Can GM Surpass Tesla’s Growth?

The rise of Tesla Inc.’s (

TSLA, Financial) stock has left many on Wall Street befuddled. While the first company to undertake mass production of fully electric vehicles is nothing to sneeze at, its stock price seems to have lost all tether to reality since it began its epic run in 2020, granting early investors returns upwards of 20,000%.

In fact, Tesla now accounts for more than half of the total market cap of the entire vehicles and parts industry in the U.S., according to GuruFocus’ industry data. General Motors (

GM, Financial) is a distant second place with 5.4% of the industry’s market share.

Now that demand for EVs has really begun to take off, Tesla has gone from a loss-making company to six quarters of profits, and many other automakers both old and new are releasing their own EV models and building out the necessary infrastructure to further grow the market for these vehicles.

With Tesla’s success in mind, General Motors has decided to pursue a similar strategy. In a two-day investor meeting this week, the company laid out its plans to work toward ambitions revenue growth with EVs, robotaxis and several tech ventures. It also wants investors to see it as a tech startup rather than just an automaker and assign its stock a corresponding valuation multiple.

Delivering the goods

GM will have to achieve impressive growth in order for investors to assign it a tech startup valuation. The company seems ready to deliver, aiming to double its annual revenue to an astronomical $280 billion by 2030. In terms of percentage growth, this might seem inferior to the likes of Tesla, but GM already has high revenue to begin with. In fact, among the five U.S.-listed automakers with the highest market caps, GM had the highest revenue in the most recent quarter, surpassing even Ford (

F, Financial).

GM has also surpassed its main competitors on the net income front for the past year, with the exception of Ford in the first quarter of 2021.

By current numbers, GM should be the one trading at a higher market cap than Tesla, not the other way around. However, in 2021, Tesla’s number of vehicles sold in the U.S. grew 97% compared to GM’s 0.1%

One of the reasons for this is that Tesla is a smaller company, so any growth at Tesla will represent a higher percentage gain than it would for a larger company. Tesla has also done an excellent job of managing the chip shortage through better strategic partnerships and a newer chip architecture that chipmakers are better equipped to produce versus the old chips that most automakers still use.

GM plans to rapidly scale up its EV manufacturing capacity. Currently, only two of its plants can produce EVs, but it plans to transition at least another three by the end of 2023. It only has one EV model for sale in the U.S. at the moment, the Chevy Bolt, but it will release the Hummer EV later this year, followed by the Cadillac Lyriq and the Celestiq.

Outside of the U.S., GM has other electric vehicles for sale, the best-selling being its HongGuang Mini EV, offered through a joint venture in China. The company plans to offer 25 EVs globally by 2025, investing $35 billion in EV and autonomous vehicle product development spending, which exceeds GM’s investment in gas and diesel vehicles.

On the autonomous vehicles front, GM plans to release its new hands-free system, “Ultra Cruise,” by 2023, which it says will be capable of driving in 95% of scenarios versus its current “Super Cruise” system, which only works on pre-mapped dividend highways. The company aims to have at least 1 million self-driving vehicles on the roads by 2030.

Majority-owned subsidiary Cruise is also well on the way to monetizing self-driving robotaxis in San Francisco by 2022, pending state approval. The company has five of the six necessary permits to commercialize self-driving robotaxis in California.

One major hurdle to EV ownership in the U.S. has been the lack of EV charging stations. Gas stations are just about everywhere you look, and there will typically be one within a few dozen miles even if you are on a rural highway, but to charge your EV, you usually need to be in a densely populated city. This is a relatively low-cost issue compared to developing EVs, and GM plans to spend $750 million on EV charging stations in the U.S. and Canada by 2025.

Finally, in order to truly transition to a tech company, GM plans to adopt a software-as-a-service model wherever it can in order to generate recurring revenues. To this end, it plans to offer downloadable upgrades for its vehicles, including hands-free driving technologies and 0-60 acceleration upgrades.

A cult-like following

Even though Tesla’s growth has been faster, GM has a head start in terms of existing revenue streams as well as manufacturing and sales capacity. What it has lacked so far is an EV that can compete with or even beat out Tesla’s models, and whether or not it can achieve this depends mostly on its engineers.

However, even if GM does manage to grow rapidly and stay ahead of Tesla, that doesn’t necessarily mean that shareholders will suddenly switch teams. Just like with GameStop (

GME, Financial) and other meme stock rallies, many Tesla shareholders have bought out of principle rather than just because they think the stock is going to go up. More than a few of Tesla’s early shareholders bought because they wanted to support the commercialization of EVs in the U.S.

Unlike with meme stocks, though, many Tesla investors believe the stock is currently undervalued compared to its future growth potential. If Tesla can grow into its current valuation a decade from now, what reason is there to sell? In any case, the higher Tesla’s share price, the better ability it has to raise capital to invest in its growth.

It’s all built on hypothetical scenarios. Avid Tesla fans maintain that no one could ever create a better EV, and if no one can ever create a better EV, then the company could still have room to rapidly scale up its production and sales for many years to come. According to GuruFocus’ discounted cash flow calculator, Tesla would need to achieve 55% annual earnings per share growth over the next decade in order to justify its current share price, but for Tesla bulls, this seems entirely within the realm of possibility.

Regardless of whether you think Tesla is overvalued or not, though, the fact remains that it is very much a cult stock at current levels. A cult stock is a stock that has an intense fanbase and is followed closely by the media but whose fundamentals and profitability are far below its share price.

Does GM have any hope of sparking the public’s imagination in such a way, turning ownership of its EVs or stock into a sort of exclusive club that people will pay through the nose to be a part of? Probably not. It is possible that GM will eventually scale up and sell more EVs than Tesla, but even if it does, that might only improve Tesla’s cult-like following, settling it into a comfortable position as a maker of luxury EVs.

Valuing the future

If GM were to attain a Tesla-like valuation multiple, its stock price could rise from $58.60 to more than $4,000. While this is an unlikely scenario, the company could still provide significant returns in the coming years, especially if it can achieve its goals of going all-electric while doubling revenue and adding subscription-based services for drivers.

Activist investing firm Engine No. 1 has joined the ranks of GM’s supporters, and according to founder Chris James, the firm believes that the automaker’s stock can triple over the next five years. Revenue-wise, GM should be halfway to doubling its revenue by then, which implies an expectation for a moderate expansion in earnings multiples.

However, investors should keep in mind that no matter how much new tech is being developed in the automotive industry, it will likely remain cyclical, with new automobile purchases being one of the things consumers find easiest to delay during times of crisis. That being said, this could be somewhat mitigated if regulations to reduce climate change become stricter, which could result in heavy government and corporate spending on EVs.