GM is 'far less risky' than Tesla, if you want to invest in the future of transportation (GM, TSLA)

October 06, 2024

General Motors, the old-guard Detroit automaker that's struggled to fully recover from the Great Recession, could be a better bet than Tesla, at least when it comes to the future of autonomous vehicles, Morningstar said Wednesday.

In note to clients, the markedly conservative investment firm, said GM was its top pick for the future of transportation.

"GM is the most obvious choice in our U.S. autos coverage," analyst David Whiston said in the report, "because it is a leader in AV technology and in our view is far less risky than investing in Tesla, which has a balance sheet that makes us nervous, massive key-man risk around Elon Musk, and so far Tesla has insufficient production volume to rival a firm such as GM."

Most of GM's value comes from its Cruise subsidiary, which it acquired as a startup fresh out of the Y-Combinator incubator in 2016. Today, the self-driving car division has received valuation estimates as high as $43 billion — that's more than 80% of GM's total market value.

And while some analysts would like to see GM spin off Cruise, Morningstar says it's a little too soon for that, given its non-existent revenue and customer base currently.

"We are arguably old-fashioned, but we prefer to see a viable business before GM even considers a transaction," said Whiston. "The addition of SoftBank and Honda as Cruise shareholders suggests to us that GM is open to a spin-off in some form in the future, but exactly when is hard to say."

Of course, without Cruise, says Whiston, "GM would not have the option value of AVs anymore other than possibly selling AVs to Cruise. But even beyond the bells and whistles of self-driving cars, there are other reasons to like GM, says Morningstar, which has a "fair value" estimate of $45 for the stock — 23% above Wednesday's prices.

"We do not think the turnaround story is complete," says Whiston, "and in the next downturn, we think GM will prove to skeptics that it really is a different company."

Shares of GM are down 12% since the beginning of the year.

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