Will GM Go Beyond Its All-Time High?

| About: General Motors (GM)

This year has been very good for General Motors (GM) after experiencing more than 27% improvement in its stock price. One of the reasons for this uptick was a rise in the number of cars sold in the US during the year. In August this year, the company sold 275,847 vehicles in the US, which is 15% more compared to the previous year's August. To further break down this rise, Cadillac observed 38% increase, Buick was up 37%, GMC surged by 14%, and Chevrolet sales were up 10%. As we discussed in our last article, General Motors launched the hybrid variant of its Chevrolet Volt, which was also responsible for the rise in Chevrolet sales. According to the company, 'the Chevrolet Volt had its best month ever.' We believe the price drop of $5,000 did the trick and helped Chevrolet sell 3,351 Volts in August.

Revival of the brand will prove beneficial

General Motor's European operations, which consist of Opel, incurred a loss of more than $18 billion since 1999. Looking at Opel's losses, the company plans to invest around $5.4 billion in the brand by the end of 2016. Through the investment, it is planning to launch 23 new or renewed models by 2016. It invested $175 million in the German engine and parts plant to install new machinery and to buy new tooling. With the help of new machinery and tooling, it will produce body and chassis parts for the next generation Astra compact car and Insignia mid-size car. General Motors also plans to build the Euro 6 generation 2.0 liter diesel engine, which is expected to start in October 2014. We believe the company's heavy investment in Europe could be profitable in the span of two to three years.

To secure revenue growth from the European market, General Motors showcased new models under its Opel brand at the International Motor Show held in Frankfurt. It released the revamped Insignia Country Tourer, OPC, and the Opel Monza concept car. The company also brought the limited edition of Opel's Adam Black Link and White Link to display during the event. We believe these new cars will face tough competition from its American counterpart Ford Motor's (F) upcoming new models. According to Ford, the European car market is expected to grow by 20% in the next five years. To capitalize on the growing market, it plans to introduce 25 new models in the next three years. To compete in the European market, Ford unveiled a high-end version of its flagship car Mondeo, known as Vignale.

On the other side, it is focusing on the sale of electric vehicles, and it will offer three electric vehicles in Europe by 2014. The first to launch will be the new C-MAX Energi plug-in hybrid and the Hybrid version of Mondeo. Ford manufactures the second highest number of hybrid vehicles globally, and it is performing well in the US It recently announced its electric vehicle sales numbers in the US, which were around 46,000 cars through June this year. That is a massive 400% year over year rise. We believe Ford will look to replicate this performance and will focus on making a strong presence in Europe. It will have to compete with General Motors, which has a market share of more than 8% in Europe and has the potential to outpace its peers with its investments.

China will always remain in the spotlight

In addition to the steps taken to make a solid presence in Europe, General Motors is also focusing on China, which has been the world's largest car market since 2009. The company offers 40 models under seven brands, including Buick and Cadillac, and enjoys a dominant position in China with 14.5% market share this year. In August this year, it sold 245,799 vehicles in China, which is an 11.2% year over year rise. To continue with this impressive performance, General Motors plans to make aggressive investments in China; it will spend $11 billion by 2016 on constructing four new manufacturing plants in China to boost production capacity to 5 million vehicles a year in the next two years. A part of the investment will also be used to introduce 17 new models in China this year, focusing on sport utility vehicles and luxury brands. We believe this will give the company a competitive edge over its peers and increase the revenue share coming from China.

The Chinese market has been drawing attention of almost all the automakers around the world. General Motors' German rival Volkswagen (OTCPK:VLKAY) is also taking various initiatives to gain a strong hold in China. Recently, Volkswagen opened a new manufacturing plant in Guangdong, China, which will have a production capacity of 300,000 units annually. Going forward, Volkswagen plans to increase its production in China by 60% in the next five years. In China, it plans to offer 20 new variants of its cars, sport-utility vehicles, vans, and heavy trucks in the years to come. In our view, both the companies have been in competition with each other to top the sales chart in China with their cars, vans, and mini vehicles. With 14.1% market share in China, Volkswagen is in second position in terms of sales, and it could possibly overtake General Motors. On the other hand, the upcoming model launches from General Motors will prove to be a tough competition for Volkswagen. It will be interesting to see which company wins the market share battle.


With increasing focus in the European and Chinese car market, General Motors is well positioned in terms of future revenue growth. The stock price is also moving upwards with the revenue growth of around 4% in this year. We expect that the company's investments in Europe and China and the revenue growth it has observed in the past will guide it to go beyond the $37 mark. The investors seem to have confidence in the stock and have been investing heavily. We believe investors who are looking for a long term, stable investment should consider General Motors as a stock to go for.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Fusion Research is a team of equity analysts. This article was written by Madhu Dube, one of our research analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.