General Motors Company (GM) Looks More Confident Than Ever
General Motors Company (NYSE:GM) looks more confident than ever about its future. Now that the company has settled the ignition recall issue amicably, the focus of investors can be shifted towards achieving its business objectives. One of the primary reasons was that its brand, Chevrolet, recorded the best sales year in 2015 after 2007. The other reasons are a significant reduction in rental deliveries in 2015 and they expect the trend to continue in the current year too. Apart from increasing its market share by 40 basis points, the automaker’s average transaction price gained 3.2%. Its Chevrolet Bolt is the new standout during the CES and is set to provide an affordable electric car option.
Battle For EV Space
Though both General Motors Company (NYSE:GM) and Tesla Motors Inc (NASDAQ:TSLA) have yet to produce their mass market models, both have generated enough interest among the auto analysts and investors. Tesla has indicated that it would unveil its Model 3 electric vehicle sometime before March this year. Given its past, delay in launching cannot be ruled out. Also, the company already has two brands under its name, Model S and X with the Sedan launched towards the end of September. However, the company attaches much importance to Model X since that will dictate its course of action on Model 3. Therefore, the EV maker’s focus is currently on the sedan model. The company was cautious to enter the mass market and that was the reason to focus itself on the premium segment in the initial years.
As far as General Motors Company (NYSE:GM) is concerned, it was a reversal of things to come. The company has already enough Sedans under its fold. The biggest American automaker is entering the mass market with its Chevrolet Bolt brand in EV segment, and it has already evinced great interest during the CES.
Three Key Factors
Interestingly, there are, at least, three key factors are in favor of General Motors Company (NYSE:GM). The first among them is the pricing of Chevrolet Bolt. The cost of the vehicle is estimated to be around $30,000 after giving effect to the tax credit. The electric vehicle is also meant for mass market only. That might also mean that the vehicle might be just a few thousand dollars lower than the BMW 3 series. The second important thing is about its battery pack. The automaker claimed that it would provide around 200-mile range. It might become cheaper once the company attains the scale of economies. That means once the production increases, the cost will come down.
The third factor is the production, as well as, the availability of the vehicle. General Motors Company (NYSE:GM) CEO, Mary Barra, indicated during a conference call that Chevrolet Bolt might be available before the end of the current year. As far as Tesla Motors Inc (NASDAQ:TSLA) is concerned, it has to complete the construction of its Gigafactory before commencing its production. The advantage that GM is said to be enjoying is the cost of battery production. That would make the conditions difficult for Tesla to compete with Bolt maker. There are also other automakers waiting in the wings to get a slice of their share in the electric vehicle segment in the mass market space.
There is already a feeling among the section of analysts and investors that General Motors Company (NYSE:GM)’s Chevrolet Bolt provides unmatched features to the potential buyers. The next one and half years to two years, the electric vehicle’s mass market would be fiercely fought by Bolt. Tesla’s Model 3 production will come at least a year after Bolt’s. That meant the biggest American automaker will enjoy a free run in the mass market in the electric vehicle segment.
The Chevrolet maker enjoys an advantage in economies of scale as it sells about ten million cars a year whereas Tesla produces only around 50,000 vehicles.
Other Key Factors
Another point is that General Motors Company (NYSE:GM) can cross-subsidize its Bolt brand without having to take too much pain. However, its rival in EV has no such advantage. Still, that would take not take away any advantage of Tesla Motors Inc (NASDAQ:TSLA)’s Model 3. The fact remains that Bolt will be the clear head-starter in the first one or two years.
Some of GM’s brands attracted a lot of attention in the year 2015. For instance, Crossover deliveries witnessed 23% uptick while its Silverado and Colorado deliveries advanced 27%. Similarly, commercial deliveries grew 12% whereas government deliveries rose 2%.
General Motors Company (NYSE:GM) is more confident than ever because of the combination of reasons. The electric vehicle segment will be filled with the launch of Chevrolet Bolt while other brands were doing well. The most important factor was that it was able to improve its average transaction price and at the same time improved its market share. That suggested that its focus was on profitability without losing its market share too. The weak global oil price should bode well for the automakers to stimulate demand.
Disclaimer: The opinions and data expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisory capacity, nor is this an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the company or companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.
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