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General Motors Company’s Self-Driving Car Ambitions Get a Boost

GM stock - General Motors Company’s Self-Driving Car Ambitions Get a Boost

Source: Shutterstock

Investors ate up the news Softbank Corp (ADR) (OTCMKTS:SFTBY) was investing $2.25 billion in the self-driving unit of General Motors Company (NYSE:GM), sending GM stock up more than 11% May 31. 

$50 here we come?

Not so fast, Mr. and Mrs. GM stockholder.

There are other players in the race to deliver self-driving cars to the general public. What makes you think Mary Barra and company have the inside track?

Ok, that’s a little harsh. The fact that GM acquired Cruise Automation in 2016 for around $1 billion and is now selling 20% of the division for $2.25 billion suggests it’s already made 1,125% on its investment (less the money it’s spent growing its self-driving unit) since then.

The Questions to Ask

If I owned GM stock — I recommended it over Ford Motor Company (NYSE:F) in April and have been a fan since 2016 — I’d be concerned about a couple of things.

First, why does GM need the investment?

Yes, I know, everybody loves Softbank. It’s like the Consumer Reports of tech investing. An investment from Softbank is a gold-plated seal of approval.

Seriously, though, GM has a $60 billion market cap. It shouldn’t be pressing on with self-driving cars if it can’t go it alone. Partnerships are great, but I fail to see what Softbank brings to the table except for name recognition and capital.

If GM can’t attract capital to its GM Cruise division without a star investor like Softbank, it’s in bigger trouble than anyone could possibly imagine.

Here’s what Softbank partner Michael Ronen had to say about his company’s investment.

“We have seven years to talk about it,” Ronen told Recode. “By then, we should also have a much clearer picture of the reality of self-driving cars, plus early winners and losers.”

That’s hardly an all-in type of commitment. It sounds as if Softbank is just hedging its bets.

The second question I’d be asking is what about the competition?

Sergio Marchionne’s Five-Year Plan

Fiat Chrysler Automobiles NV (NYSE:FCAU) just announced that it’s building as many as 62,000 Chrysler Pacifica Hybrid minivans for Waymo, Alphabet Inc’s (NASDAQ:GOOGL) self-driving division.

The announcement’s important because the relationship could be expanded to include the development of a self-driving vehicle for consumers which would be a massive leap forward for Fiat Chrysler, generally thought to be lagging badly in the race to electrification and autonomous driving.

This is the kind of partnership that makes a lot of sense. For FCAU, Waymo brings tangible benefits to the table.

Fiat Chrysler’s CEO revealed his final five-year plan for the company June 1 — Marchionne’s retiring at the end of the year — and its stock dropped by more than 7% on the news.

That’s a classic case of “buy on rumor, sell on news.”

Marchionne’s plan is the real deal, including adding ten Jeep hybrids and four fully electric models by 2022, only four short years away. It also plans to push its Ram trucks to overtake both the Ford F-150 and Chevy Silverado.

Possibly the best part of Marchionne’s June 1 presentation about the plan was his announcement that the company will eliminate its industrial debt by the end of the year, a huge accomplishment for a company that wasn’t supposed to survive.

Bottom Line on GM stock

While I like GM stock relative to Ford, until Marchionne steps down, Fiat Chrysler is the stock to own, because, in my opinion, it’s got the most upside in terms of the future.

And let’s not forget about the Softbank investment. It might sound good on paper, but what does it really do for GM’s self-driving ambitions?

Not much in my estimation.

As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2018/06/general-motors-companys-self-driving-car-ambitions-get-boost/.

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