There certainly hasn't been a shortage of high-flying electric vehicle (EV) stocks recently. However, the best way to invest in EVs might not be to buy an initial public offering (IPO) company that produces EV batteries or the latest EV manufacturer to go public via a special purpose acquisition company (SPAC) merger. Instead, the best play could end up being General Motors (NYSE:GM), which is going all-in on electric and autonomous vehicle technology. In this Fool Live video clip, recorded on Feb. 11, Fool.com contributors Matt Frankel, CFP, and Brian Withers discuss GM's recent results and electric vehicle ambitions.
Matt Frankel: Earnings look great. That's the first thing. GM be it on both the top line and the bottom line, earnings per share came in at $1.93. The market was expecting $1.64 for the quarter. Revenue came in more than $1 billion over expectations. Margins were better than they've had for most of 2020. It's really not fair to compare 2020 to 2019 for GM. The COVID pandemic was just so disruptive to that business. The numbers look really strong. That's the first point. They're selling a lot of cars. Everything is looking very promising. For 2021, and this is how they see the business doing in a normal year, they're expecting between $10 and $11 billion in profit. They made $9.7 (billion) in 2020, so they were expecting some pretty nice growth there. They are expecting EPS to come in a range of $4.50-$5.25. Based on the current price of the stock, GM's trading for just over 10 times forward earnings. The market's not putting a whole lot of faith in this business going forward. CapEx, they are expecting their expenses to really rise next year. I don't know if you followed the story where GM is planning on going totally electric by 2035 and is planning on investing a lot of money. They are bumping their CapEx up significantly to $9-$10 billion next year. To give some context in 2019, before the pandemic their CapEx was in the $7 billion dollar range. So, this is a significant increase. Most of it has to do with EV development. The chip shortage is the big news out of their earnings report. I'm sure a lot of people have read about the chip shortage going on in the auto industry. All the chip manufacturers are just really facing a supply and demand problem. There's a lot more demand from these auto manufacturers than there is supply. Ford (NYSE:F) had to halt the F-150 production recently because of it. GM sourcing, the chip shortage will cost between up to $2 billion dollars of its profit in 2021, so that $10-$11 billion range, that's including the effects of the chip shortage. After the chip shortage, they're still making that. They also said it will not affect the production of their highest margin vehicles, which means pickups and SUVs. Whereas Ford had to suspend F-150 production, which is by far the top, I think that's the top selling vehicle in the United States right now unless I'm mistaken, so GM is doing the opposite. They're prioritizing the highest margin vehicles with what chips they have available, so it shouldn't affect the high margin production going forward. One of the biggest things that people push back on when I say GM is the best electric vehicle stock to buy is well, yes, but it has a lot of debt. Anyone heard that argument before? I certainly heard that many times.
Brian Withers: I think all the car companies have a lot of debt, don't you think?
Matt Frankel: Well, not Tesla (NASDAQ:TSLA). Not Tesla. Is what they say. To be fairly, they do, GM has a little over $17 billion in debt. They have $12.4 billion of pension obligations that are unfunded. But they also have over $40 billion of liquidity, between over $22 billion of cash and an $18.2 billion available credit line. They actually have more liquidity than they have obligations right now. I don't necessarily buy the "yeah, but GM has a lot of debt" argument. They've a manageable debt load considering their business. Going forward, there's three reasons I love GM going forward. Someone asked me on Industry Focus this week if I could see GM producing 10X returns in the next decade. I said yes, and I'll tell you why. First of all, GM could 10X and be worth less than Tesla. Let's point that out. One is EV, like I said, I think GM is going to be a big player in the EV space. I think investors are really discounting the brand loyalty. Someone who is an avid Chevy Silverado driver wouldn't buy an F-150 if it was half price. You think they're going to all switch to the Cybertruck? No, it's a very loyal brand and if GM goes completely electric, people who buy Camaros are going to buy the electric version of Camaros, people who buy Silverados are going to buy the electric version, so on and so on. The brand loyalty will make them a huge player in the EV space. The Hummer EV has already sold out its first run, and that's an over $100,000 truck, and that's already sold out. The brand loyalty is off the charts. People want GM products. Number two, the Cruise Automation division. Automated vehicles, GM sees it as an $8 trillion market opportunity over the long run. It's going to take time to play out. Cruise is actually losing money right now. They lost almost a billion dollars in 2020. But Cruise has the potential to be a big player in the autonomous vehicle space and that could be bigger than the rest of GM's business combined. They could essentially turn that into an automated version of Uber (NYSE:UBER) overtime, which is where that's going. Defense, they have a big opportunity. They see GM has a great relationship with the Department of Defense. They see a $25 billion market opportunity in defense alone when it comes to EVs and other applications of GM's products to defense. There's a rundown of how GM is doing. Like I said, it's not really fair to compare 2020 to 2019 just because of the obvious reasons that have affected most companies we talked about. But I think it's going to be one of the best EV stocks to buy over the next 10 years.