Warren Buffett Owns 40 Million Shares of This Automaker -- Is It Poised to Pop?

When Warren Buffett talks, investors tend to listen. When Buffett buys and sells stocks, thousands of people follow and track every move. For investors trying to ride the future wave of autonomous and electric vehicles, glancing at Berkshire Hathaway's holdings could give insight to which automaker the Oracle of Omaha favors.

While the list of stocks Berkshire Hathaway owns is a who's who of massively successful companies, only one is an automaker -- and it likely isn't the one you'd guess.

Top auto?

With the automotive industry headed toward a future of driverless vehicles and fleets of electric vehicles (EVs), investors might think Buffett would be invested in a company such as Tesla, or perhaps an up-and-coming EV maker such as Rivian.

Those are fine investments, no doubt, but Buffett actually owns 40 million shares of long-established auto giant General Motors (GM -1.68%). The truth is General Motors is well-positioned for the future, and more financially stable than young start-up EV companies. Here is one big example of how GM is poised to thrive going forward.

Funding the transition

At a time when many start-ups are feeling pressure from Tesla's EV price war, rising interest rates, and high sticker prices for EVs, General Motors has the luxury of a booming traditional automotive business powered by highly profitable trucks and SUVs. That generates plenty of cash to fund the transition to EVs and weather not only price wars, but the high cost of developing EV technology in the early stages.

Currently, GM anticipates EV production capacity of 1 million in North America by the end of 2025 with EV revenue of roughly $50 billion, and at low to mid-single-digit profit margin based on earnings before interest and taxes.

While GM is pouring billions into its EV strategy, the company just delivered a strong second quarter and raised its 2023 net income guidance from a high end of $9.9 billion to a high end of $10.7 billion. It also raised its adjusted automotive free cash flow from a high end of $7.5 billion to a high end of $9 billion.

Cruising to a new future

Beyond simply funding the expensive transition to EVs, General Motors has also developed other businesses for the future.

Let's start with this: GM expects to double company revenue to a range of $275 billion to $315 billion by 2030, with roughly half of its compound annual growth rate generated from new business and software. Those new businesses are targeting margins above 20% by the 2030 timeframe -- much richer than the traditional automotive margins.

Cruise, General Motors' autonomous robotaxi company that it owns 80% of, is one example of a new business and is far from being all show and no go. In fact, a report from Guidehouse Insights covered 16 companies that are focused on developing Level 4 automated driving systems and ranked Cruise with Mobileye, Waymo, and Baidu as the industry leaders.

The great news is that while Cruise has developed under the radar for many investors, it's accelerating its progress. Cruise's operations needed 15 months to achieve 1 million fully driverless miles, but only 49 days to move from 2 million driverless miles to 3 million as it continues to scale.

Cruise is expanding its markets outside of San Francisco and is on pace to generate above its $1 billion revenue goal by 2025. More importantly, Cruise decreased its cost per mile over the last six months by roughly 15%.

The bottom line

Not only is General Motors pouring billions into its future EV lineup, as well as developing its Ultium EV platform that will help reduce costs and improve profitability, but it's easily funding this through its traditional business.

On top of that, GM is expanding to more potentially lucrative businesses such as Cruise. It's also developing BrightDrop, which is focused on helping businesses meet consumer demand for last mile services -- and it has already partnered with such big names as Walmart, FedEx, Hertz, and Ryder, among others. BrightDrop is targeting $5 billion in revenue by mid-decade and up to $10 billion by the end of the decade.

Ultimately, there's a lot to like about General Motors' stability and potential going forward as the automotive industry rapidly evolves, and so it's no surprise that it's the one auto stock Warren Buffett owns. If it reaches its lofty goals with new businesses and drives its Cruise robotaxi business closer to profitability, there's plenty of upside for GM stock in the years ahead.