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U.S. Energy Department to Loan $2.5B to GM’s Battery Cell Joint Venture

Story Highlights

The loan is a shot in the arm for GM, which will help bolster its electric vehicle production.

The U.S. Energy Department intends to loan out $2.5 billion to Ultium Cells LLC, a battery cell manufacturing joint venture (JV) between General Motors (NYSE: GM) and South Korean battery company LG Energy Solutions. The funds will help Ultium to build three battery cell factories in Ohio, Tennessee, and Michigan.

The loan is a part of the Biden Administration’s efforts to boost electric vehicle (EV) demand and usage across the U.S., in line with the President’s target of making 50% of U.S. autos electric or plug-in hybrid vehicles by 2030.

The government’s Advanced Technology Vehicles Manufacturing (ATVM) loan program will issue the loan, with a conditional commitment to build the said factories. The loan will be issued in a couple of months and will be the first loan disbursed by the ATVM since 2010. It is also the first loan to be disbursed strictly under the Energy Department’s battery cell manufacturing efforts.

Ultium’s first plant in Ohio will begin production by August, followed by the Tennessee plant in 2023, and the last one to go live will be in Michigan in 2024. The estimated combined cost of the three factories is around $7 billion, the JV said. Notably, around 5,000 people will be employed by the three plants combined.

American automakers are pushing all efforts to develop more and more EV models. But for these efforts to materialize, the battery components play a crucial part, most of which are imported from China and other Asian countries.

The U.S. government hopes to reduce this dependency by pushing its automakers to build their own battery cell manufacturing plants in the nation. General Motors has announced its decision to spend around $35 billion to develop EVs and autonomous vehicles through 2025. Ultium’s three battery cell plants will enable GM to manufacture up to one million EVs in North America by mid-decade.

So far, the ATVM program has loaned around $8 billion to other car manufacturers, including Tesla (TSLA) and Ford Motor Co. (F).

Wall Street is Cautious about GM

The Wall Street community is cautiously optimistic about the stock, with a Moderate Buy consensus rating based on 11 Buys, three Holds, and one Sell. The average General Motors price target of $53 implies 53.5% upside potential to current levels. Meanwhile, the stock has lost 43.6% so far this year.

GM Stock Analysis

According to TipRanks’ Smart Score, General Motors has a score of nine, indicating that the stock is likely to outperform the market. Bloggers and news articles are bullish on the stock, and hedge funds have increased their holdings of GM stock by 2.3 million shares in the last quarter.

Parting Thoughts

The $2.5 billion loan will surely boost the production process at Ultium Cells plants and will bolster GM’s electric vehicle production. For now, all eyes are on General Motors’ second quarter results to be announced today before the market opens. The consensus earnings is pegged at $1.27 per share. Shares are trading below 1% in the pre-market trading ahead of the earnings.

Disclosure

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