Please ensure Javascript is enabled for purposes of website accessibility

General Motors Announcement Sends American Axle Stock 13% Lower

By Daniel Miller – Sep 16, 2020 at 1:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

General Motors plans to develop more of its own drive systems in-house -- and that's bad news for some suppliers.

What happened

Shares of American Axle & Manufacturing Holdings (AXL -6.55%), a Detroit-based global tier 1 automotive supplier of driveline and metal forming solutions, are down over 13% after an announcement from General Motors (GM -0.16%) that could signal trouble for AAM.

So what

AAM investors likely already know how important a customer General Motors is to the supplier. In fact, AAM sales to GM were roughly 37% of the supplier's consolidated net sales in 2019, 41% in 2018 and 47% in 2017. That decline isn't all a bad thing, considering AAM would prefer to have a wide range of large customers and for the supplier to be less dependent on GM for financial success. But GM's announcement that it plans to develop and produce a family of electric vehicle drive systems and motors could signal that the largest Detroit automaker will be making more of its drive systems in-house, rather than using suppliers such as AAM. In fact, the following quote from GM should have AAM investors feeling a little anxious about future business between the two.

Man looking at partially assembled vehicle

Image source: Getty Images.

"As with other propulsion systems that are complex, capital intensive and contain a great deal of intellectual property, we're always better off making them ourselves," said Adam Kwiatkowski, executive chief engineer of global electrical propulsion, in a press release. "GM's full lineup of EVs should benefit from the simultaneous engineering of Ultium Drive. Our commitment to increased vertical integration is expected to bring additional cost efficiency to the performance equation."

Now what

Investors will have to wait for the dust to settle to see the full implications and direct impacts of GM's decision to focus on manufacturing its new family of drive systems. But one thing is very clear: That's a chunk of future business that AAM would have preferred to have, and investors have reason to be concerned about overall business from its most important customer down the road, especially as the automotive industry is dealing with plateauing North American sales and COVID-19 implications. 

Daniel Miller owns shares of General Motors. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

American Axle & Manufacturing Stock Quote
American Axle & Manufacturing
AXL
$9.27 (-6.55%) $0.65
General Motors Stock Quote
General Motors
GM
$37.96 (-0.16%) $0.06

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.