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Tesla vs. GM: Who’s Ahead after Biden’s EV Push?

·5 min read

According to Thursday's Reuters report, U.S. President Joe Biden has signed an executive order that intends to make 50% of all new vehicles sold in the United States electric by 2030, in order to reduce greenhouse gas emissions in the U.S.

Biden’s administration also proposed new vehicle emission standards aimed at reducing pollution through 2026, which would start with a rise in stringency of 10% in 2023.

Wedbush analyst Daniel Ives viewed the announcement as “part of a broader endeavor under the Biden Administration aimed at accelerating the shift to EVs and ultimately compete with China in this EV arms race.”

Let us compare two companies, Tesla and General Motors, using the TipRanks Stock Comparison tool, and see how Wall Street analysts feel about these stocks.

Tesla (TSLA)

Tesla has been a frontrunner when it comes to EVs. This year, the company has produced 386,759 of them so far and delivered 386,181 vehicles through Q2. Tesla had a record-breaking quarter in Q2 as its quarterly net income surpassed $1 billion for the first time in its history.

Tesla’s Q2 results beat Street estimates across the board. Revenue surged 98% year-over-year to reach $11.96 billion, ahead of the consensus estimate by $560 million. Non-GAAP EPS of $1.45 came in $0.47 above the Street’s forecast. (See Tesla stock charts on TipRanks)

Following the Q2 results, Evercore ISI analyst Chris McNally assigned a Hold rating and a price target of $650 (7.5% downside) on the stock. The analyst viewed TSLA’s automotive gross margin at 28.4% as the "best auto GM ever” and was of the opinion that the company’s “margins are moving in the right direction.”

McNally also said that with TSLA’s revenues likely to scale up in the coming years, which "should drive an industry leading high-teens margin business (before any help from FSD [full self-driving] software potential).”

More importantly, the analyst viewed the Biden administration’s EV/infrastructure bill as the “best near-term catalyst for TSLA.” When the Evercore report was published, Biden’s EV policy was still in the works.

According to Reuters, Biden “has called for $174 billion in government spending to boost EVs, including $100 billion in consumer incentives.”

While there is no clarity regarding the tax credit incentives for EV makers, McNally expects that if TSLA’s “exhausted 200k tax credit incentive cap is lifted to 600-800k, TSLA could benefit from an extra $7.5k of pricing vs consumer elasticity in the U.S. (roughly 1.5-2x years of aided demand by our U.S. volume forecast of ~350k in ’22).”

Furthermore, Wedbush analyst Daniel Ives is believes after yesterday’s announcement that pure-play EV makers could be poised to “capitalize on a Biden driven green tidal wave domestically with our expectations that the tax credits and incentives around EVs will ramp significantly in the coming years.”

Ives projects that over the next 10 years, the EV total addressable market (TAM) could be worth $5 trillion.

Turning to the rest of the Street, consensus is that Tesla is a Moderate Buy, based on 12 Buys, seven Holds, and five Sells. The average Tesla price target of $724.43 implies an approximately 2.8% upside potential from current levels.

General Motors (GM)

General Motors is another automaker giving a big push to EVs. In June this year, the company unveiled a plan to increase its EVs and autonomous vehicles (AVs) investment to $35 billion from 2020-25. This would be a rise of 75% from its initial commitment announced before the pandemic.

GM’s EV push would include increasing the Ultium battery cell production in the U.S. and the commercialization of Ultium batteries and Hydrotec fuel cells made in the U.S., the company said.

GM reported strong Q2 results recently despite chip shortage issues. The company posted revenues of $34.2 billion compared to revenues of $16.8 billion in the same quarter a year back. Analysts were expecting revenues of $29.11 billion.

Adjusted EPS came in at $1.97, surpassing the Street's estimate of $1.34. The company had recorded a loss of $0.50 per share in the second quarter of 2020.

When it comes to its outlook for fiscal year 2021, GM expects adjusted diluted EPS to come in between $5.40-6.40, while net income is projected to range between $7.7 billion and $9.2 billion.

Interestingly, Barra’s letter to shareholders talked about its EV strategy and said that GM intends to develop a “full EV portfolio that doesn’t depend on partial solutions like hybrids and 'electrified' ICE vehicles.”

By 2025, GM expects to launch more than 30 EV models in North America and China. Furthermore, the company anticipates selling more than 1 million EVs on a global basis by 2025. (See General Motors stock charts on TipRanks)

Indeed, Ives is also bullish about GM’s EV push and has a Buy rating with a price target of $85 (54.3% upside) on the stock.

Ives commented, “With Barra & Co. developing game-changing battery technology under the Ultium Platform, GM is in a great position to take advantage of a $5 trillion EV market emerging over the next decade.”

Furthermore, the analyst believes that by using the Ultium battery cell technology, GM could very well usurp market share “against pure-play EVs in all aspects of the industry.”

What’s more, Ives is of the opinion that GM has a potential “gold mine” in the form of the software and services business required for EVs that could very well bring in “$20 billion to $30 billion of incremental services and software we see over the next 5-7 years.”

Turning to the rest of the Street, consensus is that GM is a Strong Buy, based on 16 unanimous Buys. The average General Motors price target of $74.06 implies an approximately 34.5% upside potential from current levels.

Bottom Line

While analysts are cautiously optimistic about Tesla, they are bullish about General Motors. Based on the upside potential over the next 12 months, GM seems to be a better buy.

Disclosure: Shrilekha Pethe held no position in any of the stocks mentioned in this article at the time of publication.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities