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Why General Motors Is Suddenly a Wall Street Darling

By John Rosevear - Oct 9, 2017 at 9:05PM

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GM's shares have risen almost 30% in the last three months. Here’s why.

Suddenly, investors are super-interested in General Motors (GM -5.05%). 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?

Mary Barra stands before a blue backdrop with the words "General Motors" visible, during a presentation to GM shareholders on June 6, 2017.

CEO Mary Barra has been taking up GM as an investment, and investors are liking what they hear. Image source: General Motors. 

Wall Street shocker: GM isn't a dinosaur after all

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:

  • GM's Chevrolet Bolt EV became the first affordable long-range electric car when it went into production last December, months ahead of Tesla's (TSLA -1.76%) Model 3. As Tesla's struggles to get the Model 3 into production become clearer, GM's no-sweat launch of the Bolt looks more and more impressive in retrospect.
  • GM confirmed last week that it will follow up the Bolt with "at least 20" new all-electric models by 2023. The first two will arrive within 18 months, it said, and will be based on a new architecture that incorporates many lessons learned from the Bolt. (Or put another way, they'll be one full technological generation ahead of the still-brand-new electric Chevy.)
  • GM also drew a line in the sand: Global product chief Mark Reuss said GM expects its entire product portfolio to be fully electric eventually, and that it will be a driver -- a leader -- of the world's transition to electric vehicles.
  • Kyle Vogt, CEO of GM's self-driving subsidiary Cruise Automation, announced last month that it has completed work on a "mass-producible" self-driving car, one that includes Cruise's fully functional autonomous-driving system along with all of the redundant safety features that will make it safe to operate in the real world. GM will soon begin producing the car -- a modified Chevy Bolt -- at a Michigan factory, he said.
  • GM owns a stake in Lyft, and some of its new self-driving Bolts are expected to go into Lyft service before long. But GM may have bigger plans: Executives have hinted that GM may launch its own ride-hailing service before long.

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.

A white Chevrolet Bolt EV with Cruise Automation logos and self-driving sensors visible is parked outside the historic Design Dome at GM's technical center in Warren, Michigan.

GM Cruise CEO Kyle Vogt said that the third-generation version of GM's self-driving Chevrolet Bolt EV is ready for mass-production. Image source: General Motors.

Another key to GM's future-tech success: Money

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.

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Stocks Mentioned

General Motors Company Stock Quote
General Motors Company
GM
$31.76 (-5.05%) $-1.69
Tesla, Inc. Stock Quote
Tesla, Inc.
TSLA
$673.42 (-1.76%) $-12.05
Nokia Corporation Stock Quote
Nokia Corporation
NOK
$4.61 (-2.12%) $0.10

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