GM’s Tesla pitch flags, but old tech is doing fine


The foam came out of General Motors GM -4.47%

‘ as cost inflation accelerated and the gap between its tech star aspirations and today’s reality widened. Value investors might consider this a good time to buy.

Detroit’s largest automaker’s first-quarter earnings, released Tuesday night, beat analysts’ forecasts thanks to vehicle prices that remain exorbitant. While GM’s sales edged up year-over-year as the semiconductor shortage eased, the main driver of revenue growth was the average transaction price, which at retail level in the United States, was $10,200 higher than the same period last year.

However, the financial benefit to GM was entirely swallowed up by cost inflation, leaving underlying earnings at a healthy but stable level. The company has not significantly adjusted its full-year guidance, implying little to no earnings growth this year.

This loss of momentum is one reason why investors have generally cooled on automaker stocks this year. The other is that the enormous challenge traditional manufacturers face in catching up with Tesla on scaling up electric vehicle production has become clearer as the cost of battery metals such as lithium, nickel and cobalt exploded. GM has been louder than most about supporting the electric vehicle pioneer, perhaps making it more vulnerable to this burgeoning awareness. Its shares are down nearly 40% this year, more than its peers.

GM has tried to respond to fears of not being able to manufacture all the electric vehicles it wants with a strategy of vertical integration: investing “upstream” not only in the manufacture of batteries, but also in components or resources to limited supply that go into the batteries. or other parts of the EV powertrain. The most recent deal announced was with Swiss mining giant Glencore,

which produces cobalt, and GM CEO Mary Barra suggested in Tuesday’s call with analysts that she was working on something similar for nickel.

Such agreements show that the company is asking the right questions, but they will not provide satisfactory answers. Automakers’ electric vehicle production goals require more resources than are likely to be available in practice, says Caspar Rawles, chief data officer at Benchmark Mineral Intelligence, a data provider covering the lithium-ion battery supply chain. ion. Given the coming crisis, investors are right to give companies little credit for their good intentions.

GM’s other big tech bet, driverless vehicles, has also lost some of its luster lately. Last month, the company increased its stake in its majority-owned robotaxi business, Cruise, to a valuation of around $19 billion, according to Deutsche Bank.,

well below the $30 billion of its previous fundraising, after the withdrawal of co-investor SoftBank. GM’s latest results contained a charge of about $1.1 billion to compensate Cruise employees for not going public with the company. These are the costs of trying to keep up with Silicon Valleyit is

Detroit stock options game.

Still, the string of bad news makes it a smart time to consider a longer-term investment in GM. At $38, the stock now trades at 5.5 times forward earnings, at the bottom of its historical valuation range. A market value of around $55 billion places virtually no value on the company’s roughly 80% stake in Cruise. And if supply chain issues are delaying the mass arrival of electric vehicles, that’s no bad thing for the conventional auto industry, which remains strong.

However, with its hopes of being a 21st century technology company coming to fruition, GM could continue to generate big profits from pickup trucks and sport utility vehicles for years to come.

Ford and GM recently introduced their first electric pickup trucks. WSJ automotive reporter Mike Colias breaks down the different strategies the two mainstream automakers are pursuing to market their electric vehicles. Photo illustration: Alexander Hotz/WSJ

Write to Stephen Wilmot at stephen.wilmot@wsj.com

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