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GM to Boost EV and AV Spend to $35B; Raises 1H21 EBIT Outlook

General Motors Co. (GM), one of the biggest car manufacturers and a global leader in battery and fuel cell technology, announced an increase in its Electric Vehicle (EV) and Autonomous Vehicle (AV) spending by 75% to $35 billion through 2025. Shares rose 1.6% to close at $61.76 on June 16.

In March 2020, GM announced its plans to invest $20 billion in EVs and AVs from 2020 through 2025 to fast-track its transition to electrification. Within a matter of months, the company had increased its planned investment to $27 billion.

The current move comes in line with the company’s strategy to become the dominant player in the EV industry in North America. GM aims to achieve this with the help of its Ultium battery platform, HYDROTEC fuel cells, and through Cruise (a unit of GM), to be the first to commercialize self-driving technology at scale. (See GM stock chart on TipRanks)

Mary Barra, the company’s CEO and GM Chair said, “GM is targeting annual global EV sales of more than 1 million by 2025, and we are increasing our investment to scale faster because we see momentum building in the United States for electrification, along with customer demand for our product portfolio.”

These aggressive investments are enabled by the company’s strong fundamental business, which includes record EBIT-adjusted in the last three quarters.

Despite the sector-wide semiconductor shortage, the company continues to garner strong demand for its products, sees better-than-expected results at GM Financial, and has enhanced its near-term production from the pull forward of semiconductors from the third quarter.

The company now forecasts 1H21 EBIT to fall in the range of $8.5 – $9.5 billion.

GM is accelerating its plans to build two new Ultium battery cell plants in the U.S., in addition to the plants already under construction in Ohio and Tennessee.

On June 15, GM signed an MOU with Wabtec Corporation to supply Ultium batteries and HYDROTEC fuel cells to aid in building the world’s first 100% battery-powered locomotive.

The investments will also accelerate the company’s plans to roll out EVs for retail and fleet customers.

Additionally, GM has agreed to provide a multi-year, $5 billion credit facility to its subsidiary Cruise to scale its Cruise Origin fleet.

Following the news, Morgan Stanley analyst Adam Jonas maintained a Buy rating on the stock with a price target of $80, implying 29.5% upside potential to current levels.

Jonas believes that CEO Barra’s comment on better-than-expected second-quarter results will spur investor expectations of $10 of earnings power for full FY2021.

The analyst stated, “Annualizing 1Q results of $2.25 gets us to $9.00. We would not be at all surprised to see GM raise FY guidance by as much as $1/share or more to account for previously unanticipated tailwinds from pricing, mix and other items (GM Financial, international ops, etc).”

Currently, the Streets’ estimate for full-year FY21 EPS is pegged at $5.57 per share and around $6.70 per share for FY22 and FY23.

GM has a Strong Buy consensus rating based on 12 Buys and 2 Holds. The GM average analyst price target of $71.43 implies 15.7% upside potential to current levels. Shares have gained 52.5% year-to-date.

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