The hot money may still be swirling around Tesla (Tesla Stock Quote, Charts, News, Analysts, Financials NASDAQ:TSLA) but portfolio manager Gordon Reid says a far more solid bet in electric vehicles is General Motors (General Motors Stock Quote, Charts, News, Analysts, Financials NYSE:GM).
“We think GM has a long runway of success in front of them, for a variety of reasons,” said Reid, CEO of Goodreid Investment Counsel, speaking on a BNN Bloomberg segment on Thursday.
“They’re very heavily involved in the electrification process. By 2025, they will spend $27 billion on electrification and 40 per cent of their offerings will be electrified. Their cost structure is well in hand, their margins are very good, in fact, quite a bit better than than Ford’s. So we like the profitability situation at that GM,” he said.
The $91-billion market cap GM has seen a nice lift in its share price to start off the year, with the stock up about seven per cent already in 2022. That’s after an amazing 2021 where GM returned a huge 41 per cent. The auto sector has had its trials and tribulations in recent years but stocks generally did well last year in anticipation of a better year for sales compared to the pandemic shutdowns that infected 2020.
But supply chain constraints and a global chip shortage actually made the past year a mixed bag for GM, causing factory shutdowns and lowered production numbers. Taking a look at quarterly revenue so far, the company’s Q1 2021 saw revenue come in flat compared to a year earlier at $32.5 billion while second quarter revenue doubled its 2020 Q2 at $34.2 billion. For the third quarter, revenue was $26.78 billion compared to $35.48 billion a year earlier. (All figures in US dollars.)
“The quarter was challenging due to continuing semiconductor pressures. But it also includes very strong results from GM Financial, the recall cost settlement we reached with our valued and respected supplier and JV partner LG Electronics, and $0.3 billion in equity income from our joint ventures in China,” said GM Chair and CEO Mary Barra in a letter to shareholders in late October.
The market liked GM’s full-year guidance which management said would come in at the high end of its previous forecast, which was stated as within the $11.5 to $13.5 billion EBIT-adjusted range. 2020’s full-year EBIT-adjusted income was $9.7 billion.
But Reid said investors should be honing in on GM’s EBITDA multiples which position the stock very well in comparison to the general market — and incredibly well compared to electric vehicle company Tesla.
“[CEO] Mary Barra just before Christmas projected that by 2030, they will double revenues, which is about an eight per cent top line growth, very strong valuation and trading at about 6.5x Enterprise Value/EBITDA, so a very, very good valuation,” Reid said.
“From an investment standpoint here’s probably more risk on Tesla’s side. GM is at 6.5x and Tesla is about 95x — that just frames the differential,” he said. “Tesla’s done a fabulous job, but of course, you’ve got to marry the fundamentals of a business with the price that you pay for it. This is we do in our everyday lives, and I think Tesla is a very overvalued stock.”
“It’s a tough business in the investment world, and everybody makes their choices. At Goodreid, we’ve chosen to go with what we consider to be more mainstream companies with a lot of potential as opposed to going with more of a momentum investing company like Tesla,” he said.
For comparison’s sake, GM hit a sales peak in 2016 of 10.0 million vehicles sold worldwide, with that number falling off steadily to 6.8 million by 2020. Tesla has said it will have delivered 936,172 in 2021.
Earlier this week, Toyota announced 2.3 million vehicle sales in the United States for last year, beating out GM’s 2.2 million and marking the first time since 1931 that GM was not the top-seller in the US. GM’s US numbers were down about 13 per cent from 2020 while Toyota’s were up ten per cent, with Toyota’s gains reportedly due to better weathering of the semiconductor chip shortage.
Commenting on the EV sector and the race to get electrified cars to market, GM’s Mary Bara recently said that catching Tesla won’t be a problem and that GM will be the top-selling EV company in the United States by mid-decade. Bara said the soon-to-debut electric versions of the Chevy Equinox and Blazer SUV’s will do well in terms of affordability compared to other options.
“If you look at the auto market there is a huge volume segment in that $30 to $40,000 range. And when you look at where we’ve positioned the Equinox all the features it’s going to have and then the Blazer, they’re going to be in the sweet spot of where consumers are going to be willing to make that conversion to EV because they see the value and they see the opportunity and the vehicles are great,” said Bara on a CNBC segment on Wednesday.