Morgan Stanley analyst Adam Jonas has lately been more bullish on General Motors, even as traditional car companies have seen their stock prices hammered while investors rush into upstarts such as Tesla, whose shares have surged almost 80% this year.
Morgan Stanley was involved with GM’s recent proxy battle with Greenlight Capital’s David Einhorn, so Jonas wasn’t commenting on the carmaker.
But in a note published Wednesday, he resumed coverage with an “overweight” rating and a $US40 price target (GM is now trading at $US35).
Jonas also articulated a “bull case,” however, which would see GM rising to $US50. But that would depend on some aggressive business moves.
“While GM management in our view appear highly aware and attuned to the challenges and opportunities facing OEMs, they have not commented on specific subsequent transactions to exit, monetise or spin any of its specific businesses,” he wrote.
“We believe that during this formative time of technology and business model change investors may show a willingness to value GM on the basis of some of its more valuable assets over the next 12-18 months.”
You don’t have to read between the lines there to realise what Jonas is suggesting. And this isn’t the first time he’s argued that GM could be broken up. He raised the issue earlier this year, months before Greenlight proposed that GM offer two new classes of shares, one for capital appreciation and growth, the other for dividend investors (the plan was shot down at GM’s annual meeting this month).
Auto 1.0 to Auto 2.0
The last major spinoff in the auto industry, Fiat Chrysler Automobiles’ IPO of Ferrari in 2015, has returned 119% over the past 12 months, making it the best-performing stock in the sector. That’s certainly influencing Jonas’ thinking, something that’s been confirmed by his questions for FCA and Ferrari CEO Sergio Marchionne about additional spinoffs (namely, Jeep).
For GM, Jonas wants to fit the automaker into his “Auto 1.0-to-Auto 2.0” thesis.
“Quite simply, we believe GM has a number of assets and businesses that are of potentially high strategic value to outside players or partners who are keen on entering the global mobility space,” he wrote.
“We also believe there are steps that, hypothetically, can be taken to unlock hidden tech value at GM while maintaining some degree of benefit to the remaining business … through commercial or ownership arrangements.”
A few years back, GM would have balked at the idea of selling off chinks of itself. But under the leadership of CEO Mary Barra, the company has focused on maximizing its return on investment and has been ruthless about shedding underperforming assets, most recently in nearly 100-year-old European division, Opel/Vauxhall, which is sold to Peugeot for about $US2 billion.
GM has also established a new brand, Maven, to market car-sharing and mobility to younger, urban customers, and the company is rolling out a ride-hailing initiative with Lyft after investing $US500 million in startup. Either of these businesses could grow more rapidly than the legacy business and be a candidate for a spinoff.