The old time car manufacturers are mighty sick of watching their stocks continue to droop, and not just because of COVID. GM is currently around $26, down 22% since it went public in 2010. And poor Ford is down a whopping 60% since its most recent peak in 2011. Meanwhile Tesla is up 415% since just March of this year, and its market cap of $277B is almost eight times that of GM. And other EV would-be makers that haven’t sold a single thing except a rendering are seeing their stocks soar.
GM is in the process of launching a massive EV fusillade, some 20 models based on their new Ultium battery platform, starting with the unveiling of the Cadillac Lyric tonight (update: not available until late 2022). But it’s done nothing to generate the slightest of interest in investors. The solution: spin off GM’s EV ops, into a new entity? Generate investor enthusiasm? It worked for its Cruise automation investment, which GM spun off and then attracted several billions in investment from other companies, including Soft Bank, Honda and T.Rowe Price. Maybe call it Saturn?
Of course that leaves a few unanswered questions.
The idea was already floated internally once in 2018. And in response to a question on it, she indicated that it’s on the table.
From an autonews.com article:
Barra was publicly asked about it in light of Tesla Inc.’s soaring valuation and the easy access to capital that unproven EV startups such as Nikola Corp. have pulled off by merging with blank-check companies.
“Investors are telling us every day that they are willing to invest in electric vehicles,” said Emmanuel Rosner, the Deutsche Bank analyst who asked Barra about the idea of a spinoff on July 29. “But they are doing it with electric-vehicle companies, not legacy companies.”
Even Fisker, which had been written off and is still unable to secure a deal with VW for their new EV platform, has just raised hundreds of millions by merging with a special purpose public company. Same for Workhorse, the Ohio company that bought GM’s Lordstown plant and wants to build EV pickups there. And of course Nikola, with their ambitious plans for hydrogen and battery big trucks, and a rendering of a pickup, for good measure.
One way for GM to be better rewarded for its plans to roll out a wide range of EV models could be to spin off at least partial ownership of the operations and get investors to help foot the bill, Rosner said. It has earmarked $20 billion of investment for self-driving and electric vehicles by 2025.
“The biggest motivation in all of this is access to capital,” said Rosner, who rates GM shares a buy. “It’s the willingness of investors to give GM money over time.”
GM’s EV operations include an advanced battery lab that creates proprietary cell chemistry, a partnership with South Korea’s LG Chem Ltd. that just broke ground on a factory in Ohio and two assembly plants in Michigan that are dedicated to making EVs. The Chevrolet Bolt has been in production since 2016, and the automaker will unveil its battery-electric Cadillac Lyriq crossover Thursday evening. Barra has vowed to have at least 20 EVs for sale globally by 2023.
But there’s two very real risks: Unlike Tesla, which has been profitable this year, and has been cash-flow positive for a couple of years, GM’s EV operations might well be big money losers, as literally every EV program by other car makers is. It might expose a painful truth about just how hard it will be to not only sell EVs, but sell them profitably.
As an example, just yesterday Audi cut the price of its slow-selling e-tron by a cool $9,000. And unlike Teslas, the e-tron still qualifies for the federal $7,500 tax credit. That had been dubbed one of the “Tesla Killers”. And how great of a loss is Audi taking on each e-tron sold in the US? It was probably quite big even before the price decrease.
The other risk? Once GM spins off its EV ops, who will still be interested in owning shares of the legacy company?
Note: Saturn was not spun off; it was a 100% owned subsidiary. But a lot of consumers were not aware of that.