By Michael Elkins
Mizuho initiated coverage of General Motors (NYSE:GM) with a Neutral rating and $39.00 price target on the stock.
Mizuho analysts wrote in a note, "~98% of GM's automotive revenue comes from legacy ICE (NYSE:ICE) vehicles; however, GM is aggressively transitioning to electric vehicles (EV) and developing autonomous technologies, moving away from its legacy positioning. We see GM as a front-runner among its global peers in this transition, with a leading EV and AV/ADAS roadmap comprised of its Ultium EV battery platform, Super/UltraCruise for consumer ADAS, and Cruise Automation for AV, while acknowledging the challenges of transitioning from traditional ICE vehicles to EVs."
Mizuho believes that GM is well for the next decade of EVs, but a transition from a profitable ~98% ICE portfolio to an EV portfolio (negative ~15-30% gross margin) poses significant challenges. A consumer slowdown and peak auto prices (could soften) add to headwinds.
GM's EV portfolio coverage includes nine N.A. consumer models either launched or set to launch in the next two years. The American automaker expects to launch over 30 new all-electric models globally potentially by 2025.
The analysts believe that EVs made up ~2% of GM's North America units, and ~10% of its global unit sales in 2022, primarily driven by China. GM is targeting to sell over 1M BEVs (Battery Electric Vehicle) in the US by 2025, generating $50B of revenue, and 2M+ units globally, including China.
GM is also investing in self-driving and autonomous vehicle (AV) technology via Cruise, seeking to be a leader and generate $1B of revenue in 2025 growing to $50B by 2030. The analysts see Cruise's AV technology and go-to-market potential for robotaxis as competitive to its peers by utilizing a holistic hardware and software stack enhanced by AI/ML, with a core focus on safety and redundancy. Regulatory headwinds remain for self-driving, though the analysts believe Cruise's AV TAM is projected to reach $300-400B by 2030-35, and Mizuho conservatively estimates Cruise could reach 5-10% share if technology viability and go-to-market potential are realized.
GM's commercial EV brand, BrightDrop, is competing in the last-mile and online grocery markets against rivals including Rivian (NASDAQ:RIVN) EDV and Ford (NYSE:F) E-Transit. The company is targeting production of 30k units of the BrightDrop Zevo 600 in 2023 and sees capacity growing to ~50k units by 2025. GM expects to see $1B of BrightDrop revenue in 2023 and an expansion of 10x to $10B of revenue by 2030.
Shares of GM are up 0.72% in pre-market trading on Thursday.