Reading Barron’s with a cup of piping hot coffee was once my favorite Saturday morning ritual. The publication was renowned and respected for its contrarian views and its willingness to take on Wall Street’s sacred cows. One example was this story by my friend Jack Willoughby that’s widely credited for having blown up the dot.com bubble. Another was Erin E. Arvedlund’s warning about Bernie Madoff, which she wrote seven years before his Ponzi scheme became known.
Barron’s in recent years lost its way, no doubt because reporters like Willoughby and Arvedlund are long gone. Among the reasons the publication lost its credibility with me was its incessant touting of ESG, or supposedly socially responsible investing, whose metrics I question. Another reason was its continuous promotion of General Motors and its CEO Mary Barra, including multiple cover stories.
Heeding Barron’s GM counsel hasn’t served long term investors well. When Barra began as CEO in January 2014, the company’s stock opened at $39.63. It closed today at $37.86. BlackRock’s popular ESG fund is down 20 percent this year.
It’s clear from this Barron’s story, which showed up in my Google feed, the publication is still touting GM with the vengeance of a boiler room stock promoter. In its analysis of GM’s third quarter earnings, Barron’s noted that GM captured 8% of the U.S. electric vehicle market, compared with 4% in the comparable period a year ago. Barron’s said Chevy’s electric Bolts were responsible for the seemingly dramatic increase.
The increase is noteworthy because Barra has vowed that by mid-century, she will be selling more electric vehicles than Elon Musk. Tesla sales account for more than 60 percent of U.S. electric passenger vehicle sales.
Here’s some analysis that the Barron’s of old would have included. U.S. electric vehicle sales comprise only about 6% of U.S. passenger vehicles sales, so Barra captured a mere sliver of what’s still a teeny tiny market. The increased Bolt sales are the result of Barra cutting the price of her Bolts by nearly 20 percent in June, bringing their list price to well below $30,000. There are some state tax incentives available on the vehicle; given that the average price of an EV has been rapidly escalating and is well over $60,000, Barra is practically giving her Bolts away.
If Musk for yucks opted to cut the price of his Teslas by nearly 20 percent, some of Barra’s Bolt buyers no doubt would opt for an electric vehicle manufactured by a company focused solely on EVs for nearly two decades. Although Wall Street analysts say electric vehicles are the future of automotive, they were nevertheless wowed by GM’s $4.3 billion in operating profit on $42 billion on sales. Barra’s profit came from selling gas guzzling and supposedly climate destroying trucks, the most profitable of which she manufactures in Mexico.
GM dealers appear to be quietly cutting the price on Barra’s Cadillacs, GM’s flagship luxury brand. The average price of a Cadillac in September was down 14 percent from a year ago. Meanwhile, luxury rivals Mercedes-Benz and Jaguar are selling their vehicles over list price. Musk has been steadily raising the prices on his Teslas.
Barron’s and the Wall Street analysts it quoted raving about GM’s third quarter performance either didn’t hear, or chose to overlook, Barra’s admission on an investor call that hiring and training delays in GM’s battery manufacturing efforts will derail her promise to build 400,000 EVs in North America in 2023 by another year. That detail was reported by the trade publication Teslarati, whose readers share my view the delay further undermines Barra’s already questionable credibility.
“GM walks back its production guidance. What a surprise,” posted one reader. “LOL if you believed the prior numbers. I feel sorry for you. By 2024, they’ll push it out to 2025. All bark, no bite,” said another.
Then there was this comment: “They are finding that production is hard, just like Elon did. Elon at least had the excuse of not having built cars before. GM is just lying.” One reader asked what I’ve repeatedly wondered. “Pathetic. How does barra keep her job.”
Perhaps I’m romanticizing, but I imagine the Barron’s of old would have taken notice that GM has issued the second recall on its red-hot electric Hummer monster pickup trucks, which start at about $109,000. The latest recall is due to a faulty battery seal that allows water to seep in.
As I’ve readily admitted, I don’t have the smarts for science and math. But even I know that electric batteries and water are a potentially toxic mix that can spark one heck of a fire in a vehicle whose battery weighs as much as a Honda Civic. If GM offered me a mere 1% of the $29 million in compensation it paid Barra in 2021, I’d gladly serve as an advisor to the company’s engineering team.
People in the know agree that the Hummer’s battery issue is a very big deal. Here’s a comment posted on The Drive, an automotive trade publication I follow because of its knowledgeable and critical readership, by someone who goes by the handle Halftrack El-Camino:
The battery can be taken out by a single defective seal? The most expensive, critical, and difficult-to-service part of the entire vehicle, the part which if damaged could potentially cause a horrendous fire, the part that lives on the underside of a vehicle that is advertised as having a 28″ fording depth, relies on a single line of polyurethane sealant to keep water out?
Fucking come on, GM. Every single penetration I make into a roof is protected by three layers of gaskets, a bead of tripolymer sealant, and an aluminum flashing. Every one, and that’s for a $10 part that I install hundreds of in a day. You’d think that GM would be at least that diligent with something that is probably a hundred times harder to service, costs at least a thousand times as much, and which can potentially kill your customer’s entire family if it fails.
Killing people isn’t all that big of a concern for GM, or for that matter Ford. MotorTrend noted in a review of the 2022 Hummer that the truck “absolutely does not have brakes commensurate with its power and speed capabilities.” Even The Atlantic, possibly the last publication I’d expect to criticize an electric vehicle, recently noted that the electric Hummer is “dangerous” and should “face some kind of regulation, especially in cities and towns, where they pose a distinct threat to the public.”
Barra will be long retired when the Hummer lawsuits run their course.
Then there’s GM autonomous driving Cruise taxi division, which Barra publicly declared nine months ago was “on the cusp of commercialization.” San Francisco’s traffic regulators, on whose streets Cruise taxis have been tested, strongly disagree. They recently submitted a scathing 39-page letter to the National Highway Traffic Safety Administration warning that Cruise’s autonomous vehicles were wreaking havoc on city streets and were so problem plagued they “could quickly exhaust emergency response resources and could undermine public confidence in all automated driving technology.”
Bloomberg recently published a feature declaring that self-driving cars “are going nowhere” and likely will never be a commercial reality. Nevertheless, Bloomberg said Cruise was valued by Wall Street at about $30 billion.
Yet Intel took its Israel-based Mobileye unit public today with an indicated value of $22 billion, less than half of what the company expected to fetch just a few months ago. Wolf Richter, publisher of business blog called Wolf Street, recently questioned valuing Mobileye even at that level given its unprofitability since its founding.
“Why is a company that was founded 23 years ago and has $1.4 billion in revenues still losing lots of money? What is the business model of these perennially money-losing companies? Why would anyone even buy the shares if after 23 years, the company still cannot make a profit?” Wolf asked.
GM has lost more than $5 billion since 2018 on Cruise and the losses are mounting. While GM maintains that Cruise will generate $1 billion in revenue in 2025, even some Wall Street analysts aren’t willing to swallow that prediction.
“Can this (Cruise) unit (or any other AV/robotaxi effort) scale without exacerbating the losses?” Morgan Stanley analyst Adam Jonas asked in a research note he published in July. “We are fans of autonomy with a 10- to 20-year view, but believe investor expectations are due for a major reset.”
Barron’s likely will continue with its GM/Barra cheerleading and perhaps the publication will ultimately be vindicated. But I’m not alone in my doubts.
In a recent story about a giant European asset manager trimming its GM holdings, reader Peter Brooks posted the most insightful comment I’ve read about GM in response to someone who claimed to be bullish on the company.
Take it home Peter:
Incredible that you and others have been able to keep the faith in spite of all the missteps over the years from Barra and her team. I am continually enticed to own GM stock due to the low price and low PE, and yet I am constantly reminded looking back over previous promises and failures to keep those promises that GM remains a show me story in the face of continued hiccups and intense competition.
From a risk/reward standpoint at the current price, it’s hard to see much downside, but I would have preferred that they not reinstitute the dividend and go all in on producing top of the line EVs. The dividend looks suspiciously like a move by the execs to enhance the value of their stock options, much as they have done at Microsoft and Walmart.
GM debt might be another way to go, yielding close to 7%, but it’s tough to forget what happened to previous GM bondholders and shareholders who were completely wiped out when GM declared bankruptcy as execs and union members continued to be paid
In the end, I continue to pass and invest in other opportunities as the markets have dislocated creating many bargains with much less baggage. GM has been a good trading vehicle when shareholders scoop up shares each time the shares have cratered, which has happened with disturbing regularity, so this might be one of those opportunities. But each time this has happened, the stock has soared to new heights only to crash back down to earth with a major thud.
Good luck to all however you play it.