General Motors: semi-charmed life | Financial Times


No company is walking the tightrope from the Trump administration to the Biden presidency better than General Motors.

Chief executive Mary Barra cosied up to Donald Trump when it suited the automaker. Trump’s embrace of big business, including tax cuts, were useful. On Wednesday, the company reported a record-setting fourth quarter in which free-cash flow more than doubled. Performance was driven by sales of gas-guzzling trucks and SUVs Mr Trump had no particular distaste for.

Now that Joe Biden is in power, GM is using those profits to pivot toward the mass production of electric vehicles. Barra recently announced GM would have an all-electric fleet by 2035. This is not just good politics. Tesla shares are soaring. SPACs are snapping up next-generation automobile businesses. Undaunted by its failed relationship with heavy trucks group Nikola, GM is looking to ride the wave.

Short term, General Motors will be constrained by the semiconductor shortage tripping up most auto manufacturers. The company says its automotive free cash flow will fall as low as $1bn in 2021 after hitting $2.6bn in 2020. GM already temporarily shut three plants as its supply chain recovers.

When General Motors delivered good results after emerging from bankruptcy a decade ago, the market shrugged at best. The company’s enterprise value to ebitda ratio traded below five times. Investors are now looking past short-term hiccups. The shares have tripled from lows last March. The company’s market capitalisation has surged to nearly $80bn. Cruise, the autonomous vehicle upstart backed by GM has just been valued at $30bn.

Here is a telling number: GM reported a return on invested capital of 15 per cent for 2020, drifting down from 16.2 per cent the year before. Even as profits surged last year, so did the borrowings needed to enhance liquidity and invest in future growth. It does not matter. At GM, as at other big traditional automakers, the penny has finally dropped. Investors care less about 2021 than 2031. It is anybody’s guess who will be president by then.

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