The idea that General Motors (NYSE:GM) would exit the electric vehicle game altogether was likely a bridge too far. In fact, there are some signs that it will at least keep its hat in the ring. A new deal with LG Chem for battery components drove that point home. Investors, meanwhile, were pretty happy with this deal and sent shares up around 2% in Wednesday afternoon’s trading.
GM’s new deal with LG Chem will take the long-term approach and see GM drop around $19 billion over the course of said deal to pick up what are called “cathode materials,” including aluminum, cobalt, and nickel. GM will land a whopping 500,000 tons of materials for its cash, though it plans to make these purchases over the next 10 years. That’s enough for GM to build five million electric vehicles.
This isn’t a new partnership, though; GM originally set this up in July 2022, but there were never terms attached to the deal. Now, those terms are available.
But I Thought They Were Getting Out of Electric Vehicles!
So did I, really, along with a lot of people. GM made it clear that it was cutting back on its electric vehicle production just eight days ago. Instead, it would put more into its line of plug-in hybrids to get the best of both worlds and get around problems like massive losses in range during cold weather.
But consider this: GM sold 5.94 million vehicles in 2022. And that’s actually the lowest it’s sold in the 10 years preceding 2022. GM bought enough material—deliverable over the course of 10 years—to make slightly fewer electric vehicles than the total number it sold in a year. That means that maybe 10% of GM’s output will be electric going forward.
Is GM a Good Stock to Buy?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on GM stock based on 14 Buys, five Holds, and one Sell assigned in the past three months, as indicated by the graphic below. After a 5.74% drop in its share price over the past year, the average GM price target of $48.12 per share implies 24.05% upside potential.
