GM (GM - Free Report) is one of many automakers trying to chase Tesla (TSLA - Free Report) as the top electric and autonomous vehicle manufacturer, with plans to produce 20 models of electric cars by 2023. The company also seems to be in a unique position to succeed in the long run over other competitors like Volkswagen (VWAGY - Free Report) , Ford (F - Free Report) , and Toyota (TM - Free Report) .
While GM has never been seen as a true power player in the EV scene, the firm has always been present. And with public trust low in one of its mains competitors, Volkswagen, due to the Dieselgate scandal, it appears that GM has a perfect opportunity to expand. GM started with the Chevrolet Volt in 2011, which is the bestselling plug-in hybrid of all time. However, aside from the Volt, Chevy’s EV line never had much success. This is likely due to GM’s decision to start out with the lower end Chevy brand, instead of taking the initial high-end approach like Tesla.
On the bright side, there is a lot of hope on the horizon for GM. The company plans to introduce its next generation of EV’s for the more luxurious Cadillac brand, which also has a much stronger presence in the large and growing Chinese market. This past winter, GM unveiled the first of these, an unnamed electric crossover set to hit the market in 2021, which should help it capture the vast midsize SUV market in the US.
GM is also building most of its coming fleet of EVs on the same modular platform. This allows for the sharing of parts between vehicles and the easy changing of battery size by simply changing the number of cells. This should help make manufacturing less expensive, and will also be attractive to consumers as parts for repairs will likely be cheaper than conventional models.
The largest advantage that GM has over its competition is its majority ownership in Cruise LLC. Cruise is one of the foremost autonomous vehicle companies, with GM, Honda Motor (HMC - Free Report) , SoftBank (SFTBY - Free Report) , and T. Rowe Price all heavily invested. After a $1.15 billion funding round in May, Cruise was valued at $19 billion, with GM owning about 75%.
We have seen recently the potential for extreme overvaluation in tech startups, but Cruise has a valuable asset (its autonomous driving system) and a very secure market position if they succeed. Once Cruise finishes developing its autonomous cars, they will be used for an Uber (UBER - Free Report) -like service but without the drivers. This will drop the cost of rides by an estimated 50% or more per mile and should allow Cruise to create a ridesharing platform that actually turns a profit.
All of these long run plans are very promising for the future of the company, but the short term is a bit bleak. GM is investing big within itself for these goals, which means cutting costs in the existing business by about $6 billion a year. GM stock has also fallen by 9.6% in the past two months, mostly due to fears over the US-China trade war.
The trade war is especially scary for the EV market’s viability, as the first and third largest battery manufacturers are Chinese. So, batteries, which are the most expensive single part of an EV, would be subject to tariffs coming to the US. And then the completed cars would be subject to tariffs again when shipped back to the large and quickly growing Chinese market.
Finally, none of these electric cars will be released before 2021. With most coming later than that. As a result, GM’s earnings growth estimates are 10% lower than the industry’s 11.5% (2019) and 3.20% (2020) projected average climb.
On the bright side, a lot of research is happening on new battery technology. This could greatly decrease the cost of EVs and offset the U.S. tax credits that are set to run out by next spring. New battery tech could also get rid of consumer concerns over EVs such as range and charge time.
So, while the short-term future of GM is nothing stellar and will likely continue to slack, there is much to look forward to. GM is soundly positioned with the potential to become a power player in the EV and autonomous vehicle market in the next five years once its investment in this new generation of automobiles is realized.
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