CEO Warren Buffett's Berkshire Hathaway published its stock holdings in its latest 13F filing on Aug. 14, providing an update on what stocks the investment conglomerate bought and sold in the second quarter. Notably, the investment conglomerate significantly reduced its stake in General Motors (GM -0.14%).
Berkshire sold 18 million shares of GM stock in Q2, representing a 45% reduction from its previous holdings. Senior Wedbush analyst Daniel Ives believes the Oracle of Omaha's decision to dump the auto stock may have been driven by a "potentially bumpy" push into the electric vehicle (EV) market.
So is it time to give up on GM?
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Putting the big GM sale in context
After reducing its total equity holdings by $10 billion in the first quarter, it seems Berkshire continued to take a cautious approach to the market in Q2. It was a net seller of stocks in the period, with equity sales eclipsing purchases by $8 billion.
In addition to cutting its position in GM last quarter, Berkshire reduced holdings in Chevron, Activision Blizzard, Celanese, and Globe Life. The investment conglomerate also completely exited positions in McKesson, Marsh & McLennan, and Vitesse Energy.
Following the GM sale, Buffett's company owns 22 million shares of the auto giant's stock -- down from 40 million shares held at the end of this year's first quarter. Berkshire's total GM position is now worth roughly $727 million, representing just 0.2% of its total stock portfolio. Berkshire also significantly trimmed its stake in GM last year, dumping 10 million shares in the period.
Analyst Daniel Ives thinks that Buffett moved to reduce Berkshire's GM position due to the automaker's bumpy launch in the EV space. Plans to ramp up EV production this year have been stymied by the limited availability of battery modules, and there are other potential headwinds on the horizon.
The possibility that autoworkers will go on strike and concerns about economic trends may have also prompted Berkshire to reduce exposure to the stock. While many analysts now expect that the U.S. economy will avoid slipping into recession this year, there's still plenty of uncertainty on the horizon. Auto stocks tend to be poor performers in recessionary periods, and GM stock has already been a weak performer over the last half-decade.
But Ives doesn't think that the sale indicates the Oracle of Omaha has completely lost confidence in the stock. The analyst personally believes that the auto giant will be able to score wins in the EV market over the long term, and there are some reasons to be optimistic about its opportunities in the space.
Can GM's EV business deliver wins for shareholders?
While Tesla is the clear leader in the U.S. electric vehicle market, GM has now pulled into the second-place spot -- and it may be able to keep gaining on its top rival. Tesla has scored big wins by courting early adopters in the EV market who are willing to pay a premium for advanced tech and stylish vehicles, but pricing will be a key factor in continuing to make electric vehicles more mainstream. GM CEO Mary Barra sees delivering vehicles in the $30,000 to $35,000 price range as the key to driving the market forward.
With the Tesla Model 3 currently the cheapest vehicle in the company's lineup and starting at roughly $43,000 before tax credits, GM has a significant pricing edge. Its Chevrolet Bolt EV LT starts at roughly $27,500 before tax credits, and its Bolt EUV starts at about $28,800.
GM expects to have solved the battery module availability issue in this year's third and fourth quarters, and that it will be able to increase EV production. As manufacturing capacity improves and customers continue to shift toward electric vehicles, the company should have opportunities to gain market share.
GM PE Ratio (Forward) data by YCharts
Looking further down the line, GM is also making big bets on autonomous vehicle technologies and robotaxis. In addition to building and operating its own self-driving EVs and running robotaxis, it's possible that GM could wind up licensing its autonomous vehicle software. Of course, there's speculation involved in charting how these initiatives will pan out.
When Buffett and the analyst teams at Berkshire make significant moves to reduce holdings in a stock, it's worth paying attention. GM could face some significant headwinds in the near term, but there are some longer-term opportunities that could wind up solidifying into big wins for patient shareholders.
Trading at about 4.3 times this year's expected earnings on the heels of some big sell-offs, the stock does not look prohibitively valued for those who see promise in the company's long-term EV strategy.
