The value of GM stock fell during the July 20th, 2020 to July 24th, 2020 timeframe. Shares closed the week at $26.25 per share, which represents a decrease of $0.20 per share, or less than 1 percent, compared to last week’s closing value of $26.45.
Movement & Ranges
By comparison, shares of GM’s cross-town rival, the Ford Motor Company, grew $0.08 per share, or just over 1 percent, during the same timeframe. While the growth was minimal, it’s worth highlighting the fact that The Blue Oval’s shares have experienced four consecutive weeks of growth. News surrounding the all-new 2021 Ford Bronco is believed to have influenced the automaker’s stock performance last week, as reservations of the First Edition model sold out in mere hours.
Notably, The General is expected to release the Q2 2020 earnings report this upcoming week on July 29th, and the results will surely have an impact on GM share values.
GM Stock Factors
This week’s minor decline in GM stock value comes after last week’s 8 percent jump, which itself was preceded by a 3 percent decline, and a 3 percent increase before that. This overall ebb-and-flow pattern is rather apparent, and is reflective of the recent volatility in the marketplace as a result of complications caused by the COVID-19 pandemic. That said, GM stock has seen a net-positive performance since hitting a low of $16.80 on March 18th.
Most recently, Wall Street analysts have rated GM as a buy, with Morgan Stanley’s Adam Jonas projecting a $100 billion market cap in GM’s future, which currently sits at nearly $40 billion, or less than half of the projected amount. It seems some investors are banking on the profitability of GM’s plan to roll out an electrified portfolio, which includes an electric van, a Chevrolet EV pickup truck, the GMC Hummer EV as well as the Cadillac Lyriq, which is set to debut August 6th.
Additionally, The General is moving forward with plans to produce the up-and-coming Chevrolet Bolt EUV at the GM Lake Orion plant near Detroit. The new model is a slightly larger version of the Chevrolet Bolt EV, which is also produced there. As such, the Orion facility will be focused entirely on all-electric vehicle production, with the new Bolt EUV and refreshed Bolt EV going into production next year. Notably, such plans include the discontinuation of the Chevrolet Sonic.
On the flipside, GM is facing new pressure from the state of Ohio, who may require GM to reimburse the $60M it received in state tax breaks. Notably, GM no longer operates a vehicle assembly plant in the state, but it is currently building a $2.3 billion lithium-ion battery plant in partnership with LG Chem in the Lordstown area. It also operates a parts distribution center in Cincinnati and is building a new $175 million engine components plant in Brookville, Ohio.
The General is also dealing with the impact of its racketeering lawsuit against FCA having been dismissed by a judge, on top of coping with a small number of coronavirus cases at some of its facilities, including 22 confirmed cases at the Arlington Plant in Texas.
In addition, cases of employees that have tested positive for COVID-19 have been confirmed in GM’s Wentzville assembly plant, and the third shift was cut last week due to employee absenteeism. Meanwhile, workers at the GM Silao plant in Mexico have complained that the company is allegedly covering up a virus outbreak.
Looking ahead, some analysts believe that the market is beginning to see a V-shaped recovery, while others believe it’s the market behavior indicating an abnormal recovery, and the rest think it’s still much too soon to call. Additionally, the reopening of states and claimed vaccines for the novel coronavirus have boosted confidence in the marketplace. However, the current decline in GM stock value reflects a lack of investor confidence.
The uncertainty, which appears to have somewhat subsided based on growth a few weeks ago, is largely greeted by skepticism. We believe General Motors’ plan to sustain maximum crossover and pickup truck production could be the initial swing of momentum, so long as the market responds accordingly.
As we’ve mentioned previously, analysts have noted that companies which rely on steady cash flow are down, as are companies that profit from re-emerging economies. Another consideration is the upcoming presidential election, which will lead to further market disruptions.
GM During COVID-19
The coronavirus pandemic initially forced GM to idle production across North America, South America and China as a result of the virus, putting the firm in a very unfavorable position. During such a scenario, any automaker – GM included – sees revenues fall sharply while rapidly burning through cash, resulting in a loss-making turn of events. Since the beginning of the pandemic, GM production in China has resumed, as did production across North America on May 18th.
GM has taken major steps to get through the COVID-19 pandemic, with the actions primarily revolving around fortifying its balance sheet. These moves entail reducing and/or deferring expenses, while shoring up cash and other forms of liquidity.
In March, GM drew down $16 billion in credit to cope with impacts of the virus. Shortly thereafter, GM boosted its cash reserves by $4 billion after taking several other actions to bolster its balance sheet and available credit. In late April, the Detroit-based automaker extended its $4 billion, 3-year credit line by $3.6 billion. The automaker also extended its $2 billion, 364-day revolving credit line to April 2021, with that extension reserved exclusively for GM Financial, General Motors’ captive finance arm. Most recently, GM issued $4 billion in unsecured notes. Additionally, GM has also suspended its quarterly common stock dividend while also pausing its voluntary share repurchase program.
And through all that, GM was also producing face masks and respirators to help medical workers and those affected fight the virus. The company recently announced having produced its 1 millionth face mask at Oshawa Assembly, and it also received N95 certification for the face masks it produces at its Warren, Michigan facility.
GM Before COVID-19
It’s worth noting that GM share values were experiencing ongoing ups and downs since mid-2018, long before coronavirus complications, though shares never dipped to the levels observed in the first quarter of 2020.
For the most part, GM stock was in limbo throughout 2019, seeing a jump in value as a result of overwhelmingly positive Q2 2019 earnings, wherein the automaker outperformed expectations. Prior to the COVID-19 pandemic, several factors negatively impacted GM stock price during 2019, including:
- A UAW labor strike that lasted 40 days, resulting in no vehicles being built in the United States during that timeframe. Production was also idled in other countries as a result of supply chain-related issues caused by the UAW strike
- Warning signs of an economic slowdown
- Escalations with a trade war with China
Over the last few years, GM has taken many steps to increase the value of its stock, including exiting markets where it can’t find ways to turn a profit (such as Europe, South Africa and India), closing plants in various parts of the world, divesting loss-making divisions (such as Opel-Vauxhall), making adjustments to its business model in order to prioritize profitability over chasing market-share goals, focusing on its Cadillac luxury brand to increase its share of high-profit automobiles, investing heavily into new-age mobility ventures such as electric vehicles and autonomous driving tech, while discontinuing some sedans (Cruze, Volt, Impala, Regal, LaCrosse, XTS, CT6) and closing various plants to focus on more profitable crossovers, SUVs and pickup trucks, such as the all-new 2021 Cadillac Escalade that was unveiled on February 4th.
Seeking to further minimize activities in unprofitable markets, General Motors also announced its intention to phase out the Holden brand in Australia and New Zealand, in addition to pulling the Chevrolet brand out of Thailand while selling the GM Rayong Manufacturing Complex to Great Wall Motors. In addition, GM recently announced its decision to shut down its Maven car-sharing service.
Despite these actions, the value of GM stock has historically struggled to surpass the $40 mark, spending most of its time in the $33-$38 per share range (prior to the COVID-19 pandemic). The chain of events is problematic given that the “new GM” had its Initial Public Offering (IPO) at $33 per share in November 2010, causing frustration upon many investors.
We remain interested in seeing how GM stock performs through the summer of 2020, especially following the COVID-19 crisis and upcoming 2020 presidential election.
Notably, the refresh of many 2021 models will be delayed, including the Cadillac XT4, Chevrolet Traverse, Chevrolet Equinox, GMC Terrain, and Chevrolet Bolt EV. In fact, the overall roll-out plan for most GM products has been pushed back, which also includes the launch of the Cadillac CT4-V Blackwing and CT5-V Blackwing models.
That said, there are still some good things happening for GM in 2020, including a 27 percent growth in Silverado sales during Q1 2020, market share gains for the Silverado and the Sierra during Q2 2020, and strong Chevrolet Blazer sales. The retooling of the GM Arlington assembly plant in Texas has been completed, and production of the company’s redesigned line of full-size SUVs is now under way, as Chevrolet Tahoe and GMC Yukon units have arrived in dealerships. Meanwhile, assembly of the Chevrolet Suburban and of the GMC Yukon XL has started.