Time To Buy General Motors Stock?

Morgan Stanley’s GM Stock Predictions

After Jonas downgraded the automaker, slashing his price target in early February 2022, he cited a discouraging earnings outlook and worries surrounding the Chinese market. Jonas said GM’s 2022 adjusted earnings per share guidance, which was also released in early February.

Also in early February, GM released its 2022 adjusted earnings per share guidance between $6.25 and $7.25, well below Jonas’ forecast of $7.49 — this is what he blamed for his downgrade.

After Jonas’ remarks, the stock dropped by more than 6% before it pared down some of the losses down 2.3%, putting it on track for a fifth consecutive loss and its lowest close since September of 2021. 

Although GM unveiled plans to double its revenue by 2030 during its October Investor Day, Jonas believes the company will end up shrinking as time goes on. This is because he believes GM’s Electric Vehicle (EV) and autonomous growth avenues won’t be able to completely offset tapering sales of internal-combustion-engine vehicles.

During a February 1 earnings call, GM set a target of 400,000 new Electric Vehicle deliveries in the 2022-2023 fiscal year.

But, still, Jonas believes that Tesla will overtake GM and Ford’s combined revenue by 2027. He even called the low-growth auto industry a “zero-sum game.”

Yet, two potential positives surrounding GM remain:

1. Jonas’ updated price target of $55 is generating a lot of negativity. In turn, the bar to outperform has taken a plunge.
2. General Motors created the Ultium EV to optimize acceleration.

So, is now a good time to buy GM stock?

Here’s what Jonas had to say:

“We note that GM’s cash flow target of $7 to $9 billion is still very strong, but investors should anticipate GM to re-invest nearly all of its cash into developing its EV/battery manufacturing base.”

Jonas’ worries surpass General Motors alone. He’s becoming more cautious about the foreign OEM auto business’s outlook in China as competition increases and the Chinese auto market changes.

Warren Buffet’s GM Stock Predictions

Now, let’s take a look at what Warren Buffett, CEO of Berkshire Hathaway, thinks about whether or not GM stock is a buy.

Buffett’s thoughts weigh the company’s already inexpensive valuation and the multi-decade growth opportunity the company is on the cusp of more heavily and believes it could be a stock that patient long-term investors could buy confidently.

Opposite of Jonas, Buffett believes the push to electrify vehicles for consumers and enterprise fleets will yield strong growth for General Motors for a long time.

Of course, electrifying vehicles won’t happen overnight. But, the worldwide push to reduce our carbon footprint will continue to escalate. So, the growth of the EV industry is a no-brainer opportunity for investors who have a lot of time on their side.

GM’s On-Ramp to the Electric Vehicle

You may remember that GM’s Bolt EV batteries were recalled last summer, essentially sending the company back to the EV starting line. 

In December 2021, General Motors started making deliveries of the long-awaited electric Hummer and BrightDrop EV600 commercial van — both vehicles use GM’s new Ultium battery architecture, which was designed alongside a broad spectrum of drive units and motors to accommodate General Motors’ entire portfolio, from A (passenger cars) to Z (pickup trucks).

If this plan works, General Motors will be empowered with a competitive advantage of leveraging massive scale and capital efficiency. 

General Motors’ has a goal of 1 million EV sales in North America in 2025, which translates to about 240 million Ultium battery cells. But, still, the company only delivered 26 EVs in the fourth quarter of 2021.

Accelerated Vehicle Development

Although the company may still be playing catch-up after the production delay, GM’s single Ultium platform has a stark advantage: it’s allowing the the auto manufacturer to reduce the time it takes for vehicle development by 50%, which could allow them to catch up to their rivals pretty quickly.

In December, GM shipped the first five BrightDrop EV600 vans to FedEx — 20 months after GM started working on its new entry into the market for commercial delivery vehicles. The company also moved up its planned launch of the Cadillac Lyriq SUV by nine months. Production is slated to start this spring.

GM is also planning to start production of two more SUVs in the fall of next year. Included in the line-up is a $30K Chevy Equinox and a larger Blazer.

The $30K price tag is noteworthy because, along with a tax credit for Electric Vehicles — if the legislation is passed — the Equinox would be cheaper than most gas-powered SUVs, even before considering the gas savings.

Although General Motors has still not released any specs, including the Equinox’s range, it’s likely to generate excitement for the GM stock when it is unveiled later this year.

General Motors Earnings Guidance

In its latest earnings call, GM said it expects production volume to rise 25-30% compared to 2021 amid an improving chip shortage.

But, the company also highlighted accelerated investments and the potential for $2.5 billion in additional supply chain costs amid a strained global supply chain.

So, even though in the bigger picture, General Motors is generating the cash flow required to invest aggressively in its Electric Vehicle future, patience will be required for anyone investing in GM.

The Verdict: Is it Time to Buy General Motors?

With two reputable and respected investing leaders offering such drastically different opinions on whether or not GM is a buy, what’s an investor to do?

To break it down as simply as possible, if you’re a young investor with several decades to spend, GM is probably a good buy for you. But, if you’re an older investor or looking to make a significant short-term gain, you may want to look elsewhere, like Tesla stock.

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