After several months of production delays and sales disruption, General Motors Company (NYSE: GM) is getting back on track, though the lingering threat of coronavirus and macroeconomic headwinds remain a cause for concern. Nevertheless, the pent-up demand for new vehicles and improving consumer sentiment are expected to drive sales growth this year.
When stock markets crashed recently amid economic uncertainties and high oil prices, General Motors was not spared. The stock had experienced weakness after reaching a new high in early January. But that does not make it less attractive and GM continues to be an investors’ favorite. Experts are of the view that the value could nearly double and breach the $70-mark in the coming months. Moreover, the current valuation is favorable from the investment perspective.
Road to Recovery
The auto giant’s financial performance was impacted by the economic slowdown caused by the pandemic. Though it slipped into the negative territory at one point, the bottom-line performance exceeded estimates consistently during the crisis period, as it did over the past several years. Overall, fiscal 2021 was a stronger year for the company compared to the previous year. Currently, the management’s growth plan is focused on continued investments in the Cruise division, GM’s futuristic business that made strong progress in recent years, and its fast-growing portfolio of electric vehicles.
In what is considered a major milestone, Cruise is inviting members of the public to sign up for their driverless ride-hailing experience, taking the whole initiative closer to commencing paid service. Factors that support the Robo-taxi initiative are an additional $1.35-billion Softbank funding, progress in the grocery delivery program with Walmart, Inc. (NYSE: WMT), and investments from companies like Honda and Microsoft Corp. (NASDAQ: MSFT).
On the EV front, the company is planning more launches, after rolling out the electric version of GMC Hummer. The battery cell and EV production capacity are being expanded to meet the target. The agenda for the year include continued expansion of advanced vehicle technologies and investments in new business startups. GM’s end-to-end EV software platform Ultifi is scheduled for launch next year.
Higher investments, across the board, are expected to result in record EBIT-adjusted earnings in 2022, matching last year’s trend. As of now, the management is not in favor of reinstating dividends, though it intends to use every opportunity to return excess capital to shareholders.
From General Motors’ Q4 2021 earnings call transcript:
“As we move forward, we will consider all opportunities to return excess capital to shareholders. But we will not reinstate a dividend at this time. Our clear priority is to accelerate our EV plan and drive growth and we want to maintain maximum flexibility to invest as opportunities arise across our growth platforms, including many of the accelerated plans I’ve outlined today. I think we’ve consistently demonstrated that we’re a team that delivers on our commitments. That’s more important now than ever with the incredible opportunities in front of us.”
Meanwhile, the persistent chip shortage remains a challenge as it continues to be a drag on production and the recovery process. In the fourth quarter of 2021, revenues declined 10% year-over-year to $33.5 billion. Interestingly, North America fared worse than the other regions in terms of sales volume. All the three operating segments witnessed negative growth, resulting in a 30% fall in adjusted earnings to $1.35 per share.
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