Automakers GM and Ford "need" to spin off their electric vehicle units, says DataTrek co-founder Nicholas Colas.
The former auto analyst highlights the latest valuations obtained by pure EV companies as a reason for traditional automakers to separate their electric initiatives unit, from their internal combustion engine vehicle business.
"We’ve been around the auto industry long enough (30 years) to know that GM and Ford need to spin off their electric vehicle operations ASAP. When it was just Tesla with a crazy valuation, they could afford to dismiss this idea. Now, with Rivian, Lucid, etc., they can’t," Colas wrote in a note to investors.
"If I were banking Ford or GM right now, I would be pushing hard for them to spin off their electric vehicle operations. The valuation differentials are straightforward enough to at least get a meeting with the CFO:"
Tesla (TSLA): $1.1 trillion
Rivian (RIVN): $148 billion
Lucid Group (LCID): $88 billion
General Motors (GM): $91 billion
Ford (F) : $79 billion
Colas suggests creating "an EV newco.” The operations would include "all the parts of the business relevant to winning in an all-electric vehicle future: R&D, product design, parts sourcing, and assembly."
Colas isn't the only one suggesting a spin-off. Morgan Stanley's (MS) auto analyst Adam Jonas has voiced his support for GM and Ford to each split in two as the market undervalues their electric vehicle components.
"The battle for capital and talent is likely to get significantly more challenging as start-up EVs attract large amounts of investor and consumer interest," Jonas recently wrote in a note to investors.
In the past, the analyst has said separating the companies' EV operations would allow those units to access capital and attract partners more easily.
"Both companies face serious challenges from EVs and in our view will require ‘non-traditional’ actions to address them," he added.
Industry watchers were awed by the enthusiasm around EV start-up Rivian public debut last week. The company obtained an $86 billion valuation right out of the gate. DataTrek's Colas said Rivian was real competition when it comes to institutional investment interest.
For a while Tesla was the only game in town. Now, there are a few startups getting lots of attention, and hefty valuations.
"The point here is that traditional automakers are at a huge competitive disadvantage relative to EV pure plays when it comes to accessing capital markets," wrote Colas.
"Now, here’s the punchline: GM and Ford will almost certainly NOT spin off their electric vehicle operations even though there is a compelling case to do so," he added.
