GM - General Motors

[Dalal.Holdings]

What is the moat here?  Is it the idea that out of the handful of companies seriously pursuing AV that there will emerge one leader such as Windows or iPhone?  Will other car companies simply pay a royalty to Cruise/GM for the right to use their hardware and software?

 

If not, where's the moat?  I still think this still has the chance to be a commodity service.  Companies will compete on cost and margins will be slim.  Quality of the service will be the only differentiator.

 

How has Google's monopoly over internet search persisted for so long? After all, there are many many search engines out there (and many attempts at dethroning Google). There is zero switching cost for someone to switch to another search engine (simply type a different address your browser).

 

The moat is the proprietary technology. It gets better with every moment of real world driving data it acquires. Every moment spent on a busy urban street (ie. "machine learning"). Wouldn't make sense to lend this proprietarty technology to any outsider. Keep it internal and start an App hailed taxi company where you can keep operating costs low (use your already existing mass production capabilities: factories/supply chain/employees to churn out cars, no driver involved, use cheap propietary LIDAR sensors thanks to acquiring Strobe, run a parking garage where you recharge the Bolts thus avoiding volatile petroleum costs, and constantly iterate the software--brain--that runs your cars to become safer and safer). The more people use your product, the safer it becomes via machine learning. Hence, first mover advantage can become lasting.

 

Now Uber and Lyft on the other hand--those are two companies with no moat and Uber is valued close to GM with no real profits.

 

For those looking for more details about what Cruise Automation has achieved:

http://www.gm.com/content/dam/gm/en_us/english/selfdriving/gmsafetyreport.pdf

[JRM]

If there is truly machine learning going on with every mile driven, then I agree.  The first mover advantage coupled with deploying AV at scale will be nearly impossible to catch. 

 

I think there would be a large value added in the trucking industry as well.  I think the trucks would need to be driven by a person at the loading and unloading stages. However, the cross country miles could be autonomous.  I don't know the stats, but it seems like many highway wrecks involve a semi truck.  Perhaps the self-driving trucks could drive at night when there is no other traffic in order to optimize highway utilization. 

[Dalal.Holdings]

If there is truly machine learning going on with every mile driven, then I agree.  The first mover advantage coupled with deploying AV at scale will be nearly impossible to catch. 

 

I think there would be a large value added in the trucking industry as well.  I think the trucks would need to be driven by a person at the loading and unloading stages. However, the cross country miles could be autonomous.  I don't know the stats, but it seems like many highway wrecks involve a semi truck.  Perhaps the self-driving trucks could drive at night when there is no other traffic in order to optimize highway utilization.

 

From the PDF:

Safety through Iterative Design

Our design continuously improves with each iteration of the vehicle and its systems. For example, the Cruise AV is the fourth generation of our self-driving vehicle. Our teams design and create technologies and systems, test them in the field and in simulations, and then feed the results back into the design process. This way we incorporate learnings, especially safety data, into future generations so they

will be even safer. We do this over and over again, leading to new technologies and systems at the heart of our self-driving vehicle. This iterative design process is strengthened by our Deep Integration, which makes the self-driving system an integral part of the vehicle from the outset. This integrated approach enabled us to build our vehicle with diverse technology and redundant vehicle functionality.

 

Management's earlier (few months ago) presentation also went in depth on this (including the simulations they run on computers 24/7). There is a lot of software power here.

 

As to your other point, trucking may come, but if Cruise solves the most difficult aspects of driving (in a busy city like SF or Manhattan), cross country trucking should be much simpler problem. Also, management alluded that in urban areas at off peak taxi times (ie. overnight), the Cruise Bolts can be used to move goods around the city (ie. for online packages, grocery stores, restaurants, etc etc).

[Dalal.Holdings]

https://arstechnica.com/cars/2018/01/why-analysts-put-gm-and-waymo-far-ahead-of-tesla-in-driverless-car-race/

 

Report: GM and Waymo lead driverless car race; Tesla lags far behind

GM’s acquisition of Cruise seems to be paying big dividends.

 

A new report from the consulting firm Navigant ranks the major players in this emerging driverless car industry. Navigant analysts see GM and Waymo as the clear industry leaders, while Ford, Daimler (teamed up with auto supplier Bosch), and Volkswagen Group are also strong contenders in Navigant's view.

 

...

Navigant considers GM to be the driverless car leader, and it's not hard to see why. The automotive giant purchased a little-known driverless car startup called Cruise two years ago, and Cruise has been thriving ever since.

 

This kind of acquisition creates a danger that the new corporate parent's bureaucracy will smother the innovative culture that made the startup successful in the first place. But GM has managed to give Cruise CEO Kyle Vogt enough autonomy—and enough clout within GM more broadly—to continue rapidly improving its driverless car technology.

 

As a result, Cruise has emerged as one of Waymo's top rivals in developing fully driverless vehicle technology. While Waymo has shifted much of its testing efforts to Phoenix (where state regulatory oversight is lax), Cruise has concentrated on testing in San Francisco. Vogt has argued that San Francisco is a better testing environment because cars encounter unusual and difficult situations—like construction zones, pedestrians, and emergency vehicles—much more frequently, allowing Cruise to improve its software more quickly.

 

Cruise's big advantage, though, is that being owned by GM gives it access to vehicle design and manufacturing infrastructure that no technology startup could develop independently. Cruise engineers have been working closely with GM engineers on a modified Chevy Bolt that has been re-designed for driverless capabilities. Last week, GM petitioned the federal government for approval to begin manufacturing modified Bolts with no steering wheels or pedals as soon as next year.

 

Once Cruise is confident its software is safe and reliable, GM can begin producing these vehicles in volume. That means that, even if Cruise isn't the first to market—it looks like Waymo is likely to claim that honor—Cruise may be able to scale up more quickly, allowing Cruise to eventually capture a large share of the market.

 

GM and Waymo are the real top level 4 contenders here, and GM unlike Waymo seems more capable of deployment in the most complex urban settings.

 

And commercialization is coming very quickly. Earlier this week GM's management indicated deployment of driverless (likely app hailed) taxis in early 2019. This was in addition to strong profit forecast in 2018 (despite a truck refresh) and profit growth in 2019 and beyond.

 

http://www.gm.com/mol/m-2018-jan-0116-gm-forecasts.html

[Dalal.Holdings]

GM remains David Einhorn's largest position with a positive outlook (per Greenlight Letter found here):

 

[chesko182]

https://www.bloomberg.com/news/features/2018-01-16/why-the-american-sedan-is-marked-for-death

[JRM]

https://seekingalpha.com/pr/17178461-softbank-vision-fund-invest-2_25-billion-gm-cruise

 

A $2.25B investment for 19.6% of the company would indicate they value Cruise at ~$11.5B.  Not too shabby.

 

Competition will be intense with Uber and Waymo teaming up.

[LightWhale]

 

Competition will be intense with Uber and Waymo teaming up.

 

the meaning of competition is vague, considering that softbank is also Uber's largest shareholder...

[rsmehta]

https://seekingalpha.com/pr/17178461-softbank-vision-fund-invest-2_25-billion-gm-cruise

 

A $2.25B investment for 19.6% of the company would indicate they value Cruise at ~$11.5B.  Not too shabby.

 

Competition will be intense with Uber and Waymo teaming up.

 

 

Competition will be intense?

 

Two companies fighting for a $200B market opportunity in 7 years...my money is on both will be winners.

 

 

  I hate the binary "Uber vs Lyft" kind of arguments, both of them have done tremendously well over the past 10 years.

[JRM]

 

Competition will be intense with Uber and Waymo teaming up.

 

the meaning of competition is vague, considering that softbank is also Uber's largest shareholder...

 

...and GM owns 5% of Lyft, and Lyft has partnered Waymo as well. 

 

 

[gokou3]

Chart set for today's announcement:

http://www.gm.com/events/5271967.html

 

Seeking alpha also has transcript of the call.

[Lakesider]

Cruise could be worth more than the rest of GM in a few years. 

[Gregmal]

https://seekingalpha.com/article/4188677-general-motors-time-activist-involvement

 

Makes some good points and I've always thought a longer term activist would benefit here. Funny though, how when we got one, people bitched and moaned about it. Hope they are enjoying $39/share...

[RadMan24]

https://seekingalpha.com/article/4188677-general-motors-time-activist-involvement

 

Makes some good points and I've always thought a longer term activist would benefit here. Funny though, how when we got one, people bitched and moaned about it. Hope they are enjoying $39/share...

 

What exactly is an "activist" going to do? GM is well run operationally, capital allocation is fine, left markets where they have no scale, if anything, they should cut the dividend.

[Gregmal]

https://seekingalpha.com/article/4188677-general-motors-time-activist-involvement

 

Makes some good points and I've always thought a longer term activist would benefit here. Funny though, how when we got one, people bitched and moaned about it. Hope they are enjoying $39/share...

 

What exactly is an "activist" going to do? GM is well run operationally, capital allocation is fine, left markets where they have no scale, if anything, they should cut the dividend.

 

The article nailed the main thing for me, and that is that management is not well aligned. There is next to no shareholder representation on the board, and that they hypocritically talk about "the long term" while compensation management for short term stuff, without actually holding them accountable for the ultimate short and long term measuring stick, the stock price. Compared to peers the performance has been pretty bad too. You can say it is run well operationally, and I'd even largely agree. But at the end of the day you are lagging the market, and lagging peers, over a short, medium, and long term horizon, then I would probably say that this is all the evidence you need to conclude that you have the wrong strategy.

[RadMan24]

https://seekingalpha.com/article/4188677-general-motors-time-activist-involvement

 

Makes some good points and I've always thought a longer term activist would benefit here. Funny though, how when we got one, people bitched and moaned about it. Hope they are enjoying $39/share...

 

What exactly is an "activist" going to do? GM is well run operationally, capital allocation is fine, left markets where they have no scale, if anything, they should cut the dividend.

 

The article nailed the main thing for me, and that is that management is not well aligned. There is next to no shareholder representation on the board, and that they hypocritically talk about "the long term" while compensation management for short term stuff, without actually holding them accountable for the ultimate short and long term measuring stick, the stock price. Compared to peers the performance has been pretty bad too. You can say it is run well operationally, and I'd even largely agree. But at the end of the day you are lagging the market, and lagging peers, over a short, medium, and long term horizon, then I would probably say that this is all the evidence you need to conclude that you have the wrong strategy.

 

Which peers? Over a 5 year  period....FCA is the only one that has significantly outperformed. GM has also trailed Peugeot. GM has done better than Ford, BMW, VW, Toyota, & Hyundai.

 

 

 

 

[Gregmal]

https://seekingalpha.com/article/4188677-general-motors-time-activist-involvement

 

Makes some good points and I've always thought a longer term activist would benefit here. Funny though, how when we got one, people bitched and moaned about it. Hope they are enjoying $39/share...

 

What exactly is an "activist" going to do? GM is well run operationally, capital allocation is fine, left markets where they have no scale, if anything, they should cut the dividend.

 

The article nailed the main thing for me, and that is that management is not well aligned. There is next to no shareholder representation on the board, and that they hypocritically talk about "the long term" while compensation management for short term stuff, without actually holding them accountable for the ultimate short and long term measuring stick, the stock price. Compared to peers the performance has been pretty bad too. You can say it is run well operationally, and I'd even largely agree. But at the end of the day you are lagging the market, and lagging peers, over a short, medium, and long term horizon, then I would probably say that this is all the evidence you need to conclude that you have the wrong strategy.

 

Which peers? Over a 5 year  period....FCA is the only one that has significantly outperformed. GM has also trailed Peugeot. GM has done better than Ford, BMW, VW, Toyota, & Hyundai.

 

Was looking at performance since GM IPO. Companies I follow TM, Hyundai, FCAU, BMW have all done better(Hyundai has come back down to Earth a bit of late), while GM has basically been middle of the pack to mediocre with the rest of the autos and not ever even gone anywhere whereas some of the others have gone on ridiculous runs and at least given shareholders a chance at profit. Ford I don't count because it's such an obvious turd that you only have yourself to blame if you've invested in it.

 

I'll elaborate further. Companies that at least go on decent runs(like Hyundai or even GM earlier in the year) at least show that they have gotten the market excited about their business once in a while. It also gives investors a chance to trade the position. GM up until earlier this year had been a complete turd that barely budged to the upside and only gave you a chance if your strategy was to BTFD and sell for $1-2 a share profit. Which only adds insult to injury when senior management gets gifted shares that they then immediately dump on investors regardless of price, even when they continue to tell you how great of an investment their company is.

[Spekulatius]

I'll elaborate further. Companies that at least go on decent runs(like Hyundai or even GM earlier in the year) at least show that they have gotten the market excited about their business once in a while. It also gives investors a chance to trade the position. GM up until earlier this year had been a complete turd that barely budged to the upside and only gave you a chance if your strategy was to BTFD and sell for $1-2 a share profit

 

This is a funny way to look at this, but it is exactly what any activist investors are out too do. Get a quick pop in the stock price, activist can sell out at a nice profit and move on. However, it is not the management job to comply with this.

 

When I look at Einhorns recap approach using preferred stock, it is quite clear that his is what he wanted to do. Besides the fact that it probably wouldn’t habe worked (he valued the preferred way to high in his sandbox game), it would have created conflict of interest and difficulties further down the road, which of course wouldn’t have been his problem.

 

I am not a shareholder, but just from looking at the numbers, GM’s management has done fine. The stock has just not been awarded a multiple expansion like some others, that’s why it hasn’t moved much. in my opinion, management job isn’t to get thr stock price up, it is to run the business well. This should lead to a higher stock price , but sometimes it doesn’t, which is why value stocks exist in the first place.

[Gregmal]

I'll elaborate further. Companies that at least go on decent runs(like Hyundai or even GM earlier in the year) at least show that they have gotten the market excited about their business once in a while. It also gives investors a chance to trade the position. GM up until earlier this year had been a complete turd that barely budged to the upside and only gave you a chance if your strategy was to BTFD and sell for $1-2 a share profit

 

This is a funny way to look at this, but it is exactly what any activist investors are out too do. Get a quick pop in the stock price, activist can sell out at a nice profit and move on. However, it is not the management job to comply with this.

 

When I look at Einhorns recap approach using preferred stock, it is quite clear that his is what he wanted to do. Besides the fact that it probably wouldn’t habe worked (he valued the preferred way to high in his sandbox game), it would have created conflict of interest and difficulties further down the road, which of course wouldn’t have been his problem.

 

I am not a shareholder, but just from looking at the numbers, GM’s management has done fine. The stock has just not been awarded a multiple expansion like some others, that’s why it hasn’t moved much. in my opinion, management job isn’t to get thr stock price up, it is to run the business well. This should lead to a higher stock price , but sometimes it doesn’t, which is why value stocks exist in the first place.

 

This may be what some look to do, however the basis of my comment more so was referring to the fact that this is a pretty good indicator that management has given the market zero reason to get excited about the company. Look at the ultimate auto disaster, Ford. For the past roughly half decade, the shares have just gradually eroded. Never has there been any excitement around them, never has the patient long term shareholder been in a position to reap the rewards of their investment, never has anyone but management been rewarded. So in summary, when your share performance has been poor(check out this morning), corporate governance lacking, and the market clearly demonstrating to you that it has no interest in what you are bringing to the table. perhaps it's time to re-evaluate your strategy; even if "on paper" it looks and sounds good. A public company's job is to create value for shareholders. The stock performance has been bad, the dividend payout is low and hasn't been upped in years, and the buybacks have been mediocre. What has GM's Board really done for shareholders?

[gokou3]

Why Waymo Is Worth A Staggering $175 Billion Even Before Launching Its Self-Driving Cars

https://www.forbes.com/sites/alanohnsman/2018/08/07/why-waymo-is-worth-a-staggering-175-billion-even-before-launching-its-self-driving-cars/#7e4330dcdd3a

 

Meanwhile, the entire GM is valued at $53B or 30% of Morgan Stanley's valuation of Waymo.  Understood TaaS is likely a winner-take-all business.  But assuming Waymo has won even though in reality that there will be no clear winner any time soon, GM seems under-estimated.

[RadMan24]

Why Waymo Is Worth A Staggering $175 Billion Even Before Launching Its Self-Driving Cars

https://www.forbes.com/sites/alanohnsman/2018/08/07/why-waymo-is-worth-a-staggering-175-billion-even-before-launching-its-self-driving-cars/#7e4330dcdd3a

 

Meanwhile, the entire GM is valued at $53B or 30% of Morgan Stanley's valuation of Waymo.  Understood TaaS is likely a winner-take-all business.  But assuming Waymo has won even though in reality that there will be no clear winner any time soon, GM seems under-estimated.

 

There are valuations of Cruze out there that propose it could be around $50 billion one day, the current size of GM.

 

I really don't understand Gregmal's arguments. How can you possibly be this disgruntled considering the company went bankrupt in the last recession? You want them to pay more in dividends? That's nuts! The board has gotten GM out of Europe - which will have the most stringent emissions requirements, restructured Korea, and have approved two successful investments in GM finance and Cruze.

 

I guess GM should go private...lol

[JRM]

https://www.bloomberg.com/news/articles/2018-08-31/lyft-is-said-to-hire-adviser-to-prepare-for-targeted-2019-ipo%0A

 

A Lyft IPO would be a nice cash infusion for GM.  Not sure why they invested initially, but it looks like it may have been a decent short term investment.  They paid $500M for 9% of the company back in 2016. 

[Gregmal]

GM priced over $2B of notes today. Wonder if they will finally do something proactive. Otherwise I'd have to think the end is near for current management. Bottom line when you trade at 5-6x earnings for multiple years there is no excuse for your shares outstanding to not decrease substantially, especially if your share price has been in the dumps. Barra, instead, has plowed money into R&D and other nonsense(including a few great investments) and ultimately shareholders have little to show for this.

 

While I once ripped the strategy at Fiat, it's proven true, you don't need to go crazy on R&D spend. GM doesn't pay taxes, and generates significant FCF. How the heck has neither the share price gone up OR the share count decreased by 25%+? The skeptics have been wrong crying "PEAK AUTO" for the past 4-5 years. That's not an excuse anymore.

[Spekulatius]

GM priced over $2B of notes today. Wonder if they will finally do something proactive. Otherwise I'd have to think the end is near for current management. Bottom line when you trade at 5-6x earnings for multiple years there is no excuse for your shares outstanding to not decrease substantially, especially if your share price has been in the dumps. Barra, instead, has plowed money into R&D and other nonsense(including a few great investments) and ultimately shareholders have little to show for this.

 

While I once ripped the strategy at Fiat, it's proven true, you don't need to go crazy on R&D spend. GM doesn't pay taxes, and generates significant FCF. How the heck has neither the share price gone up OR the share count decreased by 25%+? The skeptics have been wrong crying "PEAK AUTO" for the past 4-5 years. That's not an excuse anymore.

 

They have bought quite a few shares back (7% of outstanding), while keeping the balance sheet steady. The multiples have come down in the whole space, including car suppliers. The German car companies are even cheaper than GM at this point. FCAU has performed better, but it is the exception not the rule.

[Gregmal]

GM priced over $2B of notes today. Wonder if they will finally do something proactive. Otherwise I'd have to think the end is near for current management. Bottom line when you trade at 5-6x earnings for multiple years there is no excuse for your shares outstanding to not decrease substantially, especially if your share price has been in the dumps. Barra, instead, has plowed money into R&D and other nonsense(including a few great investments) and ultimately shareholders have little to show for this.

 

While I once ripped the strategy at Fiat, it's proven true, you don't need to go crazy on R&D spend. GM doesn't pay taxes, and generates significant FCF. How the heck has neither the share price gone up OR the share count decreased by 25%+? The skeptics have been wrong crying "PEAK AUTO" for the past 4-5 years. That's not an excuse anymore.

 

They have bought quite a few shares back (7% of outstanding), while keeping the balance sheet steady. The multiples have come down in the whole space, including car suppliers. The German car companies are even cheaper than GM at this point. FCAU has performed better, but it is the exception not the rule.

 

They've been lackluster for a company that has traded at 5-6x now for several years. More significantly, they have offset a bunch of this by inexplicably issuing shares to executives, who then immediately turn around and dump them at market. Creating "long term value" is the biggest farcical anecdote out there, and ultimately a big time enabler of poor management. If your stock hasn't gone anywhere in almost a decade, forget the fact we're in a stupid long bull market, you haven't created long term value. Plain and simple.