GM is finally paying a dividend again. Is the stock a buy?
With the value of its stock down about 36% this year, General Motors (GM -0.23%) announced a share buyback and reinstated the dividend. Investors will receive a dividend from GM of $0.09 each quarter, or $0.36 per year, which puts the stock’s yield at just under 1%. The company is also repurchasing up to $5 billion in stock.
These moves appear to have helped push its declining stock price higher from its 52-week low of $30.33 to near $40. However, this is below the 52-week high of $67.21. What more could there be in front of GM? Let’s find out.
Aggressive product plan
General Motors’ aggressive plans for electric vehicles (EVs) should keep it ahead of the pack among automakers. Its Ultium EV platform is at the heart of GM’s EV strategy, underpinning the GMC Hummer EV truck and SUV and the Chevrolet Silverado EV. It also sits below the Chevrolet Equinox EV and Blazer EV, both due in 2023.
GM also recently slashed the price of its Bolt EV by $5,900 and the larger Bolt Electric Utility Vehicle (EUV) by $6,300, making them the lowest priced EVs on the US market. However, both Bolt models use older versions of GM’s EV technology.
Cadillac has also entered the electric vehicle market with the 2023 Lyriq EV, with orders now open. It will be followed by Cadillac’s flagship electric vehicle, the Celestiq, at an unspecified later date. Not to be outdone, Buick will bring its first electric vehicle to North America in 2024 under the new Electra name.
In total, GM intends to sell 30 electrified car models worldwide, with a volume of more than one million units, by 2025, the result of an investment of 35 billion dollars.
GM’s dedication to a pure EV strategy contrasts with rivals, especially Ford engine (F -0.20%), which takes a multi-pronged approach to electrification by offering traditional hybrids, plug-in hybrids and all-electric vehicles. Ford offers the all-electric Mustang Mach-E, F-150 Lightning and E-Transit Van, as well as the Ford Maverick and Escape hybrids, making it a less pure EV game. Through 2026, Ford will invest $50 billion in electric vehicles and spin off its EV unit from its legacy combustion engine company.
GM’s product plan looks superior, turning into a pure EV company with more EVs than competitors as it strives to be seen as a player alongside You’re here (TSLA -2.51%) and Rivian (RIVN 0.38%), both of which are pure EV games. And like those two, it is investing heavily in self-driving technology, offering Super Cruise, its self-driving technology, on 22 models by 2023.
Tesla’s Autopilot self-driving system is its main competitor, although it is the subject of dozens of probes by the National Highway Traffic Safety Administration. Ford offers a partial self-driving system, BlueCruise, which isn’t as polished as its competitors.
GM also announced that its partnership with Cruise, an 80%-owned autonomous vehicle company, will be the first company in the world to operate a commercial autonomous taxi service in a major city, in this case San Francisco. By 2027, GM wants its cruisers to generate $50 billion in sales.
Battery strategy and headwinds
GM’s battery strategy differs from most of its competitors except Tesla for its vertical integration.
Rather than outsource it, as Ford and others are doing, Ultium Cells LLC, a joint venture between GM and LG Energy Solutions, plans to build four battery plants in Ohio, Tennessee, Michigan and Indiana. through loans of US$2.5 billion. Department of Energy to help fund their construction. This should help GM’s electric vehicles meet the local procurement rule required to meet the government’s revised federal tax credit policy.
Of course, these plans are not without headwinds. Continued supply chain disruptions, persistent inflation and rising US interest rates all pose a threat to GM’s profitability. Rising prices in 2021 more than offset the financial hit of lower sales volume. But consumers may find it increasingly difficult to keep making higher payments as interest rates rise.
So far, car buyers are willing to pay more as average transaction prices hit record highs each month. How long this trend will continue remains an open question and a possible threat to future profitability. For investors, watching GM’s progress in ramping up electric vehicle production, as well as consumer acceptance of higher prices, is key to making the automaker a profitable game.