What happened
Shares of General Motors (NYSE: GM) were moving higher on Monday after a Deutsche Bank analyst claimed GM should spin its electric car (EV) business.
As of 1:30 p.m. EDT, GM shares were up about 9.9% from Friday’s closing price.
So what
In a note released on Monday morning, Deutsche Bank analyst Emmanuel Rosner GM added to the short-term catalyst propeller list, ‘a list of stocks that could jump in price in the full term on significant news. Rosner thinks it is possible that GM could spin its company with electric cars, and create a separate company (and stock) that could have a rating closer to that of Tesla – a potential reward for existing GM shareholders, who would likely receive shares of the spun-off company.
GM is developing a range of electric cars around a new modular architecture and an advanced battery system called Ultium. Image source: General Motors.
Rosner had asked CEO Mary Barra about the possibility of an EV spinoff during GM’s win call on July 29. While Barra was noncommittal, Rosner claimed last week in another note that such a spinoff would be a “no-brainer” with the potential to unlock billions of dollars in stock value.
Rosner argued that while a new GM electric car company could be valued anywhere from $ 15 billion to $ 95 billion, the legacy company (the rest of GM) would not lose much value after the spinoff, as its rating already far below that of his pure-EV peers.
A related point: With a higher valuation than GM, a new GM EV company would have ready access to capital (through stock offerings) at a lower cost than GM does now.
Well what
Would a spinoff of GM’s EV company really be a no-brainer, delivering billions of dollars in ‘unlocked’ value to car investors? I agree with my Fool colleague Adam Levine-Weinberg, who explained earlier today why it would not be as simple as Rosner claims. Simply put, the EV company would be very difficult to separate from GM and its ever-existing brands, and legacy GM would decline without EVs.
But what are the chances that the spinoff will happen, whether it is simple or not? As a long time GM watchdog (and shareholder), here’s my careful take: Do not hold your breath.
