With shares returning just 72% over the past 10 years (including reinvested dividends), General Motors (GM 0.07%) has dramatically underperformed the S&P 500, which returned almost 250% over the same time frame. But while the iconic American automaker isn’t very inspiring right now, the government-supported transition to EVs could become an opportunity for transformation.
Let’s dig deeper to see what the next 10 years could have in store for the company.
A new malaise era or a new golden era?
There are many theories about the cause of GM’s decline in the ’70s and ’80s (a time called the “malaise era”). But arguably too much blame is placed on the American automakers themselves instead of the government policy that pulled the rug out from under the industry without giving the Big Three much opportunity to prepare.
At the time, Washington introduced a raft of strict environmental regulations in contrast to the engine platforms these automakers had spent the last few decades developing. The results from GM and others were rushed, low-quality cars that destroyed their carefully built brand images and may still be haunting them today.
The transition to EVs will be another shakeup for the industry. But this time, GM is ready.
EVs are here to stay
Some fear the EV industry is stalling because of relatively weak performance from the market leader Tesla, which saw global second-quarter deliveries grow just 3% to 462,890 vehicles. But while Tesla might be peaking, GM is in a completely different gear, with third-quarter EV deliveries jumping 60% year over year to 32,095 as it leverages its dealership network and brand recognition to gain market share.
GM’s success could have something to do with its wide lineup of EV options. According to vice president Rory Harvey, GM has “an all-electric vehicle for just about everybody, no matter what they like to drive.” And management is using the disruption caused by the technology shift to resurrect fading brands and recapture lost market segments.
The most impressive example might be the Cadillac — a brand that once dominated luxury automaking in the early 20th century before losing ground to imported European rivals during the malaise era.
Image source: Getty Images.
GM is returning the marque to its upmarket roots with new EVs such as the 2025 Celestiq. According to Car and Driver, this ultra-luxury electric sedan is built to order by hand. And with prices starting north of $300,000, it will compete with the likes of Rolls Royce and Bentley. After better-than-expected demand, Celestiq has already sold out until 2025.
Cadillac is also making a big splash in the more affordable side of the luxury market with the Lyriq — a $59,900 premium SUV that saw sales explode by 139% to 7,224 units in the third quarter.
What does this mean for investors?
Over the next 10 years, GM looks poised to use the EV transition to finally reinvent itself, decades after the malaise era abruptly stole its mojo. The Cadillac brand might be the most exciting beneficiary of this trend because higher-priced cars tend to have better margins.
Brand cachet will be crucial as industry leaders like Tesla continuously lower prices and low-cost Chinese rivals possibly penetrate global markets despite protective tariffs in the U.S. and European Union.
With all that being said, it is unclear if these positive trends will be enough to move the needle for GM stock. While EVs will probably allow some of GM’s brands to gain market share, they could cannibalize others, which isn’t a very exciting prospect for investors. However, with a forward price-to-earnings ratio of just 4.6, the stock remains dirt cheap. And it might have a place in a value-oriented portfolio.
Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool recommends General Motors and recommends the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.
GIPHY App Key not set. Please check settings