Analyst Dismantles GM Narrative Of Tech Edge That's Boosted Stock


General Motors (GM) stock hit a record high Thursday for the fourth time in as many days, helped by signs that it's beating rivals in the mass production and deployment of robo-taxis and electric cars.

XAutoplay: On | OffBut RBC Capital Markets suggests expectations that those technologies will fuel GM's growth may be too lofty. Analyst Joseph Spak and his team cited five key reasons why they are cautious about paying up "for a future that has a high degree of uncertainty" while giving the stock a 44 price target.

Autonomous Driving

While GM's automation unit Cruise may launch of a fleet of self-driving cars in 2018, Spak believes there will be rivals hitting the road around the same time.

"So it's too early to call GM a winner," he said. "And if many companies' robo-taxis get on the road, we wonder if this can actually depress all valuations until a few pull away from the pack."

He estimates that this business is worth about $1 per GM share.

Electric Brand

GM was the first to market with an affordable, mass-market electric vehicle with the Bolt, Spak acknowledges, but he discerns no value in GM's EV moves. In his view, "EVs are just the way the world is going, so this is a must-have just to compete."

Spak said he agrees with Ford Motor (F) CEO Jim Hackett who said this week that electrification is a form of propulsion and not "a new generation of business strategy," adding that "ultimately, OEMs compete on brand and, with all due respect to GM/Chevy, their brand is not where Tesla's (TSLA) is."

Estimated worth of EV business per GM share: $0.

Connected Cars

Spak tipped his hat at GM's "OnStar" connected-car efforts, which enhance safety and mobile communication. But here again, he is of the view that connected cars will become the norm, rather than a differentiator. "The key will be the services and monetization off of that connectivity," Spak wrote. "That remains unclear."

Connected vehicles can collect data for autonomous driving, Spak added, but he believes GM is doing this not on production vehicles but on test vehicles, like other companies.

He estimates this business is worth about $4 per GM share.

Mobility Services

Spak pegged the current valuation of the $500 million investment that GM made in ride-sharing service Lyft in January 2016 at "slightly north of $600 million." And he assigned a $250 million value to Maven, GM's own car-sharing unit, based in part on how its metrics compare to Zipcar, which Avis (CAR) bought in 2013 for $500 million.

Together, the Lyft stake and Maven business are worth about $1 per GM share, in his estimate.

Cannibalization Risk

Spak believes GM's initiatives in emerging automotive technologies "may burn cash for a long time." That led him to caution: "The more you want to believe in 'GM Tech,' the more you need to trim the 'core' GM multiple as one cannibalizes the other," with the "core" referring to the automakers' car, SUV and truck lineup.

In his view, profitability for these ventures is very far out and their outcomes are marked by a high degree of uncertainty.

IBD'S TAKE: GM stock has displayed impressive relative strength in recent weeks, but can it hold above this key benchmark often seen in the best growth stocks?

RBC's price target of 44 leaves little upside from Thursday's trading session.

GM stock added 0.3% to 43.90 on the stock market today and has advanced 20% from its Sept. 1 breakout. It has risen every day so far this week and now abuts profit-taking sell territory.

Ford slipped 0.5%, while Tesla and Toyota Motor (TM) dipped 0.1%, and Fiat Chrysler (FCAU) gave up 1.1%.


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