Tires. Engines. Exhaust pipes. The auto business and an investment in General Motors Company (NYSE:GM) seems downright old-fashioned.
But over the next five years, the automotive industry is likely to change more than it has in the past 50. And GM stock is on the forefront of the evolution. Savvy investors who get in on the start of this change could make a fortune.
Let me explain…
Aside from a bankruptcy a few years ago, you would never use the word “exciting” to describe GM stock. Shares, after all, have been stuck in the doldrums for the better part of five years. However, GM’s CEO Mary Barra could be cooking up something to change that.
Last week, Barra announced a new division that will focus on developing self-driving and electric cars. Having recently unveiled the “Chevrolet Bolt” at the Consumer Electronics Show (CES) in Las Vegas, GM is paving the road for electric mobility and related technologies. It has appointed a special team focused on the development of this segment. Doug Parks, who once headed global programs, will lead the new team. (Source: “GM Assembles Dedicated Autonomous Vehicle Development Team,” Forbes, January 29, 2016.)
Parks reports to Mark Reuss, the head of GM product development and president of GM stock. Parks has already gained considerable experience in the areas of EV and driverless technology.
General Motors will invest some $4.5 billion into new electric and hybrid-electric vehicle research and development (R&D).
GM has many competitors, so the company is not taking the challenge halfheartedly. GM stock will benefit from what is the company’s largest ever investment in R&D for electric vehicles. This will help GM understand the nature of global demand for more efficient and cleaner vehicles.
GM Is Finding a New Market
The fact that GM has chosen January 29 to make the announcement is rather auspicious.
This date marks the 130th anniversary of the automobile. It was on January 29, 1886 that engineer Karl Benz patented his “Motorwagen,” the mother of all cars. It was actually a tricycle, driven by a single-cylinder, four-stroke, 577 cc engine producing 0.75 horsepower.
With GM’s launch of the new Bolt at CES, this should signal that the company is eager and willing to adapt to a changing industry. Electric-powered and self-driving automotive technology is re-shaping the industry. The trend is irreversible and GM stock is staying at the forefront.
At CES, GM launched its new ride-sharing platform called “Maven.” The new brand will compete with ZipCar starting this February in Ann Arbor, Michigan. It will expand to other major U.S. metropolitan areas later in 2016. (Source: “General Motors targets car-sharing market with ‘Maven’,” CBC News, January 21, 2016.)
The Maven venture complements GM’s $500-million investment in the Lyft ride-hailing company.
“We see significant opportunity as that change occurs… We very much as a company want to make sure we’re at the forefront of that,” GM President Dan Ammann told CBC. (Source: Ibid.)
The company is confronting both the higher R&D costs and the politically correct charged prejudice against private transport. Meanwhile, the auto industry has to face much lower operating margins. In short, GM stock can find strength in the fact that the company has not only entered the automotive revolution, but is also looking for ways to lead it.
Electric cars and self-driving technology offer more safety and comfort. In other words, these technologies will drive the automotive market forward by offering what consumers want most. GM stock will benefit from the company’s electric R&D program. It will pursue engineering solutions tailored to make the most of the opportunities in markets where it is present.
In this sense, GM is taking a cue from Tesla Motors. GM wants to make electric propulsion more affordable and more practical. It wants to offer customers innovative buying and ownership experiences. In fact, General Motors is challenging Tesla Motors.
Is GM a Threat to Tesla?
GM has a different vision of how to adapt the new technology for the market and the new Bolt EV will take the fight directly to Tesla’s “Model 3.”
The Bolt will reach full capacity and Tesla could be paying the price for being “first” under the weight of higher competition. GM’s low-cost Bolt has just as exclusive technology as the Tesla “Model 3” will. Reuss stressed that GM would adopt a different “electrical architecture” for its EV lineup. (Source: “This is the production Chevrolet Bolt,” Autoweek, January 7, 2016.)
GM has also made EV technology cheaper. Its lithium-ion (Li-ion) batteries are cheaper than the competition’s at $145.00 per kilowatt hour (kWh). These are close to Tesla’s costs and lower than other manufacturers. However, by 2020, those costs could fall to $100.00 per kWh. (Source: “How GM plans to beat Tesla,” Yahoo! Finance, October 19, 2015.)
GM stock will appreciate thanks to the new Bolt EV. It is sure to give Tesla’s Model 3 a run for its money. The Bolt has it all: lots of advanced technology, a price in line with expectations ($30,000), and a 200-mile range, which is more than enough for daily use.
Moreover, GM is hardly a new player in the EV market. GM brings all the experience it accumulated in the “Volt” and “Spark” to the Bolt at a mainstream price.
The Bolt EV is able to go from zero to 60 miles per hour in seven seconds. Its interior features a central 10.2-inch touchscreen featuring the Chevrolet “MyLink” infotainment system. The Bolt also has another interesting feature called “Surround Vision.” This gives the driver an overhead view of the car, useful while parking or while traveling in town at low speed.
According to Mary Barra, the Bolt is the “first electric for the masses.”
Forget about being old-fashioned. GM is fast becoming a technology company that’s on the cutting edge. Maybe it’s time to value GM stock as such.