In the Fools’ view, the company is making solid strategic moves: growing profits rather than just market share, and quietly gaining ground in the electric car and autonomous vehicle arenas. If you believe in the bull case for those aspects of the auto industry, their view is, this old-school automaker is better run (and trading at a far more attractive valuation) than Tesla.
A full transcript follows the video.
This video was recorded on Sept. 27, 2018.
Chris Hill: Question from Sean Lee, who writes, “I’m pruning my stocks, and I always get stuck on General Motors. I purchased the stock around two years ago because of their electric vehicles and their plans with Lyft and Uber. I was wondering if you could talk a bit more about GM’s business and their place in the market these days.”
Tim Hanson: GM is an interesting stock right now. Sean is in good company, owning GM stock. It’s a big position at Berkshire Hathaway. David Einhorn at Greenlight owns quite a bit of it. I think the idea is under, Mary Barra, the company has gotten rid of some unprofitable divisions. They’ve really doubled down on investing in quality metrics, like return on invested capital, growing their profit margin, and not just trying to grab market share. That was the strategy at the company not long ago, which is a good way to destroy value over time. Additionally, as Sean alludes to, they actually are — quietly, relative to somebody like Tesla — building a very interesting electric vehicle and autonomous car business. So, from a relative valuation perspective, yeah, I think you’re a lot better off in GM than you are in Tesla.
Having said that, the automotive industry is cyclical. It’s capital-consumptive. It might not strike me as the world’s greatest sector to be investing in, given that there are a lot of pressures out in the world. Particularly competitive pressures. In addition to Tesla and GM, obviously, you’ve got Ford, you have BMW, and so on and so forth. You have that new crazy company in China that’s making the bullet car or whatever it is.
If you’re a believer in autonomous driving, you think there’s a lot of economic opportunity there, and in electric vehicles, and you’re looking for something that does not cost on a valuation basis as something like a Tesla, and appears to be a little bit better run and more generous with shareholders in terms of capital allocation and dividends, I would say, yeah, GM is interesting. Like I said, you’re in good company.
Hill: You’re saying Mary Barra doesn’t have a Twitter account? She’s not spending three hours going on Joe Rogan’s podcast?
Hanson: I have not seen her smoke dope. I will say that. That’s not to say she hasn’t.
Hill: [laughs] As I said a couple of weeks ago, to me, it wasn’t even the smoking dope.
Hanson: Was it that it was a waste of time?
Hill: “Here’s a good use of three hours of my time!”
Hanson: Yeah. I saw a story yesterday where Tesla owners are volunteering at Tesla service centers to handle customer service for the company so they can try to sell more cars, and answer questions about how the car works, and so on and so forth. To me, that speaks so elegantly to both the bull and bear cases for Tesla. Yeah, they have rabid customers who are willing to drop what they’re doing to come help our business out. Great! Can’t fault Tesla for the vision. On the flip side, what is wrong with your business that you need a volunteer workforce?! [laughs] Something is wrong in the back office that it’s come to that! Now, it’s great that you have it. I don’t think there’d be thousands of people lining up at McDonald’s to start flinging burgers if they got into trouble. But they don’t need to!
Hill: I think you’re right. If it hasn’t already, that data point is showing up in bull cases and sell-side analysts.
Hanson: [laughs] Right! Both sides! “Told you so!”
Chris Hill has no position in any of the stocks mentioned. Tim Hanson owns shares of BRK-B and MCD. The Motley Fool owns shares of and recommends TSLA and TWTR. The Motley Fool recommends BRK-B and F. The Motley Fool has a disclosure policy.
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