General Motors (GM): Growing Optimism Over the Self-Driving Opportunity
We originally featured GM as a Long Idea on 3/15/18. At the time of the report, the stock received an Attractive rating. Two key elements of our thesis were:
- A valuation that implied an immediate 50% decline in after-tax profit.
- Self-driving and electric vehicles represent an opportunity for GM, not a threat.
The market sees self-driving cars as a threat to incumbent automakers. We believe they represent an opportunity for General Motors (NYSE:GM) to grow its business even further.
We’re not alone when it comes to optimism over GM’s self-driving opportunity. Last week, GM announced that Softbank plans to invest $2.25 billion in its autonomous vehicle unit. GM’s President Dan Ammann put it best when asked about SoftBank’s investment, “I also think it’s a big recognition of the opportunity that lays ahead.”
SoftBank’s investment comes as Tesla faces scrutiny due to a series of crashes in cars using its Autopilot technology, another sign that GM poses a larger threat to Tesla than many once thought.
Since our original Long Idea report, GM has significantly outperformed as a long position, rising 15% compared to a flat S&P 500. Despite its outperformance, GM remains undervalued, and this latest positive development leads us to add it to our Focus List – Long Model Portfolio.
Figure 1: GM vs. S&P 500 – Price Return: Successful Long
Sources: New Constructs, LLC and company filings
Note: Gain/Decline performance analysis excludes transaction costs and dividends.
Disclosure: The author has no position or business relationship in any stock or company mentioned in this article. The author is not receiving compensation for this article. This article is intended for informational and entertainment use only, and should not be construed as professional investment advice.