General Motors (NYSE:GM) is used to looking at the future in terms of years, even decades.
A few years ago, under CEO Mary Barra, it developed a careful plan to meet the challenge of Tesla (NASDAQ:TSLA), then a struggling electric car maker.
You know what happens to careful plans. They’re good only until someone punches you in the mouth, and 2020 has punched GM in the mouth.
Today Tesla could buy GM with the equivalent of seat cushion money. Even with its recent precipitous fall, Tesla is worth more than six times General Motors.
General Motors enters trading Sept. 10 at about $32 per share, a market cap of almost $46 billion, on first half sales of nearly $50 billion. The revenue is a little over four times that of Tesla. But don’t tell that to the stock market.
Can’t Beat ‘Em …
Barra has finally decided that if she can’t beat Tesla, she should join it.
For assembling and supplying parts to Nikola (NASDAQ:NKLA), a fledgling electric truck maker, GM said this week it is getting $2 billion in Nikola stock and a board seat. The news sent GM shares up 10%. It sent NKLA stock, whose truck until now has been basically vaporware, up 40%. Nikola’s market cap is now 40% of GM’s own, with no product.
General Motors has also launched a plan with Uber (NASDAQ:UBER) to finance drivers’ purchases of the Chevrolet Bolt , the company’s best-selling EV. This comes just months after GM shuttered its own car-sharing service, Maven.
There’s also a vague memorandum of understanding with Honda Motor (NYSE:HMC) on joint development and sales in North America. It’s the second alliance between GM and a Japanese company. The last one, in the 1990s, built the Fremont, California factory that now makes Teslas.
Suddenly GM is a hot stock again, with 11 of 15 analysts saying buy it. The last three analyst reports all say “buy.” Barra is doing all she can to pump the price, saying demand is picking up faster than anticipated.
Maybe it is.
By the Numbers
But this is not last year’s GM. Last year’s company had $6.7 billion in profit on $137 billion of sales. This year’s company, through June, lost $750 million on sales of $49.6 billion. Operating cash flow for 2020 so far is negative. GM also has about $127 billion in debt, against about $12.6 billion for Tesla.
GM today makes 36 different kinds of cars although many, like its Cadillacs, are built on common platforms. About two thirds of its sales last year were of Chevrolet models. Almost half of those were of the gas-powered Silverado pick-up.
Real Hope
Barra is flogging tomorrow’s company because today’s isn’t making what the stock market wants. The stock market wants electric vehicles. So Barra is promising EVs. Investors are hoping it will spin-out those operations so they can cash in.
The real hope may be the U.S. military, which recently gave GM a $214 million contract to outfit its Colorado truck as a military vehicle. The Infantry Defense Vehicle could result in a new electric GMC Hummer. The contract means GM Defense could drive the company’s results for years to come.
Bottom Line on GM Stock
Add Tesla’s current market cap to its debt and you get an enterprise value of about $320 billion. GM’s market cap plus debt is $173 billion. The competition between the two isn’t quite as one-sided as it appears. GM also has Washington on its side. That must be nice.
But if we’re spinning toward an all-electric future in double quick time, GM starts out very far behind. It must keep selling gas-powered cars, at a profit, to have a hope of narrowing the gap. GM next reports earnings on Nov. 5, with $34.5 billion in revenue expected.
Whether it can meet or exceed that number will tell you a lot about GM’s real future.
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 danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.
