General Motors (GM) shares are on a roll this week, hitting an all-time high and gaining an astounding 17% over the past five days.
Fueling this push was a big week for the automaker at CES, where CEO Mary Barra outlined an ambitious plan to release 30 all-electric cars by 2025, along with a new logo rebrand focusing on an electric future to boot.
A big piece of GM’s new EV puzzle is its new Brightdrop commercial delivery business. Brightdrop pairs software and services with products like an electrified pallet (know as the EP1) that works in conjunction with electric delivery vans for electrified “last mile” delivery. GM is partnering with FedEx on the initiative, with the shipper initially receiving 500 of Brightdrop’s electric vans, known as the EV600, later this year.
“BrightDrop offers a smarter way to deliver goods and services,” Barra said. “We are building on our significant expertise in electrification, mobility applications, telematics and fleet management, with a new one-stop-shop solution for commercial customers to move goods in a better, more sustainable way.”
Wall Street analysts are buying into the Brightdrop story, as well as the overall evolution of the GM business.
“We believe GM’s launch of BrightDrop represents yet another decisive action in an evolving series of forthcoming actions that position the company to leverage its strengths in design (including Ultium platform), technology and fleet customer relationships that moves the company to an all-electric, highly recurring service-oriented model and away from unit x price and ICE legacy,” Morgan Stanley analyst Adam Jonas said in a note this week.
Riding the EV wave
But it’s not just GM specific news that is likely driving EV shares higher. There’s investor appetite for Tesla and EV stocks in general — and that means companies connected to that wave are being pushed along.
“Tesla is not treated in the market as an automotive company,” Wedbush analyst Dan Ives says. “It’s treated as a technology disruptive [company]. Now, GM is starting to get a piece of that valuation as they’re further and further focused on this market.”
Another reason why investors are bullish on GM is the concept that shares are undervalued using a sum of the parts, or SOTP, analysis for the company. The argument basically goes that GM is worth more than its $71 billion market cap when you carve out business like its Ultium batteries and its Cruise division, which houses its autonomous technology.
Morningstar analyst David Whiston, who opposes any spinoff of GM divisions to unlock value, says the Cruise division is worth at least the $19 billion valuation it received in May 2019 based on Cruise’s last capital raise. GM owns nearly 83% of Cruise.
Morgan Stanley’s Jonas breaks down his $57 GM price target via a sum of the parts (SOTP) breakdown this way: “1) GM Legacy ICE at $16, 2) GM EV Business at $27, 3) Ultium 3rd Party Battery Supplier at ~$6, 4) GM Cruise at $2, 5) GM China JVsat ~$5, 6) Corvette at $5, 7) GM Financial at $7 and 8) GM Connected Services at $5.”
Jonas concedes he’s being very conservative even in this instance, claiming just the connected service business alone could be worth an astounding $54 per share, but that valuation is discounted by nearly 90% because Morgan Stanley feels the market isn’t “willing to give credit” to GM’s share price for that business.
But it appears that narrative might be changing, with investors willing to give GM “credit” here, at least for this week.
GM will release fourth quarter, as well as full-year 2020 earnings, on February 10.