What happened
Shares of General Motors (GM +3.32%) were moving higher on Monday, after a Deutsche Bank analyst argued that GM should spin off its electric-vehicle (EV) business.
As of 1:30 p.m. EDT, GM's shares were up about 9.9% from Friday's closing price.
So what
In a note released on Monday morning, Deutsche Bank analyst Emmanuel Rosner added GM to the bank's "short-term catalyst call buy list," a list for stocks that could jump in price on significant news in the near term. Rosner thinks that it's possible that GM could spin off its electric-vehicle business, creating a separate company (and stock) that might have a valuation closer to that of Tesla -- a potential boon for existing GM shareholders, who would presumably receive shares of the spun-off company.
GM is developing a range of electric vehicles around a new modular architecture and an advanced battery system called Ultium. Image source: General Motors.
Rosner had asked CEO Mary Barra about the possibility of an EV spinoff during GM's earnings call on July 29. While Barra was noncommittal, Rosner argued in another note last week that such a spinoff would be a "no-brainer" with the potential to unlock billions of dollars in shareholder value.
Rosner argued that while a new GM electric-vehicle company could be valued anywhere from $15 billion to $95 billion, the legacy business (the rest of GM) wouldn't lose much value following the spinoff, as its valuation is already far below those of its pure-EV peers.
A related point: With a higher valuation than GM, a new GM EV business would have ready access to capital (via stock offerings) at a lower cost than GM does now.
Now what
Would a spinoff of GM's EV business really be a no-brainer, delivering billions of dollars in "unlocked" value to auto investors? I tend to agree with my Foolish colleague Adam Levine-Weinberg, who explained earlier today why it wouldn't be quite as simple as Rosner argues. Simply put, the EV business would be very difficult to separate from GM and its long-standing brands, and legacy GM would decline without EVs.
But what are the odds that the spinoff will happen, whether it's simple or not? As a longtime GM watcher (and shareholder), here's my carefully considered take: Don't hold your breath.
