Tesla tops another US giant
BY ALMOST every measure, General Motors has been on a roll. Its bellwether pickups and SUVs have hit the sweet spot in a record-setting US market for two years. The company is steadily increasing profits and revenue. And President Donald Trump has vowed to ease regulations and put cars at the forefront of his crusade to add manufacturing jobs.
In short, GM has come a long way from a near-death experience eight years ago, when it filed for bankruptcy and needed a $49 billion government bailout. But apparently investors have yet to be convinced that GM, the nation’s largest automaker, has put its troubled past behind it.
In a sign of how the industry’s future is being reimagined, the electric-car maker Tesla passed GM Monday as the United States’ most valuable auto company.
With its stock gaining more than 3 percent for the day to $312.39, Tesla has a market capitalisation of $50.9 billion, just a hair ahead of GM’s.
While the rise of Tesla is based on prospects rather than profits, GM is being dogged by its chequered history, and a perception on Wall Street that its days as a dominant force are over.
GM is working hard to establish its own bona fides in automotive innovation, developing homegrown technology, acquiring or investing in Silicon Valley companies with promising approaches to self-driving or ride-hailing systems, and bringing a new electric car, the Chevrolet Bolt, to market.
“We are spending money on the future, whether it is in mobility, autonomous vehicles, artificial intelligence or electrification,” said Mark L Reuss, GM’s executive vice president for product development.
Yet the moves have so far failed to impress investors. The company’s shares are about 13 percent lower than they were when Mary T Barra became chief executive in early 2014. And now an activist shareholder, the hedge fund Greenlight Capital, is pushing for a financial restructuring to unlock more of the company’s value.
GM is hardly alone in being outshone by Tesla among investors. A week earlier, another century-old Detroit icon, Ford Motor Co, fell behind Tesla in market value. And Fiat Chrysler, the parent of the third Detroit automaker, is so uncertain of its own future that it is actively seeking a merger partner.
But GM epitomises both the frustration attached to the old US auto industry, and the determination to prove the sceptics wrong over the long term.
A GM spokesman played down the company’s loss of its title as the most valuable US automaker. “We have a track record of strong financial performance, with a great outlook for 2017,” the spokesman, Tom Henderson, said Monday. “We’ll stay focused on delivering outstanding results, generating strong cash flows and investing capital where it will drive the highest returns.”
Still, GM executives know that investors worry whether the company owes its recent success mostly to a strong domestic market, buoyed by low oil prices that have indulged car buyers’ tastes for big, profitable SUVs – condi- tions that could be at risk if the economy falters.
“No one is going to believe we are for real until we successfully go through a downturn, and go through it well,” Reuss said at a company event last week. “We have to prove it.”
The company has taken some drastic steps recently to shed the baggage of past decades, when its desire to be the world’s biggest automaker seemed to be its driving ambition.
GM has methodically scaled back its international operations by exiting the Russian market, ending manufacturing in Australia, and agreeing to sell off its long-struggling European division, maker of the venerable Opel and Vauxhall lines.
Moreover, the company has pared back incentives it once relied on to reduce bloated inventories, and eliminated factory shifts to better align production with demand.
The newfound discipline, along with a consistent flow of new models, has helped GM outperform the US market this year. Through March, its sales are up slightly less than 1 percent, while the industry overall is down 1.5 percent.
Reuss, who has worked for GM for more than 30 years, said the company was taking a long view of its destiny, while at the same time defending its market share in North America and China.
“Years ago, GM was fixated on the next quarter or the next year – and not the next 10 years,” he said.
For now, the company can ill afford to allow a stagnant US market, or its costly restructuring efforts overseas, to crimp its momentum. Even the smallest setback could depress its market value – and allow Tesla to pull further ahead.
“They have no choice but to keep focusing on what makes money, and that’s selling pickup trucks and SUVs,” Krebs said.