It’s no secret that Tesla’s valuation and the ease at which it can gain investors have GM and Ford mad. GM went so far as to hold a dog and pony show preview of the next three year’s products to a select group of finance and Wall Street shakers. Now GM CEO Mary Barra is looking at splitting up the company to exploit its investment and depth in electronic and autonomous vehicle technology. Since 2018 internally GM has debated the idea as a means to acquire more credit. GM is envious of the easy access to capital by Tesla and startups like Nikola Corp. It knows that Wall Street looks at GM as a legacy company while Tesla is seen as a tech company.
“Nothing is off the table”
“Investors are telling us every day that they are willing to invest in electric vehicles,” said Emmanuel Rosner, a Deutsche Bank analyst told Automotive News. “But they are doing it with electric-vehicle companies, not legacy companies.” Rosner asked Barra about this during the automaker’s earnings call last week. “We are open to looking at and evaluating anything that we think is going to drive long-term shareholder value,” Barra said, adding that “nothing is off the table.”
During this year Tesla’s valuation has soared beyond both Ford and GM. EV startup Nicola, which has not seen any revenue nor has it produced anything, in June and July was valued at more than Ford. Other EV startups are now trying to copy what Nikola has done. It combined with a special-purpose acquisition company to publicly list its stock shares.
Both EV startups Fisker and Lordstown Motors are trying to follow similar paths. Neither has produced anything. In Lordstown’s case, it purchased an ex-GM plant in Ohio for its EV pickup venture. But both startups have attracted huge investments with but a fraction of GM’s infrastructure or capabilities.
Barra has beat the drums about GM’s strength and value
To counter the seemingly upside-down reality Barra has beat the drums about GM’s strength and value. She touted GM’s move from being a car manufacturer into becoming a technology powerhouse. Then she revealed to Wall Street GM’s new Ultium battery system that will power its EVs starting next year.
Today the stock price is down by more than a quarter over last year. GM can’t shake the market’s view that it doesn’t have the same value. That is why it now is looking to break up the tech side from manufacturing. It could sell off a small portion of the new company and then accept investments to help pay for development and research.
Walling off GM’s EV operations could change investment perceptions
GM already has a roadmap for such a move. It sold off minority shares of Cruise Automation which it purchased in 2016. SoftBank Vision Fund, Honda Motor Co., and T. Rowe Price Associates have paid billions. That investment has helped fund development and reduced GM risk. Walling off its EV operations could change investment perceptions toward the new entity.
It has to figure out a way to shed its legacy business image that the market doesn’t value. Until then it will see development capital hampered. And right now it needs to be full-steam-ahead to stay ahead.