Many investors dismiss General Motors (GM 3.50%) as a boring, legacy automaker. And to be fair, with innovative pure-plays on electric vehicles like Tesla (TSLA +3.94%) and Rivian (RIVN 0.10%) in the market, it's not hard to see why GM might seem this way by comparison.
However, General Motors might have more growth potential than you might think. It has been well publicized that the company is investing heavily in EV development, but that's just the tip of the iceberg. There are several pathways to long-term revenue growth and margin expansion in GM's arsenal. In fact, if GM simply meets the expectations of its management team, it could be a massive winner for investors.
Multiple pathways to growth
For starters, you may have heard that General Motors is investing $35 billion in EVs and for good reason. EVs have higher average selling prices than vehicles powered by internal combustion engines (ICE) and with excellent brand loyalty, GM is in an excellent position to grow into an EV leader. In fact, GM aims to scale its EV sales from $10 billion in 2023 to $90 billion by 2030. The company's proprietary battery platform (Ultium) not only gives it an advantage for its own vehicles, but has lots of potential to be used for third-party applications as well.
NYSE: GM
Key Data Points
There's also GM's software products, which currently bring in about $2 billion in annual recurring revenue (things like OnStar), and this could become a much larger part of the business in the next few years. GM's Ultifi software platform is designed to deliver over-the-air updates, apps, and more.
GM also has about 20 different opportunities which it refers to as "new businesses," the smallest of which has a $3 billion addressable market size. For example, GM estimates its defense business at a $25 billion market opportunity and believes its Brightdrop logistics business could generate over $10 billion in revenue by 2030. The company's On Insurance business is estimated as a $6 billion revenue opportunity by 2030 all by itself. Between software and these new businesses, GM sees $80 billion in high-margin revenue by the end of the decade.
Autonomous vehicle technology is another, and it's one that many investors don't appreciate the true potential of, especially when it comes to GM. According to Allied Market Research, the autonomous vehicle industry is relatively small ($76 billion in 2020) and is made up primarily of lower-level technologies like driver assistance. But it is expected to evolve rapidly, reaching nearly $2.2 trillion in size by 2030.
As the majority owner of Cruise, GM is in a great position to capitalize, with autonomous ridesharing and delivery services already in very limited rollouts. The company aims to rapidly scale these businesses in the next few years, and it's tough to overstate the potential. Autonomous rideshare is a trillion-dollar market opportunity all by itself that could ultimately revolutionize the way we get around.
If management can execute, a 10-bagger is possible
GM has generally traded at a single digit P/E multiple in recent years, and currently is valued at 6.6 times forward earnings. However, if it achieves the revenue mix and profit margins management thinks it is capable of, it could command a significantly higher valuation, especially if its growth momentum remains strong. But to be somewhat conservative, we'll assume a P/E multiple of 15, which is less than the current S&P 500 average.
GM's management estimates more than doubling revenue to $275 to $315 billion annually by 2030 ($295 billion at the midpoint). But it estimates that as much as 50% of auto sales will come from EVs at that point, and that software and new businesses will make up about 30% of total revenue. These two things could translate to net margins "in excess of 20%."
Based on a 20% margin and the midpoint of GM's 2030 revenue outlook, the company could be bringing in $59 billion in annual earnings by the end of the decade. Applying a P/E multiple of 15, this gives a market cap of $885 billion. That's more than 14 times GM's current valuation. And keep in mind that this doesn't take into account any dividends or buybacks that take place along the way.
There's a lot that needs to go right
Let's keep things in perspective. If we knew GM would be able to build out an autonomous ride-hailing platform with over 1 million vehicles, dozens of successful EV models, a next generation of its battery platform, a massive defense EV business, air freight services, and more, GM's market cap would be a lot more than $62 billion.
But we don't know that. There's a lot that needs to go well for GM to achieve the numbers it claims it can, and there will be tremendous execution risk along the way. However, even if GM doesn't quite live up to its own expectations, there are a ton of potential revenue drivers and as the EV side of its business grows, it should help drive both revenue and margins higher. GM is one of the largest stock holdings in my portfolio, and I can't wait to see what the company looks like in 2030. And in 2040 and beyond.
