GM (GM) Should Try to Catch Tesla's Lightning in a Bottle and Spin-Off EV 'Now' - Analyst

August 14, 2020 6:57 AM EDT
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Deutsche Bank analyst Emmanuel Rosner reiterated his view that General Motors (NYSE: GM) should spin off its electric vehicle operations and capabilities into a stand-alone company "now." The analyst cited Tesla's (NASDAQ: TSLA) surging market cap and the large valuations fetched by new EV plays like Nikola (NASDAQ: NKLA), as opposed to the depressing value of legacy automakers' like GM, as the rationale for a spin.

Rosner said doing a spin off would force the market to recognize GM's robust EV technology and upcoming lineup and (a) unlock considerable shareholder value, (b) give the new entity large access to cheap capital to fund expected growth and (c) provide ability to attract and retain high-caliber talent.

"On the back of our European team’s work published yesterday suggesting VW should separate MEB, we continue to advocate GM should spin off its electric vehicle operations and capabilities into a stand-alone company, forcing the market to recognize its advanced technology, which could (a) unlock considerable shareholder value, (b) give the new entity large access to cheap capital to fund expected growth and (c) provide ability to attract and retain high-caliber talent," Rosner commented.

The analyst estimates a GM EV stand-alone entity could fetch a minimum $15-20 billion valuation, with upside potential up to $100 billion. This could value GM at $28-$93, "but it would represent positive shareholder value creation under every scenario, which makes it a “no-brainer” in our view."

Rosner said recent media coverage about a potential GM EV spinoff and CEO Mary Barra’s response to the firm's question on the 2Q earnings call suggest GM is "actively evaluating the option, but we do not get the sense investors view a spinoff as likely to happen, which offers an attractive setup for the stock."

He highlights that GM is also hosting a China EV Day next week on 8/19 which could provide more clarity on its strategy in the region and technology capability.

The firm reiterated a Buy rating and $33 price target on GM, but believes an EV spin off could boost it considerably further.

For an analyst ratings summary and ratings history on General Motors click here. For more ratings news on General Motors click here.

Shares of General Motors closed at $27.50 yesterday.



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