General Motors (NYSE:GM) is one of the biggest companies in the auto industry, and has gotten pretty beaten down in the last few years, but that may be about to change. In this segment from Industry Focus, Motley Fool senior auto specialist John Rosevear explains why he's bullish on GM's long-term game plan, and why the company might have a winning mix of risk and reward.
Listen in to hear more about how GM is competing with -- and maybe even outcompeting -- the likes of Tesla (NASDAQ:TSLA) in autonomous driving and electric vehicles, why dividend investors should definitely have this company on their radar, and more.
A full transcript follows the video.
This video was recorded on Oct. 19, 2017.
John Rosevear: I'm John Rosevear. I'm the senior auto specialist for fool.com, and the stock I want to talk about today is General Motors. A lot of you probably just went, "Oh, no," because GM has such an awful history. Bear with me. Yes, it's true that the U.S. new-car market is probably on the downward side of its cycle. And yes, it's true that the auto industry is in the early stages of being shaken up by huge, high-tech changes that we hear about all the time.
But here's the thing about GM right now. Right here, in 2017, CEO Mary Barra has it in great shape. It's very profitable right now thanks to huge demand for trucks and its new crossover SUVs. It's also very well-positioned not just to survive but to thrive and profit as things like shared electric, self-driving cars become mainstream over the next several years. In fact, I think we can think of GM as both a value-priced dividend stock right now, and something of a growth stock if we look ahead several years at the same time.
Listeners probably know that GM is already out in front of the industry with its affordable, long-range electric car, the Chevy Volt. The Volt even beat Tesla's Model 3 to market. Of course, the Volt isn't selling in Tesla's numbers of thousands and thousands. But the point is, GM has roughly caught up with the technology, and it has at least 20 more all-electric vehicles in development. The next two are due by the end of next year. So GM is right in front here, and GM has confirmed that it's aiming to be 100% electric eventually. It said its future is electric.
GM is also out in front of most of its rivals with self-driving technology. GM executives said last month that it now has a mass-producible self-driving car ready. It's a Chevy Bolt that has been extensively modified by Cruise Automation, which is the self-driving start-up that GM bought early last year. At this point, the only thing holding GM back from banging out self-driving cars by the thousands is probably costs. The lidar sensors, the laser sensors they use to do precision mapping on the roll, they're still expensive. But guess what? Last week, GM bought a start-up that has developed a new low-cost lidar unit. They have all the pieces in place now.
GM may not be the absolute leader in these new technologies, but it's close enough to the front of the pack that it's very likely to be among those that get really fat, substantial profits bigger than you've seen in the traditional auto industry in terms of margin as these self-driving vehicles and electric cars become mainstream things. Mary Barra has said repeatedly that she thinks investors should see GM as a significant profit growth story in progress in large part because of that technology, and I think she's right.
There's also the value part of this. GM has had a nice run of the last six months or so. It's up about 30%. To me, that's a sign that Wall Street is starting to catch on to this story, but you haven't missed the boat. Right now, it's still quite cheap at less than eight times expected 2017 earnings. GM pays a fairly conservative dividend that's aimed so that it can sustain the dividend payments through a recession. Because the stock is still cheap, the dividend yield is 3.5%, which is pretty nice.
It's true that sooner or later, we'll have a downturn, a recession, and GM's profits could take a hit for a while. But I think GM will be especially well-positioned to take off on the other side of that downturn, and I think if you reinvest that dividend between now and then, you might really like the results. I own GM stock, and that's my plan. Thanks for listening.
Sarah Priestley: Kristine, what do you make of John's GM pitch?
Kristine Harjes: It's no secret that the car industry is going through a massive transformation. Gas and diesel cars are going to be replaced worldwide by electric. In the coming decades, car ownership will decline as more and more people favor car sharing. Self-driving technology is on the cusp of becoming mainstream. It's been a fascinating transformation to watch, and it's by and large the new, smaller, on-the-cusp-of-technology companies that are really getting all of the mainstream media attention. And so, what I love about this pitch is that it took a well-established household name, one that many might see as somewhat antiquated or on its way out, and it highlights the advancements that this company is making that put it at the forefront of this auto revolution.
Priestley: Yeah, absolutely. I love the fact that John said GM is a value-price dividend stock currently, and a growth stock if we look ahead in the next several years. He said GM may not be the leader in technology, but it's likely to get fat profits, and I like that because I think this is such an underappreciated aspect of a lot of stocks today. As you said, the Teslas of the world get so much press time.
And in fact, honestly, some of the companies that are likely to make the most out of these new industries are probably the companies like GM, who are best placed with the infrastructure, the legacy knowledge, and everything else to actually mass-manufacture a lot of these products, and you can see that with the Chevy Bolt. They beat the Model 3 to market. They now have an extremely well-run production line for making electric vehicles, actually much better than Tesla, as demonstrated by last month's Model 3 miss. The other thing to remember, too, is that once they can crack the profitability of these cars, they'll be away. Because right now, it's not profitable at all, I think they lose about $9,000 per car.
Harjes: But it does seem like the way they're approaching it is, where they can't figure it out themselves how to do this efficiently and cheaply, they're able to use their size and their cash flow to finance some acquisitions to acquire some of these smaller, smarter players that have figured out the technology.
Priestley: Yeah, absolutely. They bought Cruise Automation. Cruise Automation, working with them, they've delivered a fully autonomous, or believed to be fully autonomous, Bolt. OnStar is also data-gathering and connecting vehicles, so they're the first to deploy between-car communication that's on the road right now. So, absolutely, a ton of things that are gearing up to make them successful in the future, and this is 100% necessary, because you have countries like France, Great Britain, Norway, and possibly soon to be China and India saying that eventually, they're going to ban the sale of gas and diesel cars. So that's going to revolutionize the industry.
Harjes: China in particular would be absolutely huge there. That's the world's largest car market, and they are planning on banning the sale of gas and diesel in the coming decades. It seems like GM is poised to take advantage of that. They sold more cars in China than the U.S. last year, which is pretty incredible, and they have plans to launch 10 electric or hybrids there by 2020.
Priestley: Absolutely. The new plan, the 100% electric, which is where they're heading, which was announced fairly recently -- they're planning two more electric vehicles into the U.S. the market next year, a further 18 eventually by 2024, I believe. So there's so much to watch here. And as you said, they're really focusing on these acquisitions to bring down the costs, especially with the lidar technology that John mentioned. They recently announced an acquisition in that field. So, 100% extremely behind what John said. They definitely shouldn't be underrated. And its 30% stock price rise this year indicates that Wall Street is starting to take notice, too.
Harjes: And yet they're still trading fairly cheaply. Historically, automakers trade around 10 times their earnings, and GM is only around 7.7.
Priestley: Yeah, absolutely. Possibly a very good way to get into some of these nascent technologies.
John Rosevear owns shares of General Motors. Kristine Harjes has no position in any of the stocks mentioned. Sarah Priestley has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.