The value of GM stock grew during the August 17th, 2020 to August 21st, 2020 timeframe. Shares closed the week at $28.56 per share, which represents an increase of $0.70 per share, or nearly 3 percent, compared to last week’s closing value of $27.86.
Movement & Ranges
By comparison, shares of GM’s cross-town rival, the Ford Motor Company, fell $0.38 per share, or just over 5 percent, during the same timeframe. It’s worth highlighting the fact that The Blue Oval’s shares have experienced six weeks of growth out of the past eight weeks. News surrounding the all-new 2021 Ford Bronco is believed to have influenced the automaker’s stock performance in the previous few weeks, as reservations of the First Edition model sold out in mere hours.
Notably, the expectation of significant boost to stock prices following a spin-off for GM electric vehicle business is a worthwhile indicator for investors. It’s worth pointing out that the same can also be said for Ford, and such a trend would undoubtedly benefit another competitor as well, Tesla.
Other factors include the release of GM’s Q2 2020 earnings report three weeks ago, which showed a loss of $800 million on $16.8 billion revenue dollars. While the results aren’t great, they could have been much worse due to setbacks caused by COVID-19 complications. In fact, forecasts estimated a loss of as much as $2.6 billion. Relative to the multi-billion-dollar loss, the $800 million dollar setback doesn’t seem as detrimental. Moreover, CEO Marry Barra has stated that the global crisis won’t interfere with the company’s plans to revamp infrastructures in preparation of upcoming battery-powered products, and that she expects full economic recovery by early 2021. Another positive indicator is the premature ending to GM employee salary deferrals.
Investors should also note some more recent news, including GM’s employee buyout plans to reduce its workforce in Brazil, U.S. District Judge Paul Borman’s ruling against the reinstatement of GM’s lawsuit against Fiat Chrysler Automobiles, and a new class-action lawsuit filed in Tennessee due to the “shift to park” issue that is commonly experienced by second-generation GMC Acadia owners. Also big news last week, GM CFO Dhivya Suryadevara handed in her resignation to join a financial startup company called Stripe. In addition, GM has just announced its future EV product plans for the Chinese market.
GM Stock Factors
This week’s stock performance marks the third week of growth after two consecutive weeks of decline in GM stock value. This apparent ebb-and-flow pattern has been the norm, and is reflective of the recent volatility in the marketplace, which is 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.
Currently, 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 – which was revealed in a teaser video – as well as the Cadillac Lyriq, which was revealed last week and should have a starting price of under $60,000.
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 also recently had to cope with a small number of coronavirus cases at some of its facilities, including 22 confirmed cases at the Arlington Plant in Texas. Despite a high rate of worker absenteeism, GM has decided to keep the third shift at the Wentzville Assembly plant by relocating employees, after previously announcing that it would be cut. 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. The current increase in GM stock value could be the start of some 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.
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 and production increases for the Silverado and the Sierra during Q2 2020 as well as strong Chevrolet Blazer sales and Chevrolet Trailblazer sales. 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.