Buy This Beaten-Down EV Stock Before It's Too Late

General Motors (GM -0.04%) is not a pure-play electric vehicle stock. The company still makes most of its money selling gas-powered vehicles, particularly pickup trucks and SUVs. But EVs are the company's future, and buying shares of GM is one of the safest ways to bet on the EV industry. With the stock down significantly from its multiyear high and trading at a pessimistic valuation, it's a great time to invest in the iconic automaker.

A big year ahead

Right now, GM has a handful of electric vehicles on the market. The company's lineup includes the Cadillac LYRIQ, the GMC HUMMER EV pickup, the Chevrolet Bolt EV, and the Bolt EUV. In addition to those consumer-oriented vehicles, the company sells its BrightDrop Zevo 600 electric van to commercial customers.

The BrightDrop is expected to generate $1 billion in revenue for GM in 2023. In addition to vehicle sales, the BrightDrop offers software that helps customers manage their fleets. GM expects to bring annual production capacity up to 50,000 units by 2025, and it has already snagged big-name customers including FedEx, Walmart, and Kroger.

In the first half of 2023, GM plans to launch its Chevrolet Silverado EV WT and its GMC Hummer EV SUV. Later in the year, the company will roll out the Chevrolet Blazer EV, the Equinox EV, and the Corvette E-Ray. All told, GM expects to have nine EVs on the market, spanning a wide variety of price points, by the end of 2023.

GM has set big goals for its EV business: In 2025, the company expects EVs to generate at least $50 billion in revenue. Between 2022 and the first half of 2024, GM expects to produce 400,000 units. By the end of 2025, North America EV production capacity should be approximately 1 million units per year. This should be profitable growth for GM -- the company is shooting for a low- to mid-single-digit EBIT margin for EVs in 2025.

A massive opportunity

GM weathered a tough 2022 to produce solid results. Revenue of $156.7 billion rose 23% year over year, and the company managed to produce adjusted earnings per share of $7.59. GM expects the bottom line to take a bit of a hit in 2023 and is guiding for adjusted EPS between $6 and $7. However, this number will be affected by a noncash headwind related to lower pension income, and it will be delivered against the backdrop of a highly volatile economic environment.

Looking far ahead to 2030, GM is aiming to become a much larger company. Its revenue target for 2030 is a whopping $275 billion to $315 billion, roughly double its current annual revenue. The core auto business is expected to grow by 4% to 6% annually, and GM is anticipating its operating margins expanding to a range of 12% to 14%.

This margin expansion will be partly driven by new businesses, particularly software. GM expects software and other new businesses to grow by 50% annually through 2030, while its self-driving arm, Cruise, is targeting $50 billion in annual revenue. Software alone is expected to approach $25 billion in revenue annually.

Investors, of course, should take these projections with a grain of salt. Trying to predict anything nearly a decade into the future is going to be extremely uncertain. However, GM stock is so inexpensive today that the company could be quite wrong about its outlook and still deliver solid results for investors.

A dirt-cheap valuation

GM is currently valued at just $55.5 billion. Relative to the low end of its 2023 adjusted earnings guidance, the stock trades for around 7 times earnings. To be fair, a recession is possible this year, and automakers are sensitive to recessionary pressures. The good news is that GM has a solid balance sheet and should have no problem weathering the storm.

GM's automotive business, which excludes GM Financial, had $24.4 billion in cash, cash equivalents, and marketable securities at the end of 2022, along with another $15.1 billion of available credit facilities. Meanwhile, automotive debt plus underfunded pension liabilities was about $20.8 billion. GM expects the automotive business to generate between $5 billion and $7 billion of free cash flow this year.

Unlike the stocks of small, unprofitable EV upstarts, GM's stock is probably not going to grow tenfold anytime soon. But it does come with a margin of safety, because the valuation does not depend on the company hitting or exceeding its long-term targets. Even if GM's profits grow much more slowly than the company expects over the next decade, the stock's rock-bottom valuation puts the odds in investors' favor.

With the market worried about a recession, now's a great time to pick up shares of GM at a beaten-down price.