Announcing their partnership last Tuesday, it was clear what Nicola got — manufacturing, batteries, purchasing power, and perhaps recognition. But GM found something even more important: trust.
For years now, General Motors (Ticker: GM) has been trying to convince investors that its suite of new technologies should convert to price / income several times higher than its current single-digit.
(GOOGL) -Found Waymo and
(TSLA), among others. The unit is valued at approximately $ 19 billion based on recent investments
(HMC). This is 44% of GM’s current market capitalization.
GM has more than Cruise as Nicole (NKLA) announcement makes clear. The upstart truck manufacturer is bypassing its battery and fuel cell technology, citing the scale and cost savings of GM’s Ultium battery platform.
GM does not make batteries – no electric-vehicle company fully does. Come from gm
(051910.Korea), while Tesla sources its battery manufacturing technology
(4 (52.Japan) – and in this process there are industries receiving per-charge EV range in the EV range.
But EV manufacturers have to combine the batteries with software and hardware to make a working EV powertrain. It is like combining a gasoline engine with its transmission, fuel and exhaust systems. For GM, the Nikola deal indicates that it could compete with Tesla on battery costs and technical prowess as well.
If the battery decision was a surprise, Nicola’s decision to buy fuel-cell technology from GM was a real shock. GM doesn’t talk much about its Hydrotech fuel-cell platform – Hydrotech had not issued a press release on its website since 2017 – but Nicola plans to use it in its fuel-cell-powered trucks . Truck companies such as Cummins (
) And like fuel cell providers
(PLUG) talk about a hydrogen future. But the topic doesn’t come up much on the GM investor call.
It will happen now. A Wednesday research report by Morgan Stanley analyst Adam Jonas also thought that if GM had a “stable of potential unicorns”, referring to the name given to privately held billion-dollar tech startups. Nicola’s shares rose 41% on the day of the deal, while GM stock rose 8%.
“[Tuesday’s] The strong share price response…. According to Gaurav reflects the market’s growing confidence in the broader narrative surrounding GM’s desire to detect hidden price unlocking, ”Jonas wrote.
But what is that business worth? Jonas, for one, believes investors may begin to see GM as a supplier to the EV and trucking industry. Traditional automotive suppliers trade at higher multiples than auto manufacturers.
(MGA), for example, trades at nine times 2021 earnings estimates, while Optive (APTV) and
(GNTX) trades 23 times and 15 times respectively. An average supplier would sell multiple GM stock at around $ 30, up from about $ 30, seven times less than the current multiple.
There may be a better way to unlock the value of GM’s technology – and it should trade like a tech-heavy platform company with products for its internal consumption as well as third-party customers. The best approach might be to separate it from GM’s legacy car and truck business.
RBC analyst Joseph Spack took a tight grip on the value he created to drive out GM’s tech businesses. He estimates that GM’s electric-battery can be traded at up to $ 19 per share, while Ultium could be valued at $ 13 per share. This leaves GM with the cruise and its base car and truck business, which today generates all of the company’s profits. The rest of the new company can trade about $ 40 per share – $ 10 more than GM trades for today. Overall, in a best-case scenario, Spack’s valuation gets more than $ 70 per share to GM investors.
There is another option, says Spack. “The ideal situation would be that the market eventually appreciates what GM is doing and considers it more equal
[WMT] Being able to compete with
[AMZN] As opposed to a traditional company spinning its online and / or dotcom business, ”he writes. “But this will require high investment and abandon earnings and cash flow to switch all electric fast – a classic innovator’s dilemma.”
Investors expect GM CEO Mary Barra to be in a dilemma. The Nikola partnership is the first phase of that process. More announcements will build more confidence, which can turn into a higher GM share price.
The analyst community believes GM can do this. About 90% of the analysts covering the company’s rate bought a share, compared to just 55% for the average share
Dow Jones Industrial Average
Both Jonas and Spack Rate GM bought equal shares, with a share price target of $ 46 and $ 44, respectively.
Write Al Root at [email protected]