GM: Is GM the Newest Clean Energy Stock?

A substantial rally in GM shares over the past year
TSLA could buy GM and another US automaker and have plenty of change to spare
An announcement on clean energy at GM
The shares take off on the upside
Long GM could be the way to go as the company responded to a greener path to energy consumption

On January 20, 2021, Joe Biden became the forty-sixth President of the United States, replacing Donald Trump. Then former President’s administration advocated for a drill-baby-drill and frack-baby-frack energy policy. The United States became the world’s leading crude oil producer, with daily output peaking at 13.1 million barrels per day in March 2020.

With the support of a majority of Democrats in the House of Representative and the Senate, President Biden is taking another, greener path towards energy. On his first day in office, he issued an executive order rejoining the Paris Climate Accords. The President canceled the Keystone XL pipeline that transports petroleum from Canada’s oil sands into the United States. He will ban fracking on federal lands. The move away from hydrocarbons will not happen overnight. It appears the plan is the slowly reduce supplies while technology addresses the demand side of energy’s fundamental equation.

Last week, General Motors altered its car manufacturing for the coming years. GM, one of the top ten automakers globally by volume and market capitalization, announced it would only produce EVs or electric vehicles by 2035. GM is morphing into a company that supports the green energy revolution.

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Note that GM is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.

A substantial rally in GM shares over the past year

Going into 2020, the range in General Motors (GM) shares since 2010 was $18.72 to $46.76. At the end of 2019, the stock closed at $36.60.

Source: Barchart

The chart shows that GM shares fell to a low of $14.32 in March 2020 as risk-off conditions hit the overall stock market and markets across all asset classes. The global pandemic pushed prices to unsustainable lows. Since then, the stocks not only recovered but rose to a new high, eclipsing the October 2017 high at $46.76. The shares closed 2020 at $41.61 after falling just shy of the previous peak when it traded $46.71 in November 2020. In January 2021, GM eclipsed its late 2017 high as the market got wind of a change in strategy that addresses US energy policy and climate change caused by automobile emissions.

TSLA could buy GM and another leading US automaker and have plenty of change to spare

At the end of last week, General Motors was the seventh leading automaker in the world by market capitalization.

Source: https://companiesmarketcap.com/automakers/largest-automakers-by-market-cap/

The chart highlights that GM’s market cap at $77.87 billion is under 10% of the leader, TSLA’s at $807.82 billion.

Based on the current valuation levels, Elon Musk’s Tesla (TSLA) could buy General Motors and Ford for under $124 billion, which would be less than 16% of TSLA’s current valuation. Ford (F), the third leading US automaker, had a $45.79 billion market cap. Toyota, the second leading car manufacturer’s market cap was below $211 billion, nearly one-quarter TSLA’s.

TSLA has been a phenomenon as its EV’s have captured investors’ loyalty. Many owners of TSLA shares are likely investing in Elon Musk, the visionary, rather than the automobile manufacturer, per se. Mr. Musk created a brand that reflects the shift in consumer demand and environmental concerns in lockstep with US and global energy changes. Moreover, TSLA is a lot sexier than GM or Ford in the United States and worldwide.

An announcement on clean energy at GM

On Thursday, January 28, General Motors announced it set a goal for all of its cars, SUVs, and light pickup trucks with zero tailpipe emissions by 2035. The shift away from gasoline and diesel engines fits into US energy policy changes under the Biden administration. GM remains the largest US automaker by production, and it is following a greener path to address climate change.

GM said it plans to become carbon neutral by 2040.

General Motors sold 2.55 million vehicles in the US in 2020. Approximately 20,000 were EVs. Late last year, the company said it was investing $27 billion in electric and autonomous vehicles over the next five years, an increase of $20 billion designated before the worldwide pandemic.

The company’s chief sustainability officer, Dane Parker, said, “Setting a goal for us 15 years from now is absolutely reachable.” A few days before GM’s announcement, US President Joe Biden pledged to replace the US government’s 650,000-vehicle felt with electric models.

The shares take off on the upside

As the market got wind of GM’s strategic shift, the stock moved to a new high.

Source: Barchart

After closing 2020 at $41.64, GM shares exploded higher to $56.97 on January 21, a week before the formal announcement. At the end of last week, the stock settled at the $54.41 level.

Under CEO Mary Barra, GM has consistently beat consensus analyst EPS estimates over the past four quarters.

Source: Yahoo Finance

The chart shows that GM reported a profit in three of the past four quarters but beat the forecasts in all four. GM lost money in the challenging second quarter of 2020 as the financial impact of COVID-19 peaked with lockdowns, job losses, and business closures. GM will report Q4 2020 earnings on February 10. The consensus forecast is for EPS of $1.63. A survey of seventeen analysts on Yahoo Finance has an average price target of $58.71 per share for GM, with forecasts ranging from $27 to $80.

Meanwhile, the other leading US car manufacturer, Ford (F), completed a six-year deal with Goggle Cloud and Android for in-car entertainment and other car services in early 2021. The company is also investing billions in shifting towards green vehicle production.

Long GM could be the way to go as the company responded to a greener path to energy consumption

GM and Ford could be takeover candidates at or near the current market caps. Mary Barra is a proven and effective leader at GM as she pushed the company to accept a green future even before Joe Biden became the President on January 20, 2021.

Elon Musk has his finger in three pies and his mind in many more. TSLA is his publicly-traded company. SpaceX and The Boring Company are promising businesses that have the potential to make Mr. Musk not only the world’s wealthiest person but the first trillionaire.

I could envision a scenario where TSLA’s CEO arranges a marriage with GM to capture the brand and its CEO so he can step aside and concentrate on space conquests and boring energy-saving tunnels worldwide.

The shift in GM’s production is bullish for the stock. The potential of a takeover could be explosive as a marriage between TSLA and GM would have a dominant market share together with one of the world’s leading brands. Mary Barra and Elon Musk should discuss what could be a merger with exponential results for both CEOs.

Meanwhile, GM became the latest green energy stock with its EV pledge by 2035.

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GM shares were trading at $56.05 per share on Tuesday morning, down $0.83 (-1.46%). Year-to-date, GM has gained 34.61%, versus a 4.39% rise in the benchmark S&P 500 index during the same period.

About the Author: Andrew Hecht

Andy spent nearly 35 years on Wall Street and is a sought-after commodity and futures trader, an options expert and analyst. In addition to working with StockNews, he is a top ranked author on Seeking Alpha. Learn more about Andy’s background, along with links to his most recent articles. More...