If the second quarter was the bottom for General Motors (NYSE:GM) and GM stock, it should come out of the recession OK.
The company lost $800 million, 50 cents per share diluted and adjusted, on revenue of $16.8 billion. It ended the quarter with $30.8 billion in liquidity after going through $7.8 billion of cash.
The numbers could have been worse. Analysts had expected a loss of $1.77 per share. They also expected revenue of $17.3 billion. GM chief financial officer Dhivya Suryadevara said the company could soon make $4.5 billion before interest and taxes if an overall recovery is underway. GM expects to pay back the $16 billion in revolving credit it drew down in March by the end of the year.
The market, however, reacted by selling off. GM stock opens for trade August 3 at about $24.75, down 30% on the year.
Analysts Doubting Barra
GM’s plan had originally been to slowly ramp-up production of electrics with profits from its pick-ups and SUVs. But analysts are now doubting whether it can do that. CEO Mary Barra has slowly cut costs, closed plants, and sold off foreign units, but the novel coronavirus transformed the market faster.
GM has responded by sending laid-off auto workers to its truck plants. It is struggling to maintain production targets even while going full-out.
Barra is now telling reporters she expects a short, sharp recession and recovery by 2021. Analysts think that may be too optimistic.
An Electric Future
Barra said the company will invest $20 billion in electrics and autonomous vehicles over the next five years. Five years ago that would have been fearsome. But with Tesla (NASDAQ:TSLA) now sporting a market cap of $266 billion, about 7.5 times that of GM, the company looks outgunned.
Years spent doubting the rise of electrics are now taking a toll. Tesla’s Model Y has already passed GM’s electric flagship, the Chevy Bolt, in sales. The Bolt is now the 20th best-selling electric, considered too small for the market.
GM has begun construction of a 30 GW battery plant in Ohio, comparable in capacity to the Tesla “Gigafactory” in Nevada. The Ultium battery produced there will eventually have 20 different configurations to power the entire GM line. A network of 2,700 fast-charging stations should be in place for the Ultium in 2025.
GM is now gearing up to show its new electric flagship, called the Cadillac Lyriq. The car that will be displayed August 6, however, will have features that aren’t going directly into production.
The “iq” could also become the heart of a full electric brand spin-off, one with its own dealer network. Such a brand could produce 100,000 cars per year, but that’s half Tesla’s current run rate. And what happens, then, to Buick, GM, Chevy and Cadillac?
The Bottom Line on GM Stock
Analysts no longer believe Mary Barra or Ford Motor (NYSE:F) CEO Jim Hackett, concerning the future nature of the car business.
They no longer see this as a manufacturing business. They see it as Elon Musk sees it: as a technology business.
They see Tesla as having passed all its rivals and zoomed out of sight, even though its production is still a fraction of GM’s. They see GM’s gasoline-powered line-up as dinosaurs. They’re betting on a complete transformation of the infrastructure surrounding transportation, one that could be complete before GM gears up to compete.
They may be right, but they may also be wrong. If they have miscalculated, GM is a buy at these levels.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.