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Could GM Spin Off EV Business?

An intriguing way to get Wall Street’s attention
#Cadillac #GeneralMotors #tech

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How can an old-school carmaker impress Wall Street with its electric car prowess? Maybe the trick is to spin off those activities as a separate EV business.

General Motors has been pondering that radical idea since 2018, according to Bloomberg, which cites unnamed sources.

The Lure

It’s not a crazy option.

Cadillac Lyriq EV (Image: Cadillac)

Like every other established carmaker, GM gets no love from investors for its electrification efforts. The company’s stock price has gone nowhere, bumping along between $28 and $45 for the past five years. It took a hit when the pandemic shut down assembly plants in March and currently is under $27.

And then there’s Tesla, the darling of Wall Street. Its shares doubled to more than $400 between 2015 and 2019. And this year? Tesla’s stock price has zoomed to nearly $1,500, giving the company a sky-high market value more than eight times GM’s.

The message is clear: Investors like the concept of EVs, but only in terms of electrics made by pure EV companies, not old-line carmakers.

All Things Considered

So when the idea of GM spinning off its EV activities came up on an earnings call last week, it was understandable that CEO Mary Barra told investors, “Nothing is off the table.”

                                                  Mary Barra (Image: GM)

Barra’s comments came four months after she and her senior management team presented GM’s EV strategy in detail. They offered reporters sneak peeks at several of its upcoming EVs, including the GMC Hummer pickup truck due next year and the Cadillac Lyriq crossover vehicle that was unveiled tonight.

GM also previewed its high-energy Ultium battery, which will debut as the power source for the Lyriq. A week later, one analyst suggested GM called the entire company Ultium to mark its commitment to EVs. That seems unlikely, but it’s not a bad moniker for an EV subsidiary.

The Building Blocks

There are no imminent plans at GM to spin off anything. But Bloomberg points out that the carmaker has the components with which to put together a very Tesla-like EV business.

GMC Hummer

GM is ready to roll out 20 all-electric models by 2023—three times the number Tesla is expected to offer by then—to sell in the U.S. and China. Like Tesla, the company has a factory devoted entirely to electrics (its Detroit-Hamtramck plant). It’s also expanding capacity to do the same at its Lake Orion (Mich.) plant outside Detroit.

And like Tesla, GM has partnered with an Asian battery maker (in this case, South Korea’s LG Chem) to open a huge factory in Ohio to make its Ultium batteries.

Cadillac Lyriq’s hidden charging port

Should GM push the button and spin of an EV-specific business? It did something like it on a smaller scale in 2016 when it acquired autonomous tech startup Cruise Automation and transferred all its self-driving-car activities to it. As a subsidiary, the startup attracted some $5 billion in outside investments and has a current market value of roughly $19 billion.

The Risk

Doing the same with its EV operations would be a far riskier move for GM. But it also could attract investors to help GM shoulder the $20 billion it expects to invest in its electrification plan.

As analysts tell Bloomberg, it’s not clear whether investors would be as tolerant as they’ve been with Tesla about the prospects of red ink until the venture gets its footing. There’s also the issue of how a spinoff would affect the old-line car business left behind.

These are questions other carmakers are considering as they also theorize about how to get more traction for their EV plans. So far, they’re all just pondering.

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