Markets are wild for electric vehicles—unless they are made by companies that also make regular cars. Squaring this circle won’t be easy for General Motors.
Tesla’s market value rose 11% to a record $342 billion Monday. There was little obvious cause, apart from an analyst lifting his target price, but investors are used to that with Elon Musk’s company. More unusually, GM shares rose by almost 8%, the most since the wild volatility of April.
A notion is gaining currency that GM can spin off its EV operation into a separately valued entity better able to compete with—and be valued like—Tesla. On Friday, Deutsche Bank analyst Emmanuel Rosner put some heady numbers on the value of a spinoff. GM hasn’t closed down this discussion, which has grown in line with Tesla’s stock price this summer.
“Nothing is off the table,” said Chief Executive Mary Barra following GM’s second-quarter report in July.
The appeal for the company, particularly after this year’s costly shutdowns, is access to cheaper funding. GM stock is trading below the $33 it fetched in its postbankruptcy initial public offering, effectively barring it from selling shares to bring in cash unless it is outright distressed. Tesla has no such problem: In February it raised $2 billion by issuing shares.
For GM, a better valued EV subsidiary could help level the playing field in a very expensive race to master a new technology. For GM’s shareholders, there is the added hope that some of the tech luster might rub off on the parent company—particularly if the subsidiary were publicly listed, giving it a very visible live valuation.
General Motors' Cadillac brand has rolled out an electric vehicle.
Photo: /Associated PressBut betting on this outcome, as some investors seem to be, ignores both a mountain of practical obstacles and GM’s recent history.
The heart of GM’s electric-vehicle operation consists of a battery system for future models, Ultium, that it has developed with South Korean battery giant LG Chem. It also has a joint venture to produce battery cells in Ohio with LG Chem, and a couple of assembly plants in Michigan that have been converted to electric models. Can these operations really be separated from the rest of GM? How will brands such as Cadillac straddle both businesses? Where will GM’s valuable Chinese joint ventures fit? How will a deal be negotiated with unions following last year’s strike? The company would need clean answers to attract tech investors.
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There is a precedent for the EV discussion, but not a wholly encouraging one. In 2018, GM brought in capital from SoftBank for its driverless-car unit, Cruise, at an eye-catching valuation. That followed market hype around the potential of GM’s technology, also stirred up by a Deutsche Bank analyst note. It turned out to be a case of buy the rumor and sell the news: GM’s stock has fallen from the 2017 peak even as Cruise has raised money from Honda and institutional investors at higher private-market valuations.
The same pattern might be repeated with an EV unit, particularly as its growth would cannibalize GM’s traditional business. The company’s stock is cheap because the outlook for auto sales is weak, while it faces a costly and risky technology transition. Financial engineering just might give GM access to cheaper pools of capital, but it can’t make it look like a disrupter.
Write to Stephen Wilmot at stephen.wilmot@wsj.com
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