General Motors Company (NYSE: GM) stock is in the limelight after the company announced an aggressive shift in its business strategy, which includes laying off about 14,000 employees and discontinuation of several key cars in the U.S. and Canada. The layoffs include 15% of GM’s salaried workforce in North America, or about 8,100 jobs. General Motors came under fire after the announcement amid pressure from several lawmakers who criticized the company for cutting jobs and turning back on its “promises.”
General Motors’ critics include President Donald Trump, who threatened on Wednesday to cut subsidies for the company after the decision.
But most of the analysts believe that General Motors Company (NYSE: GM) did the right thing. When GM CEO Mary Barra took over in 2014, analysts were skeptical due to her untested talents. But the latest move shows that Barra has decided to make the company leaner and futuristic.
To start with, the layoffs will help the company to increase its annual cash flow by $6 billion starting in 2020.
It’s All About the Electric Future
The biggest motive behind General Motors Company (NYSE: GM) restructuring is to focus on the future of the automobile market, which is electric vehicles and self-driving technologies. The company said that it will double the number of resources allocated to electric and autonomous vehicle programs over the next two years. General Motors is already running a massive program for electric cars. The company planned to spend $1 billion in 2018 to develop self-driving cars via its GM Cruise subsidiary. Last year, GM announced that it will launch 20 new all-electric vehicles by 2023. The company is in partnership with Honda to mass-produce fuel cells and batteries. All of this adds to the company’s vision to go “all-electric” in the near future.
On Monday, General Motors CFO Dhivya Suryadevara said that GM expects its annual adjusted automotive free cash flow to rise to about $10 billion by the end of 2020 from about $4 billion in 2018.
Following GM’s decision on Monday, Morgan Stanley’s analyst Adam Jonas said that GM will be the winner of “Auto 2.0,” which is the future cycle of the automobile market. Jonas said that the company took a difficult decision, but it was both “necessary” and “preemptive.”
“We look for essentially 100% of any savings to be reinvested in remaining products….We see these steps as necessary to ensuring the long-term sustainability and independence of GM as a leader in Auto 2.0 and a significant employer of US labor,” Jonas said.
The analyst has a price target of $44 for General Motors Company (NYSE: GM) stock.
GM’s First-Mover Advantage
General Motors has always been praised by the Wall Street for its ability to take hard decisions before anyone else. Last year, Barclays said that General Motors Company (NYSE: GM) has a “first-mover” advantage in the market, as it is putting a lot of focus on the electric-vehicle and self-driving markets. According to the company’s own estimates, the autonomous-vehicle market is expected to have a potential value of a whopping $750 billion.
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Author does not have investment in stock discussed in this article.