Barra: “Taking decisive actions”
DETROIT — What does General Motors need to do to get into Wall Street’s good graces?
It’s a question that has plagued the automaker since its post-bankruptcy initial public offering in November 2010, when its fresh shares were priced at $33 apiece.
Record profits, increased sales and billions of dollars in stock buybacks and strategic investments in hot Silicon Valley startups helped keep the shares moving, but never for a sustained period nor as high as company executives expected. Many investors, applying the standards for traditional automakers rather than tech innovators and disruptors, doubted GM’s ability to survive a downturn as it ceded market share and retreated from international markets.
“We do believe GM’s stock is undervalued and we are taking decisive actions to address this,” GM CEO Mary Barra said a year ago ahead of the automaker’s annual meeting.
Those actions appear to be working. A series of tech announcements involving electrified and autonomous vehicles in the last year have GM finally gaining traction on Wall Street, in terms of price and perception. The clearest and most impactful sign of that evolution was a multibillion-dollar tie-up with SoftBank Vision Fund, a prominent technology investor, on May 31. The pact calls for SoftBank to invest $2.25 billion for a 19.6 percent stake in GM’s self-driving vehicle operation — valuing GM Cruise at about $11.5 billion, above some analysts’ estimates.
That move sent GM shares up almost 13 percent — its largest single-day gain since the 2010 IPO. Shares of the automaker have now gained nearly 30 percent in the past year to $44.25, close to the highest price the automaker has achieved since the IPO. The gains come as Barra prepares to address shareholders at this year’s annual meeting Tuesday, June12, in Detroit.
The SoftBank deal was hailed by Wall Street investors as giving GM a “huge credibility boost” in the space — validating the company’s long-term strategy of speaking to shareholders not through raw sales volume and market share but with a track record of innovation and a keener sense of untapped opportunities.
“In our view, today’s announcement adds credence to GM’s position as a market leader in the EV/AV evolution,” Bank of America Merrill Lynch research analyst John Murphy wrote in a note to investors. He added, it “should ultimately drive shareholder value higher.”
David Whiston, an analyst for Morningstar, said the deal “quickly gives Cruise more capital to launch its AV business next year and helps GM’s stock by giving it a tech sector halo.”
It’s the kind of pat on the back GM wasn’t necessarily able to earn by pulling out of unprofitable markets and announcing investments in tech-savvy companies such as Cruise Automation and Strobe Inc. But having articulated a clearer vision of how those tech investments can open up new markets, GM is now the one earning those investments.
Whether that investor interest can be sustained remains to be seen. With each quarterly sales and earnings report, and with each product launch, comes another reminder that GM remains, at its heart, a producer of conventional cars and light trucks and depends for now on sales of pickups and SUVs for its profits, a pattern that once led to a world of trouble.
But the milestones in GM’s emerging businesses are becoming harder to ignore. Part of today’s bullishness comes from GM’s proven ability to mass-produce self-driving vehicles in one of its factories, mated with a plan to launch a driverless taxi fleet in 2019 — using vehicles without manual controls, pending regulatory approval — the first clear road map from any automaker on commercializing driverless technology.
Those plans, in addition to GM’s integration with Cruise Automation, which the automaker purchased in 2016, led SoftBank to come forward with the investment.
“We were blown away by the ability of the Cruise team to integrate quickly, to work through the integrated approach, which we believe is crucial to the success of this business,” said Michael Ronen, managing partner, SoftBank Investment Advisers. “That is, owning both the hardware and the software and being able to iterate them quickly as the technology improves.”