Sky-high EV stock valuations could steer F and GM into the spinoff line
$General Motors(GM.US$ and $Ford Motor(F.US$ have given no indication that they are considering a spinoff of their electric vehicles businesses, but that could change in a market where $Tesla(TSLA.US$trades with a market cap of over one trillion dollars, $Rivian Automotive(RIVN.US$ skyrockets past a $100B valuation on its first day of trading and $Lucid Group(LCID.US$ sits with a market cap of over $75B well ahead of mass deliveries.
Datatrek makes the point that traditional automakers are at a huge competitive disadvantage relative to electric vehicle pure plays when it comes to accessing capital markets. Companies like Tesla (TSLA), Rivian Automotive (RIVN) and Lucid Group (LCID) have an easier route to low-cost capital by issuing shares into red-hot demand. At the moment, that investor demand is seen supported by market expectations that General Motors (GM) and Ford (F) will not break off their electric vehicle businesses into separate pure-play EV companies.
The breakup road for GM and Ford to take is pretty straightforward, per Datatrek. First, the companies would create an EV "newco" to include parts of the EV business like R&D, product design, parts sourcing and assembly. The next step would be to hire a CEO and CFO from the tech world, but with experience in design and manufacturing, and then staff the rest of the organization from the top-performing ranks of existing management. A strong, independent board and an outside chairperson would also be a positive, especially if the have venture capital and technology chops. Finally, GM (GM) and Ford (F) would fire off a sale of 19.9% of the new pure-play EV companies in an initial public offering to bring in as much as $10B and leave plenty of room for investor interest. Even tricky issues like how to deal with the UAW and distinguishing brands (F-150 ICE vs. F-150 Lightning) could have clever workarounds if the Detroit giants make the move.
"It is not that Ford and GM can't compete in EVs or AVs – they can. It is that their chances improve materially if they can have an equity currency that goes toe – to – toe with Tesla and (now) Apple," reasons Datatrek on the scenario.
Other auto industry analysts have observed that GM's Cruise subsidiary in particular could have an easier time striking key partnerships if free of the old Detroit roots.
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Brain Gomes : The F150 lightning will be the biggest selling EV in the world within 5 years. No need to split the company
arts food business Brain Gomes : Perhaps - but the point is, Ford can't raise cheap equity the way Tesla, Rivian & Lucid can.
If Ford played their cards right, they could tap the EV crazed equity market as well.
At the very least - it would make sense for Ford to raise the cheap equity, and pay off their debt.
Oavbab arts food business : Ford generates massive cash flow. They don‘t need outside capital.
Rickydi Oavbab : For the moment. While F didn't go CH-11 like GM, they did come close.
The economy is booming right now, but there's not telling if or when a collapse could happen, resulting in a massive reduction in their cash-flow.
Had the issued a bunch of over-priced equity, when the markets were hot, they'd be in a better spot if/when that happens.
zukG4HQuCI : How GM avoids bankruptcy I have no idea. The idea that Joe Biden put forward that GM is somehow leading the EV push is absolutely ludicrous.
O15Cbt1QkM zukG4HQuCI : I voted for Biden, and he's actually getting some good things done, despite the GOP resistance. But, I had no idea that UAW was so deeply entrenched in the gray matter. It's disgusting.
RjqRwaUMHM zukG4HQuCI : Yeah, he was almost down to Trump's level of silliness on that one.
bAUwzKkxLL zukG4HQuCI : Making about $9 billion this year in profits might help keep them out of bankruptcy.
moonoooooo : Ridiculous market. I think they’re too late anyway. The EV blow off top is upon us. About to crest.
OH Mama moonoooooo : Have you seen Tesla lately? I own F, GM, and have done nicely with them, and I own a little VW and they all have my vote and blessing to play the EV game. More money is always welcome. Does Gamestock or GMC make sense? They want M to spin off e-commerce from brick and mortar next they will be asking Amazon to spin off their new brick and mortar from e-commerce.
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