General Motors (GM) shares rallied 3.1% in the morning of Monday trading, putting the automaker on track for closing high in 2 months.
Deutsche Bank analyst Emmanuel Rosner included GM on the firm’s “Catalyst Call Buy List” with a potential EV spinoff in view. He also noted that in a conference call with GM and other analysts after reporting the second-quarter earnings which ended July 29, the company’s Chief Executive Mary Barra said GM was currently evaluating the option of its EV spinoff.
“We are evaluating and always evaluate many different scenarios, so I don’t have anything further to say other than, we are open to looking at and evaluate anything that we think is going to drive long-term shareholder value,” Barra said. “So, I would say nothing is off the table.”
Rosner is of the opinion that an EV spinoff will cause the market to accept the company’s EV technology and future vehicle lineup. He also believes that it will “unlock considerable shareholder value, give the new entity access to cheap capital and provide the new entity with the ability to attract high-caliber talent.”
If the EV spinoff works out, the valuation outcomes could put GM’s stock between the range of $28 to $93, representing a decline of 2.5% to more than triple times (up 224%) the current levels, according to Rosner. On a year to date basis, GM’s stock has lost 21.6%.
Morgan Stanley also values GM’s Ultium business at nearly $20 billion, as seen in a note by a Jonas analyst. He raised the firm’s price target for General Motors to $46 from $43, citing the automaker’s EV spinoff.
“GM is taking its in-house battery capability to the next level, supporting internal & 3rd party supply scale,” the analyst wrote. Adding that Jonas is in support of the EV spinoff as “the autonomy between the two units can liberate each other of various impediments to efficient capital allocation and talent development.”
Pressure has been mounting from Wall Street for General Motors to spin off its electric vehicle (EV) business to create more competition for Tesla and other anticipated startup companies.
Deutsche Bank analysts value the new company at a minimum of $15 billion, and a maximum of $20 billion, and potentially worth $100 billion. GM’s total market cap is currently at $43 billion.
“Spinning it off essentially creates value, it could unlock a massive amount of value, actually,” Rosner said on CNBC’s Power Lunch, on Monday. Adding that, it would be a lot “better for value creation” if GM reduces its retains of the EV operations.
After the Deutsche Bank upgraded its rating on GM to a buy, GM shares were up 7.7% on Monday trading close.