line, it is still below its 50-day average.
In Tuesday morning stock market action, GM stock edged up fractionally to 57.45. A break above the 50-day/10-week line, around 59, could offer an early entry point for GM stock. That also would lift GM stock clear of a 58.70 buy point from a double-bottom base, according to MarketSmith.
A weekly MarketSmith chart shows that GM stock now has a 65.28 buy point from a seven-week consolidation. That’s 10 cents above GM stock’s record high of 65.18, which came on Nov. 18. GM stock had run up from the 58.70 buy point.
Prior to the management shake-up, GM stock appeared to have turned the corner from a rough summer that saw a huge Bolt battery recall and sales crash due to the chip shortage. However, reaction to the Jan. 5 CES presentation may set the tone for GM stock’s performance in 2022.
GM stock has a 76 Relative Strength Rating from IBD, meaning it has outperformed 76% of all stocks over the past 12 months.
GM stock’s relative strength line, the blue line in the chart provided that tracks a stock’s performance vs. the S&P 500 index, shows it has lagged the market since June. That’s in sharp contrast to Ford (F), Tesla (TSLA) and some other automakers.
GM Stock Priced Like An Underdog
As Rivian (RIVN) was set to begin trading with around a $90-billion market cap on Nov. 10, CEO Mary Barra asserted in an interview at The New York Times DealBook Online Summit that GM stock “is so undervalued.” GM is now valued at $83.5 billion, while Rivian has a market cap of $92 billion.
That compares to $1.09 trillion for Tesla. Ford stock is valued at $83 billion.
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Cruise’s San Francisco Progress
Cruise has gone from a supporting role to star billing. GM claims that Cruise has taken the lead in the race to deploy self-driving robotaxis by virtue of its strides in San Francisco’s dense, urban environment. On Dec. 2, Wolfe Research analyst Rod Lache said he now prefers GM stock to Ford, after the latter’s big rally. A key reason: significant upside as Cruise proves the commercial viability of its self-driving platform.
Cruise’s permit from the California DMV allows it to serve passengers with no safety driver in San Francisco between 10 p.m. and 6 a.m. at speeds of up to 30 miles per hour. Cruise still needs final approval from the California Public Utilities Commission to start charging passengers.
The permit process may have hit a speed bump. San Francisco’s public transit agency filed a complaint in a bid to block approval, pointing out that Cruise is picking up and dropping off passengers away from the curb. But in a response, Cruise said its operations “are not only explicitly legally permissible under the Vehicle Code but are consistent with the lawful operation of other commercial vehicles registered in California.”
In April, Cruise was tapped as Dubai’s exclusive provider of robotaxi service starting in 2023. That’s when GM is expected to launch production of its 6-passenger Origin, which has no steering wheel.
$50-Billion Revenue Target
At GM’s Oct. 6 investor day, Cruise caused some jaws to drop with its target of $50 billion in annual revenue by 2030. Yet Cruise management has begun to detail its path to scaling up its business in more cities.
As TechCrunch explained: “Cruise is relying on simulations not only to prove out its safety case, but also to scale to new cities without having to perform millions of miles of tests in them first.”
Early in 2021, GM announced a partnership with Microsoft to accelerate self-driving vehicles. Microsoft joined in a $2.75-billion funding round for Cruise, along with Walmart, GM, Honda and institutional investors. The investment gave Cruise an implied valuation over $30 billion. That would make GM’s stake worth about $19 billion, analysts estimated.
However, Apple (AAPL), Alphabet (GOOGL)-unit Waymo, Ford and Tesla are among a large field of well-funded competitors in the autonomous-vehicle market.
GM Stock Investor Day
At GM’s Oct. 6 investor presentation, highlights included news that GM will offer Ultra Cruise, a high-end version of its Super Cruise driver assistance system, starting in 2023. Super Cruise now provides hands-free driving on 200,000 miles of highway. Ultra Cruise will launch with coverage of 2 million miles of road. GM also revealed plans for a Chevrolet Equinox crossover priced around $30,000.
GM also sketched out its path to doubling revenue by 2030 from its recent average of $140 billion in annual sales. In addition to Cruise’s $50 billion, software and services could add $25 billion, including as much as $6 billion from the recently launched OnStar Insurance. The BrightDrop commercial delivery van and logistics business could add $10 billion a year. Total EV revenue should grow from $10 billion in 2023 to $90 billion by 2030, GM says.
GM Defense also will contribute to the total. On Nov. 11, CNBC reported that GM will build some modified versions of the Hummer EV next year for military testing as an electric Light Reconnaissance Vehicle, or eLRV
GM Earnings And Sales
Although the wounds are still fresh from GM’s sales crash due to the chip shortage, the worst point is likely behind. GM reportedly instituted weekend overtime at a half-dozen plants in November and December to keep up with demand amid depleted inventories of its large and mid-size pickups and SUVs. On Dec. 1, CFO Paul Jacobson said that GM’s Q4 volume and costs are coming in better than expected amid better chip availability. The company now expects adjusted earnings before interest and taxes of $14 billion for full-year 2021, up from the $13.5 billion prior guidance.
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Is GM Stock A Buy?
GM stock has a decent 75 IBD Composite Rating, but fundamental metrics don’t yet tell the full story. The hit to earnings from Covid and the chip shortage have distorted the picture.
Undoubtedly, there is lots of execution risk in relying on profits from gas-burning SUVs today to pave the way to an EV future. Competition from Tesla and other well-funded competitors will be intense. And GM can’t afford another mishap like the Bolt battery failure.
Still, GM’s future depends primarily on the success of its Ultium EVs and, perhaps to a lesser extent, on Cruise. GM stock’s latest pothole with the departure of Cruise’s CEO should fade into the rear-view mirror by Jan. 5. That’s when the Silverado unveiling should clarify GM’s EV outlook.
Look for GM stock to retake its 50-day line before going for a spin.
Bottom line: GM stock is a not buy.
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