The value of GM stock grew during the June 29th, 2020 to July 3rd, 2020 timeframe. Shares closed the week at $25.24 per share, which represents an increase of $0.78 per share, or 3 percent, compared to last week’s closing value of $24.46.
Movement & Ranges
By comparison, shares of GM’s cross-town rival, the Ford Motor Company, grew $0.14 per share, or 2 percent, during the same timeframe. To clarify, the market was closed on Friday, July 3rd, 2020 in recognition of the Independence Day holiday.
GM Stock Factors
This week’s 3 percent jump in GM stock value marks the first week of growth after three consecutive weeks of decline, following last week’s 8 percent decline, the previous week’s 5 percent loss and a 9 percent drop two weeks before. Notably, the increase occurred during the release of GM’s U.S. sales report, which indicated a decrease of 34 percent for Q2 2020.
Before the three-week dip in value, GM shares experienced an 18 percent growth spurt. The overall ebb-and-flow pattern is rather apparent, with a stabile-loss experienced before the growth, and a 15 percent growth the week before that. The recent volatility in the marketplace is the direct 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 18.
The recent rebounds in value are likely attributable to two factors:
- GM’s U.S. assembly plants resumed production on May 18th
- GM reporting a profit for Q1 2020; it was the only American automaker to post a profit during the first quarter of 2020, outperforming expectations
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 are 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, the GMC Hummer EV as well as the Cadillac Lyriq, which is set to debut August 6th. GM has also received praise for assisting Hamilton Medical Inc. in setting up its ventilator production facility in Nevada.
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 still dealing with the fallout from its legal feuding with FCA, on top of having to cope with a small number of 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, while 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 two weeks ago, is largely greeted by skepticism. We believe General Motors’ plan to ramp up 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.
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, 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.