{"id":968,"date":"2018-06-01T11:03:22","date_gmt":"2018-06-01T11:03:22","guid":{"rendered":"https:\/\/www.antya.ca\/research\/gm-stock-is-headed-higher\/"},"modified":"2026-02-17T06:27:32","modified_gmt":"2026-02-17T06:27:32","slug":"gm-stock-is-headed-higher","status":"publish","type":"post","link":"https:\/\/www.antya.ca\/research\/gm-stock-is-headed-higher\/","title":{"rendered":"GM & Vision Fund JV Highlights Tesla Inc. Is Significantly Undervalued; Stock Is Headed Higher"},"content":{"rendered":"
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Today\u2019s announcement by Softbank Group Corp (9984 JP) owned Vision Fund and General Motors Co (GM US) are positive developments for Tesla Motors Inc (TSLA US) which will allow the market to put a value on Tesla\u2019s autonomous driving unit. We believe now the only hope that Tesla bears have is either a twitter war that unseats Musk, or Tesla\u2019s inability to solve its Model 3 production problems in time.<\/p>\n

Otherwise, good luck to the bears!<\/p>\n<\/div><\/div>\n<\/div>\n

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On a down day in the markets, when President Trump\u2019s administration announced the implementation of steel and aluminum tariffs on NAFTA partners and European allies, causing much consternation and confusion, General Motors (\u201cGM\u201d) made a materially important proclamation by partnering with Softbank Corp\u2019s Vision Fund (\u201cVision\u201d). According to the release and the presentation, Vision is buying into GM\u2019s autonomous vehicle (\u201cAV\u201d) subsidiary called GM Cruise (\u201cCruise\u201d).<\/p>\n

To provide some background, GM bought Cruise for a rumored $1 billion in March 2016 as discussed in the following news story from Reuters GM buys<\/a> Cruise Automation to speed self-driving car strategy<\/a>. Subsequently, in September 2017, GM purchased a company called Strobe for its LIDAR technology as discussed in this story from CNBC GM buys Calif. tech-sensor<\/a> company to help in a self-driving car race with Alphabet, Tesla<\/a>. For more on LIDAR please see William Keating<\/a>.<\/p>\n

As per the executives on the conference call today, GM has been investing in its self-driving autonomous vehicle unit at the rate of $ one billion per year. When GM bought Cruise in 2016, it had 40 employees and currently employs<\/p>\n

about 800. Including the announcement today, GM\u2019s financial commitment to its AV unit is approaching approximately $3 billion (excluding the undisclosed purchase price paid for Strobe).<\/p>\n

GM- Vision Partnership<\/strong><\/p>\n

The deal parameters outlined in Figure 1 are sourced from GM\u2019s disclosures today.<\/p>\n

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Source: GM and ANTYA<\/p>\n

In addition to the $2.25 billion investment by Vision, GM will provide a capital injection of $1.1 billion. This transaction thus values the Cruise subsidiary at the low end of the range at $11.5 billion, while based on the valuation of the second tranche of Vision\u2019s investment at the high-end at $15.5 billion. That implies a return approaching 4x for GM within three years of entering the AV space.<\/p>\n

Why the Sudden Love for GM, and what does it mean for Tesla Inc.?<\/strong><\/p>\n

In ANTYA\u2019s view, this is a critical question and has significant implications for the AV industry and for the prospects of various players that comprise the automotive value chain going forward. Softbank has been one of the largest investors in Uber Technologies Inc (0084207D US) and is a significant investor in other ride-sharing companies including OLA in India. SoftBank is<\/a> now Uber\u2019s largest shareholder as the deal closes<\/a>, details Softbank Corp\u2019s involvement in Uber, and highlights that Rajeev Misra the head of Vision has been appointed to the board of Uber as well.<\/p>\n

The Uber investment was finalized on January 18, 2018. In our view, the chronological timeline is essential to follow, in order to deduce the conclusion that we arrive at.<\/p>\n

Subsequently, there have been difficult developments in the AV market with multiple crashes involving Tesla, discussed ad infinitum<\/em> in the media, and by interested observers on this platform. However, Uber\u2019s decision to suspend all self-driving tests after the death of a pedestrian as discussed in this BBC report Uber halts self-driving car tests after death <\/a>is an essential<\/p>\n

development for the industry and Softbank.<\/p>\n

That was March 19, 2018. Subsequently, on March 27, 2018, Nvidia suspended self-driving car tests as well, outlined in the following story from Reuters Nvidia halts self-driving tests in wake of Uber accident<\/a>.<\/p>\n

Now we quote Michael Ronen, an executive from the Vision fund who was on the call today discussing the GM-Vision partnership.<\/p>\n

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As investors on this call very well know, the automobile industry is<\/em> undergoing historic transformation. With three macro trends converging to [crush] the traditional business model. AI and autonomous driving, electrification of displacement of the gas engine and the emergence of ridesharing networks as [an] alternative to ownership. While these are still early days and much is still to come, the path towards GM\u2019s vision, which we share of zero emissions, zero fatalities and zero congestion is clear. It\u2019s not a matter of if but when for it to materialize.<\/em><\/p>\n

We have been monitoring the AV landscape over the past couple of years and have tremendous admiration for the talent and capabilities of many of the companies are taking on this challenge. While we looked closely as many of these companies and performed extensive technical and financial due diligence over many months, we ultimately chose to invest with GM at Cruise for several reasons.<\/em><\/p>\n

First, like GM, we believe that a vertical solution where hardware and software are integrated and iterated seamlessly provides a strong competitive advantage.<\/em><\/p>\n<\/blockquote>\n

One could consider the last line in the quote as a throwaway line from a starry-eyed investor, or it could be construed as real-world experience-based learning, driven by gleanings from investments across the technology spectrum by an organization with deep-rooted technical know-how. If you believe in the latter, then the following is self-evident:<\/p>\n