GM Needs to Stay Together
We see more reasons to oppose a battery electric vehicle spin-off than to support one.
Speculation surrounds General Motors’ (GM) stock following a call to spin off the company’s battery electric vehicle business. The idea sounds sexy, as many BEV startups are either going or about to go public this year. The stratospheric rise of Tesla’s stock, with a market capitalization recently approaching triple the value of Toyota, also makes the idea seem compelling. However, GM is a stock the market loves to hate, and we see no guarantee that a spin-off will get the same irrational (in our view) favorable valuation treatment that BEV startups are.
Branding would be an issue, as the spin-off would need to either pay GM a royalty to keep using brands such as Buick, Cadillac, Chevrolet, and GMC or create its own brands from scratch. Also, GM’s BEV business is not carved out internally from the rest of the company the way its Cruise autonomous vehicle business is. That can change, but it takes time, and we think it would be a distraction for management. We expect many BEV startups will fail as they struggle to get one or more vehicles to market at scale. Even Tesla has not reached the requisite scale to generate sustainable profitability without its lucrative sales of emission credits. Therefore, we believe GM’s BEV business will be better off under the protection of GM than out on its own constantly raising capital.
David Whiston does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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