GM’s 5-Year Plan to Double Sales in China Adds Upside to Our Bullish Forecast
General Motors (NYSE:GM) was the second largest global vehicle manufacturer in 2010, [1] selling its vehicles globally under four core brands – Cadillac, GMC, Buick and Chevrolet. GM is also one of the best positioned automakers in China, the world’s largest automobile market. The company actually sold more cars in China than in the U.S. for the first time in 2010, and now has plans to double its sales in China in 5 years. [2] GM competes with other prominent auto manufacturers like Toyota (NYSE:TM), Honda (NYSE:HMC), Ford (NYSE:F), Daimler (ETR:DAI), Volkswagen (ETR:VOW) and Hyundai (SEO:005380).
Our $34.34 price estimate for GM stock is about 15% above market price.
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Multi-Brand Strategy to Match Evolving Needs of the Chinese Market
As the Chinese auto market grows, so does the differing needs of customers. GM plans to compete effectively and cater to the evolving needs of Chinese customers by maintaining a broad portfolio of multiple brands. Over the next 5 years GM plans to introduce more than 60 new and upgraded models, nearly half of which will be in its two mainstream brands in China – Chevrolet and Buick. GM hopes that its product development capabilities in China will help it to efficiently identify and address market needs.
Electric Vehicles to Power GM’s China Growth
China is hoping to stimulate the demand for electric vehicles by offering huge subsidies of up to $9,200 and also by offering grants to cities to purchase electric buses and taxis. Though many automakers are jittery about the requirements of technology transfers to local joint-venture partners or auto part suppliers, few can ignore the opportunity created by the size of the Chinese auto market. [3]
GM plans to capitalize on the potential demand for electric vehicles in China and will work with joint-venture partner SAIC to develop next generation electric vehicle architecture. GM is also establishing a lab in Shanghai to explore and develop battery technologies. China will be one of the first markets where GM will offer its Chevrolet Volt extended-range electric vehicle.
+16% Upside to Our Price Estimate if GM Successfully Executes its Strategy
In our base case scenario, we estimate that GM’s market share in China will decrease during the years ahead, with GM vehicle sales in China hitting 3.3 million units in 2015. But for GM to achieve its sales target of 5 million units by 2015, its market share in China will have to increase by 80 basis points every year (assuming no change to our projections for total vehicles sold in China). This market share growth would imply a $40 stock value for GM, more than 16% ahead of our $34.34 price estimate.
You can test this scenario, and others, by dragging the trend lines in the interactive charts above.
See our complete analysis for GM’s stock here
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