Warren Buffett once quipped that it would be wise for investors to be fearful when others are greedy, and greedy when others are fearful. As the automotive industry is on the cusp of major evolution with autonomous driving vehicles, vehicles as a service, and the transition to electric vehicles, what does Buffett dumping 45% of Berkshire Hathaway's holdings of General Motors (GM -0.24%) mean?
Is it time to panic? Let's investigate.
One man's trash...
It's not enjoyable to own shares of a stock that the world's most famous investor dumped 45% of. But when you dig into what actually happened, it's really just Buffett putting his money where his mouth is, per his previously mentioned quote.
Since the first quarter of 2020 when the automotive industry tanked due to uncertainty surrounding the COVID-19 pandemic, GM has been held by a range of investors. Its low point was having only 52 funds owning GM in that previously mentioned 2020 first quarter.
That was the lowest number of funds holding GM since 2013, and since the first quarter of 2020 the most funds holding GM was 92, before leveling out to 75 funds in the first and second quarter of 2023.
So when others were fearful of holding GM during the pandemic, who was busy buying shares? You probably guessed it: Warren Buffett. Berkshire Hathaway's number of shares peaked at 80 million during the pandemic, and as GM shares rebounded Buffett began selling off shares.
This graphic shows how excellently timed his investment was, while others were refusing to own GM.
Graphic: by author. Information source: Insider Monkey.
That graph looks a little complicated at first, but simply note that the funds owning GM increased as its stock price increased, while Buffett's shares of GM peaked when the price was low and he sold when the price was rising.
People can sell stocks for many reasons, and while Buffett shedding 45% of his holdings in GM seems bearish at first glance, it's really just a wise investor investing exactly how he preaches: buying when others are fearful, and selling when others are getting greedy.
It's also fair to note that other factors could have come into play. There is ongoing Union Auto Workers (UAW) negotiations, which could reduce Detroit automakers' profitability. Or it could simply be that GM's stock has failed to rally as high as many investors hoped.
What about GM?
As far as GM goes as an investment, there's plenty of upside if management can capitalize on generating new business and smoothly transition from relying on internal combustion engine sales to EVs.
In fact, despite being a massive global automaker, GM expects it can double company revenue to a range of $275 billion to $315 billion by the end of this decade. Here's the kicker: It expects half of that annual growth to be generated from new businesses and software that come with higher margins than the traditional car selling business.
General Motors' autonomous robotaxi company Cruise is another example of exploring new revenue streams. Cruise is no joke, and the company was rated as an industry leader among the likes of Mobileye, Waymo, and Baidu, according to Guidehouse Insights, which ranked and covered over 16 companies.
Of course, we can't forget the transition to EVs. GM recently announced that through the second half of 2023 it will begin production of several new EVs based on the all-new Ultium platform. GM began developing the Ultium EV platform in 2018, and it's designed to be used in production of a wide range of vehicle sizes and segments. The wide range of the platform will help streamline production and improve its supply chain, helping push toward more profitable EVs.
A natural move
Ultimately, Buffett selling his shares isn't necessarily a bad sign. It's likely an investor winding down the end of an investing thesis that began years ago, at a time others are greedy. GM does have many things going for it, and has raised guidance this year as its current lineup of vehicles is driving strong financial results, enabling the company to fund an expensive transition to the future of EVs.
