General Motors: Losing The EV Hype Battle

Oct. 08, 2021 9:00 AM ETGeneral Motors Company (GM)F, TSLA64 Comments4 Likes
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Summary

  • There are a lot of factors which go into the success or failure of automotive companies.
  • One of the most important ones in recent years has been the company's ability to hype up their new releases and General Motors has thus far failed at this endeavor.
  • As a result, I believe they will continue to lose market share and that other companies will provide for a better investment return potential.
General Motors Posts $2.8 Billion Profit In Second Quarter

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There are several factors that go into the success of an automobile manufacturer and especially an electric-powered vehicle manufacturer. There's the obvious performance, mileage and other sleek features to consider, but one of the factors which helped a company like Tesla (TSLA) to succeed is the hype they had around their products - in this case their vehicles.

In the current battle of hype, there are clear winners like Tesla and Ford (F), which made a big-deal announcement of their all-electric, all American classic F-150 pickup truck, which made headlines and waves. Even the higher-end companies like Porsche (OTCPK:POAHY) and Mercedes-Benz (OTCPK:DDAIF) have made a point of hyping up their new releases and out in the extra effort to effectively market new EV vehicles.

But there's one automobile behemoth that hasn't put a premium on hyping up their new EV products, and that's General Motors (NYSE:GM). They have announced several new all-electric vehicle releases over the past few years, as well as having one of the best-selling EV cars in the Chevrolet Bolt, but have failed to grab the consumers' attention and as a result have seen their market share dwindle down over the past few quarters, which I expect will continue.

The Hype Game

Electric vehicles are cool, no doubt. They are something new which sparked our imagination as well as our long-term pocket books with savings on gas and other cool features. But there's a big leap to be taken between that feeling and shilling out tens of thousands of dollars for a brand new, and untested, Tesla car back a few years ago. It was pricier than almost any other car out there, it did have a decent range but with the lack of a charging network it was only feasible for a small segment of the population who only had a short commute to work and could afford a home charging station.

What made demand outpace supply to this day, however, was the hype surrounding the new cars as a concept, not just as a product, given what I mentioned as the impracticalities of the new all-electric automobile. Elon Musk and the Tesla marketing team, even if one technically didn't exist, did a magnificent job in hyping up the new product to an extent that years later we're still seeing demand outpacing supply.

Then it was other luxury automakers' turn to do the same with companies like Mercedes-Benz and Porsche launching their all-electric and some hybrid luxury vehicles with spark and awe. They made a case of showcasing performance of the new vehicles but made it more of a hype session. Then it was Ford's turn with the future launch of the F-150, which has been one of the best ever selling pickup trucks in history. As a result, orders came in by the thousands and the event alone caused their stock price and prospects, including upward earnings revision, to get a much needed boost.

This isn't just a demand booster. After all is said and done, only a company like Tesla can use that hype factor to increase prices over and over again to boost their profit margins, which then contributed more cash which allowed them to speed up manufacturing and deliveries, creating a positive snowball effect on the company's top and bottom lines. Pre orders for the Ford F-150 are another example of this effect.

So what is General Motors doing?

There are a few things worth thinking about when it comes to General Motors' marketing strategy for their new vehicles:

Firstly, they do have a very strong customer base that they can pretty much bank on a significant portion of current General Motors product buyers to return to them once they are in need of a vehicle upgrade. There's also the existing relationships with governments, institutions and agencies which won't expire for quite some time and which include upgrades to fleets, especially with the new US administration focusing more on revamping climate policies within the United States government agencies like electrification and such.

These factors will certainly sustain the company's upgrade cycles for years to come and they may not need as much publicity to make the same amount of sales. However, it's also important to remember that these contracts are not indefinite and that similar to taxi companies in Amsterdam which have invested in ordering all Tesla vehicles and charging stations - the US governments agencies can just as easily switch over to companies like Ford or Tesla once these contracts are renewed.

Secondly, the company is certainly large enough to boost marketing expenses and hire other firms which specialize in these types of hype events on any future products. The company is not strapped for cash or struggling with product margins given their non-electric vehicle sales. This is just a simple point but an important one - just like any future hype event by other companies can flop, General Motors can create a hype machine around any one of their new or upcoming products and see sales and market share rise.

The effects on sales and profits

Even though there are some encouraging prospects for the company's ability to generate sales growth, it's evident that as of now it is just not working.

The company is set to see slower sales and net income growth than almost any other major electric-vehicle player in the market, as well as other established automobile manufacturers like Ford. Currently, industry experts and research anticipated that the global automotive market will grow at a CAGR of around 4.5% through 2028 whereas General Motors is pretty much the only automobile manufacturer I've talked about in the article which is expected to grow at a rate lower than that, meaning they'll be losing market share to those other players. Here's the annual breakdown of those estimates:

2021 2022 2023 2024 2025
Sales $129.7B $150.1B $155.1B $156.3B $156.9B
Growth +5.90% +15.8% +3.31% +0.79% +0.37%

The more concerning thing here is the company's long-term profit margins. I've talked a little more about the advantages a company like Tesla has in this regard, as they've been developing the infrastructure to continue and lower the costs of manufacturing their vehicles while other companies struggle or subsidize these with their other successful business segments. You can read about this here.

As expected, General Motors is projected to show the following net income growth rates through the 2025 time period:

2021 2022 2023 2024 2025
EPS $6.12 $6.86 $6.77 $7.32 $7.23
Growth +25.0% +12.1% -1.36% +8.18% +1.34%

(Source: Seeking Alpha Earnings Page - General Motors)

Obviously, we can see that the company is set to increase margins this year with the post-pandemic comparable as well as strength in contract renewals from the aforementioned government and institutional upgrade cycles to higher margin hybrid vehicles.

Conclusion - Likely to underperform

Although the company is a well-established behemoth in their industry which is likely to produce millions of electric vehicles over the coming years, their lack of this critical factor has me pessimistic about their ability to keep up with other players, both established and new, over the coming years.

As a result, I am avoiding a position in the company and will be focusing on other companies for a better long-term return potential.

This article was written by

Pinxter Analytics profile picture
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As part of my earnings growth strategy, I invest, trade and write about small under-covered growth companies which don't get much attention from establishment analysts as well as use the strategy to interpret short and long term moves in bigger, well established companies in the United States, Europe and the Asia-Pacific region.-All articles and the information in them are my opinion based on my own research and analysis and should not be taken as investment advice without proper due diligence and advice from a professional financial adviser.
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Disclosure: I/we have a beneficial long position in the shares of F, SHORT TSLA either through stock ownership, options, or other derivatives. 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: Opinion, not investment advice.

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