Well, that did it. Wednesday's market movements finally pushed us into the Bizarro World. It's bad enough that the market was celebrating the primary election success of a candidate, Joe Biden, who on Monday bizarrely predicted big wins on "Super Thursday," but individual company news was even more puzzling.
General Motors (GM) bizarrely, or Bizarro-ly, has decided to go all-in on selling battery-electric vehicles (BEVs) despite the fact that nobody is buying their current BEV model, the Bolt. GM sold all of 16,418 Bolts in 2019, a total that fell short of the 18,109 Bolts GM sold in 2018. Also, GM's BEV models will no longer be eligible for the federal tax credit for EVs (the Bolt currently is eligible for a $1,875 rebate) as of April 1st. Tesla (TSLA) lost its credit on January 1st, but nobody knows the impact of that on Tesla sales in the U.S. because the company does not report unit sales figures by region. Yes, there are folks (sell-side auto analysts; I was one for 11 years) paid to tally such figures, but apparently they would rather join in some Bizarro competition to put the "highest on the Street" price target on Tesla than crunch numbers.
But Elon Musk gets enough attention, and so I will save the vitriol in the column for GM's Mary Barra. To start research, as most do, I went to GM's website which apparently has gotten a makeover since the last time I checked. It's like some Bizarro Blade Runner promotion with only two pictures of GM products, one of the Bolt (which, as mentioned above, virtually no one is buying) and what appears to be a four-door 2020 Silverado, which I have driven and found to be a very nice product.
But clicking on the picture shows that it is not an ad for that Silverado, but for GM's Dynamic Fuel Management technology. This type of cylinder cut-off system has been around since the 80s. Why are they hyping it now? If you don't believe me, watch the scene in Casino where Ace's car explodes. Thanks to IMDB.com I can confirm that Ace is sitting in a 1981 Cadillac Eldorado Biarritz. As Ace turns the key you can see the dashboard indicating the status of the car's V8-6-4 engine, which used "computers" to vary the displacement of the engines by cutting off power to its cylinders. THAT WAS 40 YEARS AGO!
But that's the key here. The V8-6-4 became known for its unreliability and as a young auto analyst in 1996 I drove GM's EV1, the first widely-produced electric car. That vehicle also quickly disappeared. GM has not innovated any automotive product or feature in the nearly 30 years that I have followed the company. So, why would they try now?
Elon must be laughing. By getting the established automakers to pour billions -- GM pegged its spending on EVs and autonomous vehicles at $20 billion over the next five years -- into his money-losing tar pit that he has convinced them to pull scarce capital away from their highly profitable North American light truck businesses.
Don't be fooled by accounting mumbo jumbo and year-end channel stuffing. Tesla lost $69 million at the operating line for full-year 2019 and then spent $650 million in interest expense on top of that. I believe Tesla's net loss, on a GAAP basis, will be in the range of $1 billion in the first quarter of 2020.
So, Barra is giving up the competitive advantage every public company should strive for -- profitability and return on capital. GM produced $6.7 billion in EBIT in 2019 vs. Tesla's $65 million EBIT loss. Instead Barra is pushing GM down a p.c. rabbit hole by spouting cliches about sustainability, the future of mobility and workforce diversity. It's sad. This is almost a hurtful statement among those who have followed auto companies for many years, but I am now starting to think Barra may even be clueless enough to work at Ford.
What should GM be doing with $20 billion? Buying back stock. Concentrating on getting the Silverado back in the number two spot in the highly lucrative full-size pickup niche after falling behind the Dodge Ram (FCAU) and even more distantly behind Ford's (F) F-150 in 2019 sales. Buying back stock. Expanding GM's line of hybrids to acknowledge the market reality and putting a share of resources into BEVs only in proportion to their weight (~3% in 2019; I estimate it will be 4%-5% in 2020 and 5%-6% in 2021) in global sales. According to the U.S. Department of Energy, sales of hybrids rose 16.8% in the U.S. in 2019, while sales of plug-in electrics -- yes, even including Teslas -- fell 9.6% in the U.S. last year. Buying back stock. Did I mention GM should be buying back stock?
It's the Bizarro World in the markets, with a completely feckless Fed and the Earth in the grasp of an utterly unpredictable pandemic. I guess the one thing that will always work, though, is a pairs trade with GM short and virtually any other stock -- except Ford -- as the long.
Again, It's sad.
