General Motors shares could jump by nearly 50% over the next year as the automaker’s plans for producing more electric vehicles sets the stock on course to trade as disruptive tech play, according to Wedbush.
The assessment comes as the company behind the Chevrolet, Buick and AMC brands in June pledged to increase investment to $35 billion toward research and development for electric vehicles through 2025.
“With [GM CEO Mary] Barra & Co. developing game-changing battery technology under the Ultium Platform, GM is in a great position to take advantage of a $5 trillion market emerging over the next decade. By leveraging this technology, the legacy auto will be able to eat up market share against pure-play EVs in all aspects of the industry,” said Wedbush analyst Dan Ives in a note published Thursday initiating coverage of GM with an outperform rating.
He set a 12-month price target of $85 from Tuesday’s close at $57.46, representing a possible climb of 48% in the stock. Shares during Friday’s session bounced up by more than 4% to trade above $58 each.
“We believe as GM proves out its EV vision over the coming years the stock will be re-rated more as a disruptive technology and EV play, rather than its traditional auto valuation,” said Ives.
2021 is setting up as an inflection point for GM as it works on delivering at least 20 new EV models within the next two years and 30 in the next three, that analyst said.
Meanwhile, the “software and services business attached to the EV shift, as autonomous/assisted driving capabilities and battery technology improves, represents a potential gold mine for the company bringing in $20 billion to $30 billion of incremental services and software we see over the next 5-7 years,” he said.
China is one of Tesla’s most important markets, expected to represent around 40% of global deliveries for the company by next year.
“China demand is a key driver for the long term Tesla growth story, and the company must play nice in the sandbox with Beijing around safety issues, otherwise it will be an impediment towards achieving its goals/targets in country,” Ives said.
The autopilot systems in the affected cars can be activated accidentally, leading to a risk of crashes from sudden acceleration, China’s State Administration for Market Regulation said. Under a recall plan filed with the regulator, Tesla will update software on about 211,000 Model 3 vehicles made in China and 36,000 imported from the US. Another 38,599 Model Y vehicles will also get the software patch, which will begin to roll out Saturday.
“We believe this situation overall is a bump in the road and does not derail the near-term or long-term bull thesis for Tesla China, however going forward it needs to be a smoother road on autopilot safety otherwise the PR black cloud will continue,” Ives said.
The analyst reiterated an “outperform” rating for Tesla with a 12-month price target of $1,000. Tesla’s shares were trading 2.5% higher at $688 per share on Monday.
Shares of Nio rose 4% on Tuesday after Citi upgraded the Chinese car maker to “buy” from “neutral,” citing a surge in demand for electric vehicles in China.
Citi lifted its 2021 sales estimate for electric vehicles in the country to an estimated 2.52 million units from 1.79 million units. For 2025, the firm also boosted sales estimates to 7.84 million units from 6.86 million units.
Citi said it expects that the uptick in the second quarter order backlogs will increase Nio’s revenue and market share in the second half of 2021.
Citi’s new price target of $58.30, raised from $57.60, represents a potential 50% upside from Friday’s closing price of $38.62. The bullish new target comes despite a rough year so far in 2021 for the electric vehicle maker, and the industry broadly, as supply chain and manufacturing constraints weigh on car makers’ delivery guidance.
“Based on the current production and delivery plan, the company will be able to accelerate the delivery in June to make up for the delays from May,” Nio said in a statement Tuesday. “The company maintains and reiterates the delivery guidance of 21,000 to 22,000 vehicles in the second quarter of 2021.”
Electric-vehicle stocks have taken a hit the past few weeks amid a rotation away from highly valued tech and growth names, but that doesn’t mean it’s the end of the road for the EV boom, according to Mark Haefele, chief investment officer of UBS Global Wealth Management.
Long-term technological and environmental shifts suggest the boom should continue, while acknowledging that volatility in the share prices of individual companies argues for investors to diversify their exposure. Still, Haefele’s team said investors should consider the underlying data.
Elon Musk’s Tesla has led an incredible boom for electric vehicles over the past few years, and in 2020 alone, sales of electric cars rose 43% while overall car sales slumped 20%, according to data published on Tuesday by EV-volumes.com. The market has grown so much that these days, Tesla is just one of dozens of competitors in the rapidly-expanding industry.
In fact, Tesla’s share of the US EV market fell to 69% in February, down from 81% in the prior year, a Morgan Stanley report found.
It’s getting more crowded, too, as every major car company in the US has said they will be entering the EV market.
Many analysts argue the EV boom is set to continue. Wedbush’s Dan Ives said in a recent note to clients that he believes the “EV party and transformation is just beginning as this industry is on the cusp of a $5 trillion market opportunity over the next decade.”
Haefele and his team agree with Ives, detailed below are three reasons why they see a long way to run for the EV boom.
“Electric vehicles continue to rapidly gain market share. Electric vehicle sales have been rapidly gaining market share. The diverging paths of automakers have been confirmed during the pandemic. While the overall auto market contracted by 15% in 2020, global electric vehicle sales rose by 43%, reaching a 4.2% market share. This trend looks set to continue and will benefit pure EV makers, as well as traditional automakers that are adapting fastest to the growing consumer preference for electric vehicles,” Haefele and co. wrote.
“Electrification of vehicles is still ‘The Next Big Thing’ in the automotive industry. Tighter emission regulations mean there is no alternative to the switchover from combustion to electric engines – be they battery electric vehicles (BEV), plug-in hybrid electric vehicles (PHEV), or fuel cell vehicles (FCV). This move toward electric has also been embraced by traditional automakers such as Volkswagen, which has pledged investment of over EUR 50bn in its EV strategy as it aims to catch up with Tesla,” Haefele and co. wrote.
“The transformation underway in the auto sector goes beyond drive trains. We see parallel technological advances in the sector, along with a shift in consumer preferences away from ownership. On technology, progress is being made in areas such as autonomous driving, helped by the rollout of 5G networks. On the issue of ownership, increasing mobile connectivity and changing preferences among younger age groups are leading to the rise of car-sharing models. In the future, using a car will not automatically mean owning one. Overall, we foresee potential sales of some USD 400bn connected to our Smart Mobility theme by 2025, of which electrification represents more than half, an eight- to nine-fold increase on today’s figure,” Haefele and co. wrote.
Tesla has established a “significant first mover advantage” over new entrants in the ever-expanding electric vehicle market, but a few other smaller names stand out, according to CFRA’s Garrett Nelson.
In a note published Wednesday the senior equity analyst said Amazon-backed Rivian, Lucid Motors, and Fisker will emerge as “success stories,” as EV sales climb in 2021.
Nelson uses four categories to analyze emerging electric-vehicle manufacturers: 1) the specs (price, range, etc.) and overall attractiveness of their initial vehicle models; (2) financial considerations such as their funding sources, balance sheets, and liquidity; (3) the growth opportunity of their sub-industry; and (4) the experience and credibility of management.
He said all three names fare well in each category. Additionally, all three automakers will be among the first to bring electric vehicles to the road, with Rivian and Lucid expected to put models on the road this year and Fisker in late 2022.
Nelson added that Tesla has an advantage over new entrants; citing how the company increased its US EV sales volume by over 50% last year.
“With all the talk of increased competition from new EV models in 2020, Tesla grew its market share from an estimated ~58% share in 2019, as models like the Audi e-Tron, Jaguar I-PACE, and Nissan LEAF largely disappointed from a sales perspective,” Nelson added.
CFRA forecasts that US EV sales will grow by over 50% to exceed 500,000 units in 2021, especially if the Biden administration passes legislation that could benefit EVs. The research firm has a “strong buy” rating on Fisker, and a “hold” rating for Tesla.