If any auto manufacturer is looking forward to brighter days ahead, it’s General Motors (NYSE:GM). Amid negotiations with the United Auto Workers (UAW), the legacy automaker had to deal with the fallout stemming from its autonomous taxi service Cruise. Involved in a number of accidents, GM made the difficult decision of suspending operations and laying off personnel. However, I am bullish on GM stock because the controversy allows management to focus on its core business.
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Putting the Crisis in Perspective for GM Stock
To recap, in early October, CNN reported that a pedestrian was found critically injured and trapped underneath a Cruise-operated car. Moreover, as TipRanks mentioned last month, “Cruise’s operations dipped into troubled waters following several reports of its driverless vehicles colliding with pedestrians in San Francisco. As the complaints increased, the company took the decisive action of recalling its 960 robotaxis and halting operations.”
On the surface, the situation appears awful for Cruise and, by logical deduction, GM stock. After all, the automaker invested heavily in autonomous driving technology, in part to keep pace with established leaders like Tesla (NASDAQ:TSLA). However, if driverless innovations continue to hit people, that raises public safety concerns along with heavy litigation risks. Such incidents also impugn the broader autonomous subsector.
That said, context matters. Cruise and rival Waymo under Alphabet (NASDAQ:GOOGL) have logged millions of driverless miles. When accounting for the countless miles traversed without incident, some real evidence exists that autonomous driving tech as it stands now is on par with, if not superior to human driving capabilities.
Also, it‘s fair to point out that not every incident involving Cruise’s cars suggests that the driverless platform was at fault. For example, in the October incident mentioned earlier, CNN reported that the pedestrian crossed the intersection when cars had the right of way. Also, the Cruise-operated car was the second vehicle to strike the victim.
Nevertheless, perception has a way of becoming reality. With the public’s rush to judgment, General Motors arguably had little choice but to respond in a firm manner. Therefore, the subsidiary recently cut about 25% of its workforce.
Across the board, this tragic incident casts a dark cloud. Still, for GM stock, it’s an opportunity to focus on what works and less on what doesn’t.
A Possible Blessing in Disguise?
To be 100% clear, public safety is paramount, and no one should dismiss the occasional problems that stem from autonomous technologies. In the same vein, we can’t lose sight of the pain and hardships that layoffs cause. Nevertheless, for GM stock, the driverless tech fallout could be a blessing in disguise.
For one thing, truly autonomous vehicles could be decades away. Plus, the innovation might never materialize. That’s according to a 2021 op-ed by The Wall Street Journal. For years prior to the date of publication, several executives from various automotive-related enterprises opined that self-driving cars would effectively upend the paradigm of human-operated mobility.
However, in more recent years, that bravado has died down conspicuously. Basically, for self-driving platforms to truly work as advertised, artificial intelligence will need to improve dramatically. Unfortunately, we’re just not there yet. To put it another way, little point exists for good money to chase after bad.
In addition, consumers may be leery about putting their lives in the hands of a robot taxi driver. Plus, it’s General Motors’ controversy that may have contributed to public skepticism of autonomous mobility. Regardless, the public relations black eye will now allow General Motors to concentrate on truly viable endeavors. Over the intermediate to long term, that should be positive for GM stock.
After all, the legacy automaker has a clear opportunity to establish a foothold in the EV market. Primarily, consumers trust General Motors, which should be huge in terms of sector adoption. Moreover, the company can electrify its popular combustion-powered brands. It’s already doing this with the Hummer and the Corvette.
The only difference is that now, management can focus on its money-making initiatives rather than chasing a highly risky initiative. Again, this should be bullish for GM stock.
Valuation May Entice Fence Sitters
Finally, what could help swing the needle in favor of GM stock centers on its valuation. Right now, shares trade at a lowly trailing-year earnings multiple of about 5.0x. In contrast, the average price/earnings ratio of the auto parts and auto and truck dealership sectors clock in at 17.7x and 10.5x, respectively. No matter how you cut it, GM appears undervalued.
Now, with the troubles that the automaker incurred – such as the labor union strike and the autonomy fallout – one could argue that GM stock may be a value trap. It’s vital not to casually ignore the risks of the industry as a whole, particularly under challenging economic conditions.
Still, GM is technically more streamlined following the Cruise job cuts. As well, the company has a rich automotive portfolio that’s begging for an electric spin. For speculators, GM stock is at least worth consideration.
Is GM Stock a Buy, According to Analysts?
Turning to Wall Street, GM stock has a Moderate Buy consensus rating based on 14 Buys, four Holds, and one Sell rating. The average GM stock price target is $45.91, implying 28.5% upside potential.
The Takeaway: GM Stock Can Focus on What Matters
Despite Cruise’s autonomous taxi woes, GM stock could rise thanks to a refocus on its core business. Layoffs streamline operations and free resources for the booming EV market, where GM’s established brands and consumer trust give it an edge. A low valuation further sweetens the deal, making GM a potentially undervalued play despite economic headwinds.
