General Motors Acquire 11% Stake in Nikola; Buy with Target Price of $46

General Motors, an American multinational corporation that was the world’s largest motor-vehicle manufacturer in the 20th century, said it would acquire 11% stake in U.S. electric trucking startup Nikola for $2 billion, sending both shares higher in pre-market trading on Tuesday.

The auto manufacturer will also receive the right to nominate one director. General Motors seizes growth opportunity with Nikola to boldly move into broader markets with Hydrotec fuel cell and Ultium battery systems, the company said in the statement.

Following this release, General Motors’ shares rose about 6% to $31.66 in pre-market trading on Tuesday, but the stock is down about 17% so far this year.

In addition, Nikola shares climbed over 30% to $45.68 in pre-market trading. Also, the stock is up over 240% so far this year.

Executives’ comments

“By joining together, we get access to their validated parts for all of our programs, General Motors’ Ultium battery technology and a multi-billion dollar fuel cell program ready for production. Nikola immediately gets decades of supplier and manufacturing knowledge, validated and tested production-ready EV propulsion, world-class engineering and investor confidence,” said Nikola Founder and Executive Chairman Trevor Milton.

“Most importantly, General Motors has a vested interest to see Nikola succeed. We made three promises to our stakeholders and have now fulfilled two out of three promises ahead of schedule. What an exciting announcement,” Milton added.

“We are growing our presence in multiple high-volume EV segments while building scale to lower battery and fuel cell costs and increase profitability. In addition, applying General Motors’ electrified technology solutions to the heavy-duty class of commercial vehicles is another important step in fulfilling our vision of a zero-emissions future,” said General Motors Chairman and CEO Mary Barra.

General Motors stock forecast

Fourteen analysts forecast the average price in 12 months at $33.46 with a high forecast of $46.00 and a low forecast of $15.00. The average price target represents an 11.53% increase from the last price of $30.00. From those 14 analysts, ten rated “Buy”, three rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $46 with a high of $68 under a bull-case scenario and $15 under the worst-case scenario. General Motors stock price forecast was raised by Citigroup to $54 from $53.

Other equity analysts also recently updated their stock outlook. General Motors had its price objective upped by Deutsche Bank to $33 from $30. Deutsche Bank currently has a buy rating on the auto manufacturer’s stock. UBS Group raised their price target to $34 from $27.00 and gave the company a buy rating.

Analyst views

“We are Overweight (OW) based on its strong portfolio diversification across: General Motors (GM) brands, as well as EVs, ICE and AVs. It also has leading North American margins, generates strong cash flow, and has a strong balance sheet,” said Adam Jonas, equity analyst at Morgan Stanley.

“We believe the market is underestimating the SOTP of the GM enterprise via: 1) Legacy ICE, 2) GM EV, 3) GM’s Ultium Battery business, 4) China JVs, 5) GM Finco, 6) GM Cruise, and 7) hidden franchise value in brands such as Corvette. GM management have a proven track record to allocate capital away from structurally challenged areas towards re-positioning the business model,” he added.

Upside and Downside risks

Upside: 1) Ramp of HD Truck and Full-Size SUV Platform. 2) Strategic Optionality, similar to exit of Europe. 3) Liquidity / Cash Management. 4) Spin-off of EV Business or GM Cruise – highlighted Morgan Stanley.

Downside: 1) Used Vehicle Prices. 2) China Profitability. 3) SAAR remains depressed. 4) GM Financial Losses.

Check out FX Empire’s earnings calendar

Will Tesla Stock Price Crash?

Just today, Tesla surpassed Walmart’s market cap – how is that possible? Walmart has 534.66 billion in sales versus just 25.71 billion for Tesla.

TESLA DAILY CHART

The trend in TSLA is overbought. The MACD and the RSI (14) are diverging negatively, suggesting waning momentum. The stock is behaving like a commodity – not a business. I see the potential for a “buy the rumor sell the news” event after the stock splits. I think prices will correct at least 50%, and that is extremely conservative.

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Another way to measure Tesla’s ludicrous valuation is through total revenue – let me explain. Hypothetically speaking, let’s say a company paid 100% of its annual revenue to shareholders as a dividend. Of course, this is not possible, but it helps make my point. In the example below, we will measure how many calendar days it would take to recover your initial investment if each company paid 100% of their profits to shareholders at today’s stock price.

Time to recover initial investments:

Ford Motor Company (F) $6.66

Revenue 130.4 billion

Revenue Per Share $32.87

Time to recover initial investment 74-days

General Motors (GM) $28.56

Revenue 115.79 billion

Revenue Per Share $80.94

Time to recover initial investment 128-days

Walmart (WMT) $131.65

Revenue 534.66 billion

Revenue Per Share $188.23

Time to recover initial investment 255-days

Tesla (TSLA) $2042.41

Revenue 25.72 billion

Revenue Per Share $141.64

Time to recover initial investment 5263-days or over 14-years.

Lastly, the combined market cap of Ford, GM, and Fiat Chrysler (the big three) is 90-billion, and in 2019 they produced 7,470,370 vehicles. Tesla’s market cap is 300% greater than all three (307 billion), and they delivered only 195,000 vehicles – ASTONISHING.

What goes up – must come down. Will Tesla prices crash soon? Maybe – it is hard to say. Whatever the case, I think we will get a generational buying opportunity in TSLA next year or early 2022.

AG Thorson is a registered CMT and expert in technical analysis. He believes we are in the final stages of a global debt super-cycle. For more information, please visit here.

General Motors Trading Higher Despite Horrific Quarter

General Motors Co. (GM) is trading higher ahead of Wednesday’s U.S. opening bell after posting a loss of $0.50 per-share, beating estimates by an impressive $1.26. Revenues matched expectations at $16.8 billion, which marked a stomach-churning 53.4% year-over-year decline.  U.S. sales fell 34% compared to the same quarter in 2019 but improved sequentially between April and June, rising from a 35% to 20% decline at quarter’s end.

General Motors Cyclical Downturn

Traditional auto manufacturers were under pressure prior to the COVID-19 pandemic, with slumping comparative sales raising fears of a cyclical downturn. The outbreak has confirmed those suspicions, with most automakers reporting steep declines. Tesla Inc. (TSLA) has been a notable exception in this equation, but the EV upstart could face similar headwinds when mass production ramps up in coming years.

Chief Financial Officer Dhivya Suryadevara pointed out strong demand for trucks in a post-release interview, noting tight inventories in this successful product line. He stated the automaker should be able to repay some debt in the second half of the year, lowering anxiety about liquidity that’s taken a hit in the crisis. The CFO also pointed out the sequential improvement but wrapped up his comments by warning the ‘situation with COVID-19 is very fluid”.

Wall Street And Technical Outlook

Wall Street consensus rates the stock as a ‘Moderate Buy’, based upon 8 ‘Buy’, 3 ‘Hold’, and 1 ‘Sell’ recommendations. Price targets currently range from a low of $15 to a street-high $39 while the stock will open this morning’s session about $3 below the median $30 target. Upside appears limited despite the ‘buy-the-news’ reaction because short covering is probably driving this uptick, rather than investors coming off the sidelines in reaction to a more bullish outlook.

General Motors has underperformed broad benchmarks since posting an all-time high in the 40s in October 2017, caught in a decline that broke 2015 support in the first quarter downdraft. The stock remounted that level in May and stalled out, entering a testing process that’s still in progress, despite this morning’s uptick. It will now take about 5 upside points to confirm support and set the stage for another rally wave.  That seems unlikely without much stronger quarterly revenues.

U.S. Stocks To Watch Today

General Motors

General Motors is set to provide its earnings report today before the market open. Analysts expect that the company will report revenue of $31.37 billion and profit of $0.34 per share.

The main intrigue is how the company plans to deal with the current crisis. The coronavirus containment measures dealt a heavy blow to the auto industry, and it’s not surprising that General Motors shares lost more than 40% of their value since the beginning of this year.

Recent reports suggest that General Motors wants to raise an additional $2 billion via a loan to boost its liquidity, but this has not yet been confirmed by the company. In all likelihood, General Motors will provide an update on liquidity measures during the upcoming earnings call.

The sales guidance is also of outmost importance as traders and investors try to guesstimate how much actual damage was done during the recent months and whether the company can mitigate this damage via increased sales after the end of virus containment measures.

Shopify

Shopify is one of the stocks that rallied due to the pandemic as consumers switched to online shopping options as brick-and-mortar stores were unavailable.

The company will provide its quarterly report today before the market open. The analyst consensus calls for revenue of $443 million and loss of $0.17 per share.

In all likelihood, the market will ignore the profitability metric and focus on the top line growth. However, the expectations are high as Shopify shares are up more than 70% year-to-date and have reached their all-time highs during the most recent trading session.

In case Shopify results fail to meet expectations, I’d expect a rapid sell-off as the stock’s valuation implies flawless execution.

Activision Blizzard

Activision Blizzard provided its quarterly results yesterday after the market close. The company reported revenue of $1.79 billion and profit of $0.65 per share, beating analyst estimates.

Activision Blizzard benefited from stay-at-home orders and success of the new Call of Duty which was released in March. As the lockdowns continued in April, the positive business environment remained intact.

The company expects that the strong momentum will continue and raises the outlook for revenue and earnings per share for the full year.

Before the earnings report, Activision Blizzard shares were up about 15% year-to-date. The market has positively reacted to the news, and the stock gained ground during the after-hours trading session. This trend may continue in the regular trading session.

Asia Mixed On Monday Woe, EU Market Surges On Trade News, Autos Lead The US Higher

Asian Markets Were Mixed On Tuesday

Asian markets closed mixed on Tuesday following Monday’s wild ride in US equities. The index moves were small in most cases but no two performed quite the same. The Australian ASX led advancing markets with a gain of 0.42% led by the banking sector while the Japanese Nikkei led declining indices with a loss near -0.35%. In China, the Shang Hai led with a gain of 0.37% compared to a 0.07% advance for the Hong Kong-based Heng Seng.

Traders were wary following Monday’s bag of news. In the US, a major market rebound signals a possible bottom to the October/November correction while developments in the UK and India add confusion to an already uncertain marketplace. In the UK, Prime Minister Theresa May has delayed a crucial vote on her Brexit deal with the EU. The delay is not unexpected but adds another element of uncertainty to the Brexit process. The Brexit deadline is only a few months away, failing to reach an agreement could lead to a hard-Brexit, Brexit without a trade deal, and that will make big waves in global financial circles.

In Japan, shares of tech-conglomerate Softbank surged nearly 2.5%. The move was sparked by news the IPO of Softbank’s mobile unit had been priced at $13.25 per share. The pricing is above market expectation and sign appetite for IPO’s is still alive and well.

EU Market Up On Trade News

Indices in the EU were up an average 1.75% in early Tuesday trading on word that trade talks between the US and China were progressing as expected. The news out of Beijing is that talks between the US and China are confirmed, news contrary to fears that have emerged since the G-20 meeting earlier this month.  Chinese Vice Premier Liu is cited as the source of the news.

Regarding the indices, the German DAX led with a gain of 1.95% while the French CAC and UK FTSE 100 were not far behind with gains of 1.90% and 1.55% respectively. All sectors and major bourses were positive in early trading, led by the miners. Shares of Antofagasta, Rio Tinto, and Anglo American were all up more than 3%.

Autos Lead Markets In The US

The trade news from China helped lift US indices in early Tuesday trading. The broad market SPX, blue-chip Dow Industrials, and tech-heavy NASDAQ Composite were all looking at 1.0% gains in early pre-market futures trading. The move was led by the auto sector and details on trade talks reported by Bloomberg. According to the news agency, China is moving toward lowering tariffs on autos imported from the US.

Chinese tariffs on autos were raised to 40% in August in retaliation for the US tariffs on Chinese imports. US President Trump Tweeted after the G-20 meeting China had agreed to lower these tariffs, this is the first sign that such an agreement is in place and happening. The auto sector has been under immense pressure since the trade-war began because it is closely linked with international trade at all levels. Shares of GM led with a gain near 2.4% followed by a 2.25% advance for Ford and a 2.0% gain for Tesla. Traders will be watching for more news on trade this week, as well as a policy statement from the ECB which is due out on Thursday.

Growth Worry Weighs On Asia, Merkel To Step Aside, US Equities Up On Earnings

Asian markets were mixed at the close of their Monday session. The Shang Hai Composite led decliners with a loss greater than -2.0% followed the Kospi with a loss near -1.50% and the Nikkei with a loss near -0.15% but not all indices moved lower. The Australian ASX rebound more than 1.0% as election woe subsides and the Hong Kong Heng Seng posted a small gain near 0.40%.

News released after the close of the Asian session may have the region moving higher tomorrow. According to a report in Bloomberg, China is contemplating a reduction in the car tax from 10% to 5%. The move was requested by the China Automobile Dealer Association in an attempt to spur stronger car sales. The news had an effect on automakers around the world who are all having a hard time growing sales in China. Shares of GM (GM), Ford (F) advanced near 5% in the pre-market session while Tesla (TSLA) rose a more tepid 1.0%.

EU Market Up On Earnings, Merkel To Step Aside

EU markets were up in the early half of the day on earnings and edged higher on the news from China. Shares of Daimler and BMW were both up about 5.0% and leading the market on positive sentiment. Not only will lower car tax in China stimulate sales of vehicles around the world, but it may also aid with US trade frictions which is the largest fear underlying the market at this time.

In Germany, Angela Merkel’s coalition government saw heavy losses in a recent election. The results were so poor Merkel has decided to step aside as party leader come the December conference less than two months away. Germany’s Chancellor says she wants to remain the country’s leader until the next federal elections in 2021 but that may not happen if she can’t maintain the support of her party. The EUR/USD held steady on the news and traded within a very tight range as traders are more focused on this week deluge of data than they are German politics.

In the EU traders will be watching for the first read on third-quarter GDP as well as the all-important Consumer Price Index. Consumer prices are expected to hold steady from the last month at 1.0%, 2.0% YOY, a miss could have the EUR/USD moving lower. Also on tap for the EU is a meeting of the BoE. The bank is not expected to alter rates but could indicate a change of position regarding the outlook.

US Equities Up On Earnings 

The US futures indicated a positive open for the equities market on Monday morning. The broad market S&P 500 was indicated to open with a gain near 1.0% with automakers leading the way. While the peak of earnings season has passed there are still about 50% of the S&P 500 to report over the next few weeks. So far the reports have been better than expected. The blended rate of earnings growth is now 22.%, up to a full percent over the last week, and likely to continue expanding into the end of the season. There are 139 companies reporting this week, 27.8% of the index.

Major Institutional Investor Says Tesla Stock Price Could Hit $4000 in 5 Years

An institutional investor with a $164 million stake in Tesla (TSLA), held through 158,000 of the electric car manufacturer’s Nasdaq-listed shares, has publically pleaded with CEO Elon Musk to re-think his move to privatize the company.

Representatives of ARK Investment Management, the investor in question, have urged the reassessment through an open letter to Musk, on the grounds that they believe that Tesla’s stock price has the potential to reach $4000 within 5 years. On that basis, ARK argues that Musk’s stated intent to take the company private at a valuation of $420 a share.

Why Did Musk Want to Take Tesla Private?

Elon Musk has grown frustrated in recent months with what he considers the short-termism of capital markets. The entrepreneur, who first rose to prominence as co-founder of the online payments platform PayPal, has never quite fit the mold of a Wall Street CEO. Breaking that mold has been a huge part of his success in managing to sell his grand vision for Tesla to investors and achieving a capitalization and resources far beyond what the company’s revenue would suggest should be possible.

Tesla’s lofty valuation, higher than both traditional auto manufacturers Ford and GM with a fraction of their revenues and none of their profits, has been achieved to a large extent through the force of Musk’s personality and his ability to sell a long-term vision. However, despite the fact that the Tesla stock price (TSLA) has for years marched to a different tune than that of companies many analysts argue should be considered its peers (auto manufacturers rather than tech companies), capital markets still have their demands. Patience with Tesla continuingly missing Musk’s usually overambitious targets and timelines, and the amount of cash the company burns through, has recently grown thin. Tensions recently surfaced when Musk refused to answer fairly standard financial questions put to him by an analyst at a recent quarterly earnings report, dismissing them as ‘boring’.

While subsequently apologizing for what Wall Street media described as a ‘meltdown’, the event seems to have crystallized Musk’s growing suspicion that being a public company might not be the most conducive way for Tesla to reach its goals. Capital markets demand quarterly improvement in specific growth metrics and Musk’s argument for taking the company private is that this creates a short-term mentality that is hindering achieving longer-term ambitions.

The Argument Against Tesla (TSLA) Going Private

ARK’s representatives argue that being a public company provides Tesla with more advantages than disadvantages. The public letter signed by the investment firm’s founder and chief executive, Cathie Wood lists these as:

  • More ‘rapid’ ability to capitalize on competitive advantages – argued as key to network effects and natural geographic monopolies that will characterize autonomous taxi and truck networks.
  • Increased public profile – argued as key to launching an autonomous taxi network.

The investor also believes that the proposed buy-back of Tesla (TSLA) stock at $420, with a $100 a share premium on current price, denies investors who have backed the company the opportunity of realizing huge future returns. The ambitious $4000 a share target ARK argues Tesla can achieve within 5 years, is built on the high-margin future business model of Tesla offering driverless taxi and truck services.

It has been reported that Musk has hired Morgan Stanley to manage the reprivatization process of Tesla. However, as much as the idea to privatize Tesla was appealing, Musk and the Tesla’a management realized that “the better path is for Tesla to remain public”. Tesla shares dropped and did not yet recover after Musk’s decision to keep the electric car maker public.

This article was written by eToro