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GM's shares have risen almost 30% in the last three months. Here’s why.
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Suddenly, investors are super-interested in General Motors (GM +0.00%). Shares of the Detroit auto giant were up over 11% last week; over the last three months, they've jumped 29%.
In fact, GM didn't just hit a 52-week high last Friday, it hit an all-time high (since its post-bankruptcy IPO in 2010, anyway) after some big Wall Street upgrades.
It's a big change for GM's stock, which spent much of the last seven years in the market's doldrums. Why is this happening now?
CEO Mary Barra has been taking up GM as an investment, and investors are liking what they hear. Image source: General Motors.
GM spent years in the doldrums in part because investors thought it (and other old-school automakers) were doomed to suffer Nokia's fate -- disrupted by new technologies from fast-moving Silicon Valley innovators.
CEO Mary Barra and her team have been making the case for GM as an investment for a while now. But Wall Street's recent interest may have more to do with these disruptive trends, and, specifically, with GM's efforts to get out in front of them. Consider:
Long story short: GM is matching or beating the Silicon Valley disruptors at their own games, while retaining the massive advantages that come with being a successful global automaker, namely, the scale, experience, supply chains, and resources needed to mass-produce vehicles to a global standard of quality.
As Tesla's experience has made clear to investors, that last part is a lot harder than it looks.
Here's something else that works in GM's favor: All those future-tech projects will require gobs of cash before they become profit-generators. Again, Tesla's example is instructive: In its 14-year existence, Tesla has burned through about $10 billion in cash with no profits to show, at least not yet. Investors who are new to the automotive space are now becoming aware that they need to factor finances in to any estimate of a new venture's chances of success.
But that's not a concern with GM, mostly because its existing business in the here-and-now is doing very well. Over the last couple years, GM has replaced nearly all of its crossover SUV models with brand-new designs. They're better, more up-to-date, and more profitable than the old ones. And right now at least, they're selling like hotcakes.
The success of its new crossovers bodes well for GM's profits and margins, even if the U.S. new-car market is headed for a cyclical decline. That will ensure that GM has the money to bring all of these future-tech ventures to market.
And that makes GM's future-tech prominence an even better bet.