GM - General Motors

[TwoCitiesCapital]

https://www.cnbc.com/2020/08/18/wall-street-pushes-for-gm-to-spin-off-its-electric-vehicle-business.html

 

Pressure is mounting from Wall Street for General Motors to spin off its electric vehicle business.

 

The spin-off company could be worth between $20 billion to $100 billion, according to Deutsche Bank.

 

GM CEO Mary Barra last month said “nothing is off the table” when it comes to the company unlocking shareholder value.

 

 

It would be nice for shareholders if the market decides to value the EV business like a tech company and probably overvalue it. But it sounds like a pretty crazy idea to me in terms of the business. If GM loses all the tech of the EVs, then what is left for GM? Just a dying old car business? And what advantage does the EV spin-off have if it doesn't take the manufacturing capacity of GM with it?

 

Can't they spin it off while retaining majority ownership? Or even minority ownership?

 

GM could spin-off 51% of the co to its shareholders and have it trade as a separate entity while continuing to own 49% which effectively would still give it control over the strategic direction of the company while optically not being a controlling shareholder

 

Just would allow the markets to reflect whatever valuation it deems fit for the the new/sexy/electric co and another valuation for the old/drab co + 49% ownership in the new co.

 

Unpackaging and repackaging SHOULDN'T create shareholder value, but it often does.

[Gregmal]

Yes, they could. But then again, they could have done a lot of things that seemed like common sense; that would have benefited shareholders, but didnt/havent.

 

Especially for a tech company like Cruise, employees hate not having liquidity then huge chunks of their comp is generally in the form of shares.

[RadMan24]

Yes, they could. But then again, they could have done a lot of things that seemed like common sense; that would have benefited shareholders, but didnt/havent.

 

Especially for a tech company like Cruise, employees hate not having liquidity then huge chunks of their comp is generally in the form of shares.

 

Airbnb has done it. But then again, can you even list more than one thing GM could have done that was common sense that would have benefited shareholders?

 

 

[RadMan24]

https://www.cnbc.com/2020/08/18/wall-street-pushes-for-gm-to-spin-off-its-electric-vehicle-business.html

 

Pressure is mounting from Wall Street for General Motors to spin off its electric vehicle business.

 

The spin-off company could be worth between $20 billion to $100 billion, according to Deutsche Bank.

 

GM CEO Mary Barra last month said “nothing is off the table” when it comes to the company unlocking shareholder value.

 

 

It would be nice for shareholders if the market decides to value the EV business like a tech company and probably overvalue it. But it sounds like a pretty crazy idea to me in terms of the business. If GM loses all the tech of the EVs, then what is left for GM? Just a dying old car business? And what advantage does the EV spin-off have if it doesn't take the manufacturing capacity of GM with it?

 

Can't they spin it off while retaining majority ownership? Or even minority ownership?

 

GM could spin-off 51% of the co to its shareholders and have it trade as a separate entity while continuing to own 49% which effectively would still give it control over the strategic direction of the company while optically not being a controlling shareholder

 

Just would allow the markets to reflect whatever valuation it deems fit for the the new/sexy/electric co and another valuation for the old/drab co + 49% ownership in the new co.

 

Unpackaging and repackaging SHOULDN'T create shareholder value, but it often does.

 

There's got to be a distinct difference in business lines, like Conoco and Phillips 66, in my opinion for spinoffs to work.

 

Problem is, GM like Tesla doesn't make the batteries. BYD can spinoff its battery manufacturing from its auto business and that would work easily to gain more auto customers without the conflict of interest and could create significant value.

 

I fail to see how people think electric cars are pulling RVs and going on beach trips during this pandemic. GM is a truck company and sells SUVs and Trucks. If listing the EV business means "old" GM is stuck with the profit machine of trucks and SUVs, so be it. Can't lose in that situation, less you think the Hummer EV will be a bust.

[Gregmal]

The spinoff creates two radically different, pureplay businesses and likely appeases two different investor bases. EVs/autonomous vehicles have yet to really demonstrate any sort of profit model. Teslas profitability at this point relies on ZEV credits. So to split out the two rewards long term holders who saw this investment through; a liquidity event of sorts, but also refines GM core business to what I'd imagine most investors look to own in the first place...a profit machine truck/SUV company. Its financial engineering, but at GM, its about damn time they start caring about "the market" and their "valuation". You just ran through the greatest profit cycle in history and all shareholders have to show are paper losses. Patience and all that mumbo jumbo are great, but a lost decade when investing is pretty devastating.

[RadMan24]

The spinoff creates two radically different, pureplay businesses and likely appeases two different investor bases. EVs/autonomous vehicles have yet to really demonstrate any sort of profit model. Teslas profitability at this point relies on ZEV credits. So to split out the two rewards long term holders who saw this investment through; a liquidity event of sorts, but also refines GM core business to what I'd imagine most investors look to own in the first place...a profit machine truck/SUV company. Its financial engineering, but at GM, its about damn time they start caring about "the market" and their "valuation". You just ran through the greatest profit cycle in history and all shareholders have to show are paper losses. Patience and all that mumbo jumbo are great, but a lost decade when investing is pretty devastating.

 

Yes, how did Cisco do post dot.com boom? Has it ever recouped the valuation it once had? Even though routers and switches dominated the world, Cisco joined the market exuberance and justified its valuation over another 30 years. Sounds like a lost twin decade is more of a potential issue for Tesla investors than for GM investors.

[Xerxes]

For what is worth IIRC, the current president of Cruise has illiquid Cruise shares as comp and not GM shares. Whatever folks are thinking in this thread has been thought about at GM. We may not like their pace of response, but who said it was easy to turn a battleship. 

 

On spin off, the lower GM retains the better it is.

 

But what they didn’t thought about, until perhaps Nikola, is the spectacle of EVs with no revenues that can got huge multiples.

 

Lastly I believe the note from the Deutsche Bank analyst was more than Cruise. He was talking about all electrical cars. As a reminder Cruise is the autonomous division of GM only.

[Gregmal]

The spinoff creates two radically different, pureplay businesses and likely appeases two different investor bases. EVs/autonomous vehicles have yet to really demonstrate any sort of profit model. Teslas profitability at this point relies on ZEV credits. So to split out the two rewards long term holders who saw this investment through; a liquidity event of sorts, but also refines GM core business to what I'd imagine most investors look to own in the first place...a profit machine truck/SUV company. Its financial engineering, but at GM, its about damn time they start caring about "the market" and their "valuation". You just ran through the greatest profit cycle in history and all shareholders have to show are paper losses. Patience and all that mumbo jumbo are great, but a lost decade when investing is pretty devastating.

 

Yes, how did Cisco do post dot.com boom? Has it ever recouped the valuation it once had? Even though routers and switches dominated the world, Cisco joined the market exuberance and justified its valuation over another 30 years. Sounds like a lost twin decade is more of a potential issue for Tesla investors than for GM investors.

 

Sooo then monetizing(or at least partially monetizing) one of the euphoria businesses, that, on a real, dollar earning basis, contributes zero to GM core, would be sensible, no? If Ebay can spin out PayPal, GM can spinout Cruise.

[Spekulatius]

An EV spin-off wouldn’t work, because the ICE legacy business would loose all their capable employees because there wouldn’t be any longterm future. It would be an empty shell in a short period of time.

[Dalal.Holdings]

GM Takes $2 Billion Stake in Nikola and Partners on Pickup Model  https://www.bloomberg.com/news/articles/2020-09-08/gm-takes-2-billion-stake-in-nikola-and-partners-on-pickup-model

 

[Gregmal]

Sooooo, GM cant buyback stock or pay a dividend, and is concerned about managing liquidity and resources....and then does this! At least they realize that catering to Robinhood can temporarily move the stock....Perhaps graciously hinting to their shareholders that its time to exit?

[arcube]

Not sure if the $ 2bn is real cash outlay.

 

Sooooo, GM cant buyback stock or pay a dividend, and is concerned about managing liquidity and resources....and then does this! At least they realize that catering to Robinhood can temporarily move the stock....Perhaps graciously hinting to their shareholders that its time to exit?

[RadMan24]

I mean, its on an 8-k and press release what the terms of the deal are. Amazing how we're all of a sudden talking about cash outlays and liquidity. Some people really do not get it.

[Xerxes]

I understand there is view out there (ever getting stronger) that the clunky auto makers with their captive assets cannot turn around fast enough and that Musk is a genius that can do no wrong.

 

Mush is certainly a genius, not only a technical genius, but also a marketing/financial genius who was able to weaponized his fan base and  pretty much fund its growth by its ever lofty valuation. However, if Musk is the Bezos of the auto-industry, then there is bound to be a Walmart lurking around. To me that is GM and Volkswagen.

 

If Tesla is the cool looking Apple taking the world by storm, then perhaps GM and Volkswagen could be its Microsoft in the years 2011-2014, left for dead. Say what you want about M. Barra, but she has a hard job and she has an entire Tesla fan base set against her, but the investment she is doing could be the platform that her successor can build the company's growth.

 

I much prefer the capital allocation strategy to be geared fully into product development. I am a big fan buybacks, but only for companies that make so much that they cannot gave back to shareholder fast enough. And i am also happy that the dividend is fully cut. That is $2 billion per annum saved. The reality is that General Motors once upon a time was ran by the bean-counters for the bean-counters. It headed straight for Chapter 11. Not solely because of that but that was a factor.

 

The Nikola deal, she got 10% of equity with no cash outlay as an option play. I don't think that is bad.

 

 

[Gregmal]

GM spokesman Jim Cain declined to elaborate on the type of diligence the automaker conducted other than to say it was a “thorough review of business, legal and technical matters.”

[Spekulatius]

GM spokesman Jim Cain declined to elaborate on the type of diligence the automaker conducted other than to say it was a “thorough review of business, legal and technical matters.”

 

Translation : many lawyers and probably no engineers have done due diligence. I am constantly surprised (I am just a lowly engineering grunt, mind you) how little due diligence is done on a technical level even for large acquisitions.

[fareastwarriors]

The Incredible Shrinking GM: Mary Barra Bets That Smaller Is Better

 

The CEO streamlined a company that for decades reigned as the world’s largest auto maker. Now, she is readying for the next big bet: electric cars.

 

https://www.wsj.com/articles/the-incredible-shrinking-gm-mary-barra-finds-success-by-getting-smaller-11600438421?mod=hp_lead_pos7

[arcube]

Thanks for sharing.

 

Another puff piece to save her skin. New strategy, new shrinking IBMsque style. Deer and the headlight issue. Now they want to sell battery tech to other companies.

 

Nothing is clear about their strategy. Nothing. She needs to be canned after the NKLA fiasco. Can’t believe she is running this company.

 

The Incredible Shrinking GM: Mary Barra Bets That Smaller Is Better

 

The CEO streamlined a company that for decades reigned as the world’s largest auto maker. Now, she is readying for the next big bet: electric cars.

 

https://www.wsj.com/articles/the-incredible-shrinking-gm-mary-barra-finds-success-by-getting-smaller-11600438421?mod=hp_lead_pos7

[Gregmal]

Its funny because in respect to both your comment, and what Spek stated earlier, the pitch for Barra was that she was a GM lifer. A true engineer, who understood the company. Rather than a WS suit with an MBA...

[Foreign Tuffett]

Agree that "puff piece" is a great description of the WSJ article.

[arcube]

Trevor out at NKLA. Time for Barra to be out too and a complete shake up at GM with some new DNA management team.

[fareastwarriors]

 

 

Ex-GM Executive Moonlights as Matchmaker in Deal With Startup Nikola

 

Partnership came amid push to speed electrification goals

 

https://www.bloomberg.com/news/articles/2020-09-16/ex-gm-exec-moonlights-as-matchmaker-in-deal-with-startup-nikola?srnd=premium

[Spekulatius]

Trevor out at NKLA. Time for Barra to be out too and a complete shake up at GM with some new DNA management team.

 

So much for due diligence. I agree heads need to roll.

[Xerxes]

Man, I feel like a fool on my earlier comment on keeping on the long term with GM.

If Nikola is turning into GM’s WeWork, at least they didn’t pay much for it.

[Guest cherzeca]

Trevor out at NKLA. Time for Barra to be out too and a complete shake up at GM with some new DNA management team.

 

So much for due diligence. I agree heads need to roll.

 

I spent many years doing due diligence on deals. legal and business.  I can't think of a bigger DD screw up than this. there used to be a joke that you "should make sure that there is no moving truck in the parking lot" when you do DD.  I guess the joke is now changed to "and be sure that there isn't an electric cable coming out of the truck". this says to me that GM is way behind in EV, and let its panic cloud a fairly simple business DD job.  this is not about accounting fraud not being discovered...this is about not asking someone to turn the ignition switch on in the truck prototype.