Amid demand deceleration and rising inventories, the EV sector appears incredibly challenged, seemingly imposing dark clouds over legacy automaker General Motors (NYSE:GM) and its electrification ambitions. Nevertheless, for speculators having strong conviction in the space, GM may be the most credible EV manufacturer. It’s probably going to be a wild ride, but I’m cautiously bullish on GM stock.
GM Stock Moves in the Right Direction
For conservative investors, it’s natural to feel jittery about any enterprise related to four-wheeled mobility. Late last year and continuing into 2023, Tesla (NASDAQ:TSLA) sparked a sector-wide price war, slashing the prices of its vehicles. Naturally, the move forced rivals to respond to the battle of attrition. Even so, demand pressures translated to rising EV inventory on dealership lots. Nevertheless, GM stock is fortuitously moving in the right direction.
First, on October 24, TipRanks reporter Shrilekha Pethe noted that General Motors posted third-quarter earnings per share of $2.28. This figure represented an increase of 1.3% on a year-over-year basis. As well, it beat analysts’ EPS expectations of $1.87. Moreover, the automaker rang up sales of $44.1 billion, rising 5.4% year-over-year and beating the consensus target of $42.5 billion.
Making the print more impressive, GM CFO Paul Jacobson disclosed that the United Auto Workers (UAW) strike – which started in September – will cost the company around $800 million in pre-tax earnings this year. To be sure, the impact forced a downward earnings guidance for Fiscal Year 2023. However, management still anticipates a reduction in fixed costs of $2 billion by 2024.
Adding to the positive news, recently, General Motors recently reached a tentative deal with the UAW. Although the strike imposed a heavy cost on the auto industry, the outlook should generally be positive for GM stock.
With a key distraction out of the way, the underlying company can now focus on winning the EV battle.
General Motors Smells Blood (and Opportunity) in the Water
Again, the EV sector is no walk in the park. Still, what ultimately might benefit GM stock is that the industry may be entering a more mature phase in the growth cycle. In other words, sector competitors have already picked the low-hanging fruit. Now, the grind begins, which may favor General Motors.
For one thing, Tesla incurred a far different Q3 picture than GM. As TipRanks reporter Vince Condarcuri mentioned, the EV pioneer missed analysts’ expectations on both the top and bottom lines. In the trailing month, TSLA stock has fallen by 20%, demonstrating the sharp bearish pivot.
Second, and more importantly, GM stock levers the advantage of familiarity and a more accessible product mix. While the Tesla brand may resonate more with millennials, it will take generations for a company like GM to lose its historical trust factor with consumers.
However, even setting aside long-established trust, General Motors provides products that will more likely fit into households’ budgets. Let’s face it: if the average family could easily afford a fully-functional EV (and I’m not talking about electric trikes), inventory wouldn’t be rising at dealerships. With sky-high gasoline prices, EVs should be flying out the door.
For the higher-end customer, General Motors aims to convert marquee brands like Hummer into electrified versions. As well, the company’s eighth-generation Corvette continues to attract dollars.
GM’s Valuation is Too Appealing to Ignore
While arguably all EV-related enterprises face downside pressures due to the strain on the consumer economy, GM stock also happens to be de-risked compared to many of its peers. For example, shares trade at around a 4x trailing earnings multiple. That’s very low compared to the multiples seen in automotive-related segments.
In contrast, TSLA trades at a trailing earnings multiple of roughly 65x. As for other pure-play EV companies, the problem is that most are not profitable. Thus, it’s impossible to conduct an apples-to-apples comparison. However, because of the red ink, that only bolsters the case for GM stock.
Is GM Stock a Buy, According to Analysts?
Turning to Wall Street, GM stock has a Moderate Buy consensus rating based on 10 Buys, six Holds, and one Sell rating. The average GM stock price target is $44.82, implying 60.1% upside potential.
The Takeaway: GM is the Best in the Ugly Dog Contest
By itself, General Motors wouldn’t necessarily stand out as an exemplary investment, as both the traditional automotive and the EV segments face consumer pressures. Having said that, by comparison, GM stock distinguishes itself via the underlying diverse product mix and brand trust. In a tough ecosystem, these factors may go a long way.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.