BUY:  GENERAL  MOTORS  

SCRIPPS  STUDENT  INVESTMENT  FUND  Mia  Shackelford  Callie  Walsh  Grace  Wang    January  24,  2017  

GENERAL  MOTORS  

AGENDA  

Investment  Thesis  

GM  Overview  

Auto  Industry:  Present  and  Future  

CompeJJve  Advantages  

Comparable  Company  Analysis  

ValuaJon  

Risks  

Conclusion  

INVESTMENT  THESIS  

Excellence  in  Efficiency   Brand  Leadership   Investment  in  InnovaIon  

               

GM  has  leapt  ahead  of  its  compeJtors  by  refining  industry  best  pracJces  

GM  has  aggressively  pivoted  to  maintain  a  strong  brand  

and  product  strategy  

GM  has  invested  heavily  in  the  future  of  the  automoJve  

industry  

Ability  to  adapt  to  changing  automoJve  landscape  

General  Motors  Overview  

GENERAL  MOTORS  

GENERAL  MOTORS  

COMPANY  OVERVIEW  

Highly  diversified  automoJve  company  

GM  is  one  of  the  world’s  largest  automakers  •  GM  AutomoIve  designs,  builds,  and  sells  cars,  

trucks,  crossovers,  and  automobile  parts  •  Retail  sales  through  dealers  •  Direct  fleet  sales  •  Accessories  

•  GM  Financial  provides  automoJve  financing  services  

 

1  

1  

1  Represents  core  operaJng  performance  (i.e.            0  adjusted  for  major  recall  campaigns)  

EBIT  

2015  Revenue  

AWer  restructuring  post-­‐financial  crisis  and  bailout  in  2008-­‐2009,  GM  commi[ed  to  a  disciplined  capital  allocaJon  plan  requiring:    •  An  investment  grade  balance  sheet                    (currently  BBB)  with  $20bn  cash  •  Investment  in  research  to  drive  20+%  ROIC  •  All  excess  cash  returned  to  shareholders    

•  $1bn  towards  $4bn  second  program  in  2016  and  $5bn  towards  third  program  announced  in  2017  

In  the  event  of  a  25%  downturn,  GM  can  maintain  investment  in  innovaIon,  posiIve  global  EBIT,  and  pay  its  dividend    Strong  management  team  with  a  diversity  of  experience:    •  CEO:  Mary  Barra  (35+  years  with  GM)  •  50%  of  leadership  team  joined  aWer  2009  with  

substanJal  finance,  legal,  or  engineering  experience  

•  50%  long  Jme  GM  employees  

GENERAL  MOTORS  

Current  State  of  Auto  Industry  

United  States  (19%  market  share)  •  Record  sales  

•  PotenJally  overheated  or  incenJves  driven  •  ShiW  to  SUVs/trucks  

•  63%  of  market  •  Interest  rates  •  Highest  consumer  confidence  in  15  years  

Mexico  (20%  market  share)  •  20%  YoY  growth  rate  •  Record  sales  in  December  2016  

China  (15%  market  share)  •  Record  sales  •  Concerns  about  higher  auto  taxes  •  SUV  &  MPV  growth  •  162%  sales  growth  in  New  Energy  Vehicles  

(NEVs)  in  2016    •  China  already  has  172mm  vehicles  on  its  

roads,  compared  to  265mm  in  the  US         China  Sales  

North  American  Sales  

GENERAL  MOTORS  

Future  state  of  the  auto  industry:  $1.5  trillion  

OEMs  (Original  Equipment  Manufacturers)    

•  Partner  with  ride  sharing  fleets  &  technology  companies  •  Offer  operaJonal  experience  and  capacity  to  deliver  at  scale  •  Benefits  from  a  preference  to  work  with  one  manufacturer  

AutomaIon  

•  High  cost  savings  •  Technology  and  regulatory  challenges  

Sharing  Services  

•  1  in  10  cars  sold  in  2030  will  be  a  shared  vehicle  

Electric  •  Stricter  regulaJons  and  decreasing  

ba[ery  costs  •  Prevalent  charging  staJons  

ConnecIvity  •  Internet  of  Things:    Plalorm  for  

communicaJon  and  entertainment  

Advantage  for  GM  with  global  trust,  strong  cost  management,  and  opera:onal  capacity  

CompeIIve  Advantages  

GENERAL  MOTORS  

KEY  TAKEAWAYS  

 Commitment  to  cost  management  

 CollaboraIve  supplier  relaIons  

 Inventory  management  

Excellence  in  Efficiency  

GENERAL  MOTORS  

Focus  and  follow  through  

GENERAL  MOTORS  

•  TargeJng  $5.5bn  in  cost  efficiencies  by  2018  (4-­‐year  plan)  for  sustainable  growth  

 •  Achieved  $3.7bn  through  3Q16  (ahead  of  

target)  so  raised  target  by  $1bn  

•  Total  $3bn  savings  net  of  investments  in  brand,  engineering,  and  technology  

 

 

GENERAL  MOTORS  

•  Patented  welding  technique  

•  Raise  ATP  from  $29,600  in  2016  to  over  $32,300  in  2023  

•  Save  GM  $2bn  by  2018  

•  Unlike  Ford,  no  plant  retrofit  required  

 

Example:  Reducing  vehicle  weight  through  aluminum  to  steel  welding  

GENERAL  MOTORS  

•  70-­‐80%  OEM  revenue  spent  on  input  

•  Supplier  trust  is  key    

•  OneCost  system:  coordinated  design  to  reduce  costs    

•  Only  GM  improved  supplier  relaJonship  in  2016  

 

CollaboraIve  supplier  relaIons  

GENERAL  MOTORS  

•  Lean  manufacturing  

•  Cost  reducJon  

•  Avoids  pressure  to  move  cars  through  discounJng  à  higher  ATP  

•  2016  incenJve  spending/ATP  was  11.9%,  far  below  domesJc  compeJtors  

•  2016  ATPs  were  $4,260  above  the  industry  average  

 

Inventory  management  

GENERAL  MOTORS  

GM  AVERAGE  TRANSACTION  PRICE  2013  –  2016  

KEY  TAKEAWAYS  

 Diverse  brands  

 Responsive  global    strategy    

Excellence  in  Efficiency  

GENERAL  MOTORS  

Brand  Leadership  

GENERAL  MOTORS  

Diverse  brands  

Luxury   North  America,  China,  Middle  East  

Upscale   North  America,  China  

Premium  SUV/truck   North  America  

Mass  market     Global  

GENERAL  MOTORS  

•  Awareness  and  quick  response  to  changing  consumer  preferences  and  macroeconomic  trends  

•  China  •  Introducing  60  new  models  through  

2020  •  Rolling  out  10  new  energy  vehicles  

(NEVs)  •  Russia  

•  GM  exited  Russia  in  2015  because  of  the  collapse  of  the  Russian  Ruble  

 

Responsive  global  strategy  

KEY  TAKEAWAYS  

 Smart  partnerships  in  technology  

 Electric  cars  for  the  mass  market  

 ConnecIvity  and  crash  data  

Investment  in  InnovaIon  

GENERAL  MOTORS  

•  AcquisiJon  of  CruiseAutomaJon  

•  Investment  in  LyW    

Smart  partnerships  propel  autonomous  driving  

“Self-­‐driving  vehicles  will  be  a  $87  billion  opportunity  in  2030  and  car  maker  profits  will  be  more  than  $10  billion”    –  Lux  Research  

GENERAL  MOTORS  

GM  vs.  CompeItors:  Autonomous  Cars  

Google   Tesla   Other  OEMs  

               

SMART    PARTNERSHIPS  

GENERAL  MOTORS  

Maven’s  partnership  with  LyW  and  Uber  

ELECTRIC  CARS  

GENERAL  MOTORS  

GM  has  the  operaJonal  experJse  and  capacity  to  cater  to  electric  car  demands,  capturing  a  growing  Chinese  market  

GENERAL  MOTORS  

2016  Chevy  Volt   2017  Chevy  Bolt  EV  

Type:  Hybrid  Mileage:  420  miles  with  hybrid  funcJon,  53  miles  pure  electric  MSRP:  $33,220  

Type:  Electric  Mileage:  238  miles  pure  electric  MSRP:  $37,495  

GM’s  Hybrid  and  Electric  Automobiles  

GM  vs.  CompeItors:  Electric  Cars  

Chevy  Bolt  EV   Tesla  Model  3   Nissan  Leaf  

               

Year:  2016  Mileage:  107    MSRP:  $30,680  –  $36,790      

Year:  ProducJon  begins  mid  2017  Mileage:  215    MSRP:  $35,000      

Year:  2016  Mileage:  238    MSRP:  $37,495      

Investment  in  connecIvity  and  crash  data  

GENERAL  MOTORS  

GM’s  OnStar  and  OnStar  Go  

GENERAL  MOTORS  

Industry  EPS  

GM  EPS    

$6.02   $5.42  

$9.16  

$22.56  

$2.55   $1.62  $0.41   $1.38  

$0.00  $1.85  

 $-­‐        

 $5.00    

 $10.00    

 $15.00    

 $20.00    

 $25.00    

 $3.18    

 $4.12    

 $5.02      $5.50    

 $6.00    

 $-­‐        

 $1.00    

 $2.00    

 $3.00    

 $4.00    

 $5.00    

 $6.00    

 $7.00    

2013   2014   2015   2016E   2017E  

$2.20  

GENERAL  MOTORS  

Comparable  company  analysis  

13%  

19%  20%  17%  19%  

23%  

12%  14%  

20%  23%  

14%  

0%  

5%  

10%  

15%  

20%  

25%  

Gross  Margin  

12%  15%  

11%  10%  

14%  

8%  10%  

3%  

10%  

2%  

8%  

0%  

5%  

10%  

15%  

20%  

EBITDA  Margin  

9%  7%  

5%  

0%  

7%  

3%  

5%   4%   4%  

NM  1%  

0%  

2%  

4%  

6%  

8%  

10%  

Net  Income  Margin  

0.7x  

1.2x  1.1x  0.9x  

1.5x  

0.8x  1.1x  

0.4x  

0.9x  

NM  0.2x  

0.0x  

0.5x  

1.0x  

1.5x  

2.0x  

EV/Revenue  

5.4x  7.5x  

10.0x  

7.3x  

10.8x  8.8x  9.4x  

11.5x  

8.2x  

NM  2.4x  

0.0x  

5.0x  

10.0x  

15.0x  

EV/EBITDA  

9.6x  12.0x  

13.4x  11.6x  

14.7x  14.8x  17.6x  

15.7x  

12.2x  

NM  

4.5x  

0.0x  

5.0x  

10.0x  

15.0x  

20.0x  

EV/EBIT  

19%  10%  

4%  

0.9x  8.8x  

13.4x  

GENERAL  MOTORS  

ValuaIon  AssumpJons  

Terminal  Growth  Rate   2.25%  

Tax  Rate   26%  

Market  Risk  Premium   8%  

Risk  Free  Rate   3.75%  

Beta   1.43  

Cost  of  Equity  (Re)   15.19%  

Cost  of  Debt  (Rd)     6.22%  

Debt/Value   61.02%  

Equity/Value   38.98%  

WACC   8.73%  

Enterprise  value   $133,769                  

         Minus:  Debt   $63,111  

         Plus:  Cash   $15,238  

Market  value  of  equity   $85,896  

Number  of  shares  outstanding   1,578  

Implied  share  price   $54.43  

Current  share  price   $37.30  

Implied  upside:  46%  

$54.43 7.73% 8.23% 8.73% 9.23% 9.73%1.75% $64.84 $57.32 $50.87 $45.29 $40.422.00% $67.40 $59.40 $52.59 $46.72 $41.622.25% $70.18 $61.65 $54.43 $48.25 $42.902.50% $73.24 $64.10 $56.43 $49.90 $44.272.75% $76.60 $66.77 $58.59 $51.67 $45.74Te

rminal  growth

WACC

$1.7 $1.8

$8.1

$5.7

$8.6

$11.5

$9.2 $8.9 $9.0$10.2 $10.4 $10.6 $10.8

$0

$2

$4

$6

$8

$10

$12

$14

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Projected  free  cash  flow  

GENERAL  MOTORS  

Cyclicality  of  auto  industry  

Demand  for  electric  cars  

AdopJon  of  autonomous  vehicles  

Car  regulaJons  

Currency  risk  and  oil  price  fluctuaJons  

PoliJcal  risks  

Risks  

Excellence  in  efficiency  

Brand  leadership  

Investment  in  innovaJon  

Investment  thesis  

BUY:  GENERAL  MOTORS  

GENERAL  MOTORS  

Appendix  

GENERAL  MOTORS  

Projected  Cash  Flows  

GENERAL  MOTORS  

Projected  Revenue  by  Region