Wall Street has seen many incumbents overtaken by high-tech upstarts, so it's easy to assume the old guard companies are relegated to mediocrity or decline. However, this mentality has led investors to mostly miss the technical advancements at General Motors (GM) and its prime positioning for the future.
GM has an ambitious vision, which it projects can double revenues by the end of the decade. The company's under-appreciated technological advancements and business potential make GM's shares a compelling investment opportunity.
For a company to double revenues in nine years can be seen as merely growing at 8% a year, hardly noteworthy and easily dismissed among fast-growing peers. This misses GM's transformation under the hood. As GM transitions to electric vehicles, it's moving into higher-margin areas of autonomous driving, software and services.
For starters, Wall Street is completely missing the value and technological sophistication of GM's autonomous driving subsidiary, Cruise, which in a few years could easily be worth more than all of GM's current market cap. GM owns about 75% of Cruise, with most of the remaining stake held by Honda (HMC) , Walmart (WMT) , Microsoft (MSFT) , and SoftBank (SFTBF) .
Cruise is moving out of the development stage and is on the cusp of commercializing two important initiatives with a plan to scale autonomous technology worldwide in driverless delivery and robotaxis.
Cruise is currently running a pilot autonomous delivery service with Walmart in Arizona and seeking final approval to commence an autonomous taxi service in San Francisco. Services are rolling out with retrofitted Chevy Bolts but in coming years will transition to a purpose-built vehicle, Cruise Origin. A deal for a robotaxi service has already been signed with Dubai starting in 2023.
The potential for these scalable, high-margin generating services is significant and mostly overlooked by Wall Street. Plus, Cruise's technology can help GM to a competitive advantage by selling EVs with advanced autonomous driver functionality.
There are logical reasons to separate Cruise as a public company in the future, with GM either retaining a stake or spinning off the unit entirely to shareholders. A separate public company would potentially facilitate more efficiently raising funds, compensating Cruise employees with stock options, and helping all stakeholders realize the entity's value. Now that commercialization at Cruise is set to begin, it doesn't take much imagination to value the company higher than $30 billion, the buy-in price of the last investment round in January.
There's Much More
Cruise is not the only reason to buy GM.
The company is making massive investments and competitive strides in EVs, and has plans to roll out 30 models by 2025. Wall Street is unwilling to give credit up front for GM's progress in EVs for several reasons, including the black eye the company sustained for recalling 140,000 Chevy Bolts to replace potentially defective batteries. Fortunately for investors, this leaves the shares cheap and the investment opportunity intact.
GM and LG Chem have made strides in creating a battery platform, Ultium, with an improved architecture that simplifies manufacturing and significantly lowers costs. The Ultium battery chemical construct uses 70% less cobalt than current cells while expanding battery capacity by over 50% by increasing the energy density. The continuing evolution of efficiencies on the Ultium platform will help GM's competitive positioning in years to come.
Lastly, GM has set up a new company, BrightDrop, to target the e-commerce delivery market with EVs. The vision to create an end-to-end ecosystem of software and services is nascent but developing rapidly into commercialization with initial orders from FedEx (FDX) and Verizon (VZ) .
A Re-Rate Is in Order
Wall Street has anointed EV upstarts such as Rivian (RIVN) and Lucid Motors (LCID) , willing to pay 10-20x sales for potential revenues in 2023, valuing these companies close to or above GM's market cap. You'd be hard-pressed to find much premium from new sources of high-value revenue in GM's stock, which trades at 0.75x sales with a P/E under 10.
With the prospect for Cruise to become a better-recognized asset, including autonomous services and providing GM high-value software and services to include in passenger vehicles, all the pieces are in place to re-rate the stock to a higher multiple.
There's an opportunity to buy before Wall Street starts to appreciate how well GM is positioned for the future.