- The global market for self-driving vehicles and services could expand at a rate of 39.5% compounded annually and reach $556.7 billion.
- Experts believe Waymo is the clear leader in this space, but it’s followed closely by GM’s self-driving Cruise division.
- Cruise is currently worth $14.6 billion, has over $6 billion in cash, and may IPO soon.
- Buying GM is a no-brainer for growth investors.
Before I go any further, I want to give a shoutout to Steve Eisman for suggesting this title in an interview. Eisman is the managing director at Neuberger Berman, but he’s best known for being portrayed by Steve Carrell in 2015’s the Big Short.
Lately, he’s been touting two key positions in his portfolio - a short position on Tesla (TSLA) and a long position in General Motors (NYSE:GM). That latter bet is based on Eisman’s belief that the company’s turnaround is likely to be successful and that their self-driving car unit could already be worth more than the entire parent company. In the interview with ETN, he said someday a financial writer would write about this odd phenomenon, so that’s exactly what I’m doing here.
I want to take a closer look at the self-driving car section, pull it apart from the rest of the company, and value it independently. The objective is to figure out if this legacy stock’s notorious reputation and bleak investor sentiment is hiding an undervalued tech gem in plain sight.
What is self-driving worth?
By at least one estimate, from Portland-based Allied Market Research, the global market for self-driving vehicles and services is currently worth $54.23 billion. By 2026, this market could expand at a rate of 39.5% compounded annually and reach $556.7 billion. At least one other estimate concludes that the market will be worth a jaw-dropping $7 trillion by 2050.
For any growth-oriented investor, those figures are simply astounding. What’s more interesting is the fact that there are only a handful of companies involved in the space today. Two of the leaders in the market are Google’s (GOOG) (GOOGL) Waymo and GM’s Cruise.
Now it might seem odd to say that a company that’s been around for more than 110 years, was on the verge of bankruptcy a few years ago, and is generally considered the most boring car company on the planet is now at the bleeding-edge of the autonomous car world. But experts seem to agree that GM’s Cruise unit has surpassed most rivals and is now one of the most sophisticated platforms out there.
Here’s a quote from Brian Collie, head of Boston Consulting Group’s U.S. automotive practice:
“Waymo has developed a phenomenal system and is ahead of the pack, but that’s very different from being able to manufacture an autonomous vehicle. You have to look at GM. In Europe, Daimler is leading the pack.”
“GM's technology is as good as Waymo's, and they have the capability to develop and service those vehicles. They're in good shape.”
Market researchers aren’t the only ones excited. Last year, Honda Motor Co. (HMC) announced a $2.75 billion investment in GM's Cruise LLC following SoftBank’s (OTCPK:SFTBY) $2.25 billion investment in the unit on May 31, in addition to a fresh $1.1 billion from GM.
SoftBank, by the way, is the same company that owns massive chunks of ride-sharing startups like Uber Technologies Inc. (UBER), Lyft (LYFT), India’s Ola, Singapore’s Grab, and China’s Didi Chuxing. There’s an obvious synergy here that promises an exciting future for GM Cruise.
What’s GM Cruise worth?
Unlike most exciting startups that are private companies with vague valuations, GM Cruise has an exact market capitalization at the moment - $14.6 billion.
That figure is derived from the recent investments from Honda and SoftBank, but also from the stock options offered as compensation to the Cruise division’s new chief executive Dan Ammann. According to Reuters, the structure of Ammann’s compensation indicates that GM is looking at a potential IPO of the unit in the near future.
A spin-off will unlock tremendous value for current shareholders, as Cruise can step away from GM’s legacy and long shadow and be valued as a tech startup. There’s little doubt an IPO will value the company at more than the current $14.6 billion. After all, Uber itself is worth an estimated $120 billion. Self-driving should be worth more than ride-sharing in the near future.
Also, note that artificial intelligence is a winner-take-all market, so an early leader has a tangible first-mover advantage. The capabilities compound as the self-driving cars clock more miles.
Meanwhile, GM’s market cap is $56.4 billion. The stock trades at a price-to-earnings ratio of 7.2x and even offers a dividend of 3.85%. By itself, GM’s core business is a healthy car company with a solid balance sheet, a global distribution network, and a steady stream of cash flows.
Investors who pick up GM stock today get a great company that’s fairly valued, with one of the most exciting self-driving startups thrown in for nearly free. Getting paid a 3.85% dividend yield while you wait for this exciting startup to take off should be a no-brainer for tech investors.
This article was written by
Analyst’s Disclosure: I/we 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.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.