GM

General Motors Company

35.80
USD
8.91%
35.80
USD
8.91%
30.33 67.21
52 weeks
52 weeks

Mkt Cap 51.97B

Shares Out 1.45B

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My Top Electric Car Stock to Buy and Hold Forever

While some may resist it, electric vehicles (EVs) are becoming the way of the future. Factor in the U.S. government passing the Inflation Reduction Act, which extends a tax credit to purchases of new and used EVs, and the trend becomes even more apparent. With such a massive consumer shift in the works, investors need to be thinking about whether this is an area of investment opportunity. I believe it could be, and investors should look at one company in particular to capture this trend in their portfolio. The EV leader Surprise! My top pick in this space is Tesla (NASDAQ: TSLA). While this really isn't much of a surprise, I genuinely believe it is the best company to own in this space. My biggest reason is its first mover advantage. Tesla has been the name in EVs for a long time. While many automakers have dabbled in the space, none have created a product that has captured an audience like Tesla. However, many pundits would argue that Tesla's days of dominance are numbered now that legacy automakers like Ford (NYSE: F) and General Motors (NYSE: GM) are stepping up their game. I disagree. First, the legacy automakers must spend billions of dollars reequipping their factories to build EVs. Second, Tesla has a superior margin profile. Because Tesla doesn't have a vast dealer network, it doesn't have to share profits with the middleman. It's unlikely legacy automakers will be able to switch away from this practice, as franchise laws are already in place to protect the thousands of dealerships across the U.S. Ford's CEO Jim Farley has expressed his desire to switch to this model, as he believes Tesla makes about $2,000 more per vehicle by going direct-to-consumer. This difference stacks up over a long time and gives Tesla greater resources to invest in new technologies or reward shareholders as the company matures. Finally, Tesla just received a boost from the U.S. government to keep its product competitive. Formerly, once a company sold 200,000 EVs, the $7,500 tax credit consumers would get was eliminated. With the passing of the Inflation Reduction Act bill, this credit is reinstated for all EVs with a manufacturer's suggested retail price (MSRP) under $55,000 for sedans and $80,000 for trucks and SUVs.Additionally, 50% of battery parts and 40% of minerals must be sourced from the U.S. or a country with which it has free trade. As far as the cost of a vehicle, the Tesla Model 3 and Model Y qualify for this credit in lower trim packages.This catalyst could help Tesla maintain sales in two of its products, as consumers won't be enticed to purchase a different brand just because of a $7,500 discount. However, it remains to be seen if Tesla can meet the mineral and battery part requirements, as that information hasn't been released to the public. Tesla still needs to stay on its toes Although Tesla may be succeeding now, it must stay agile and innovative. Tesla's biggest task is releasing its electric truck, as trucks have long topped the U.S. sales charts. In 2021, the big three automakers sold 1.8 million new trucks in the U.S. That's a massive market that only Rivian (the R1T), Ford (the F-150 Lightning), and GM (the Hummer EV) have tapped so far. Farley even took a jab at Tesla's CEO Elon Musk in a press conference by claiming the Lightning is the leader of all EV pickup trucks and following that statement up with: "Take that, Elon Musk." By the time the Cybertruck hits the market (projected sometime in 2023), it's likely that GM, Ram (Stelantis), and Toyota will either have their own EV truck offerings released or be taking orders. With the delays in getting the Cybertruck to market, Tesla has lost the first-mover advantage that benefited it with other EV models. There's also the issue of Tesla's expensive stock. With a $940 billion valuation, Tesla is the fifth biggest company in the U.S. by market cap. That value is just under 10 times larger than Ford ($65 billion) and GM ($58 billion) combined. How can one company in the same industry be worth so much more despite bringing in less revenue? For the same reasons outlined above: Margins, opportunity, and market leadership. I'm not going to claim Tesla's stock is reasonably valued -- it's expensive. However, as Tesla ramps up its production capacity (as of Q2, it was 1.9 million annual vehicles versus 1.05 million in Q2 last year) and sees its supply chain issues ease, its profits could rise significantly from here. In first-quarter 2022, Tesla delivered a 19.2% operating margin. This number dropped to 14.6% in Q2 due to China's COVID lockdowns and supply issues. If Tesla consistently maintains a nearly 20% operating margin and does it with increased production, its 108 times price-to-earnings multiple will quickly fall to a more reasonable level because of greater profits or maintain its high earnings multiple but see a large stock price movement. The burning question remains: What is a reasonable valuation for Tesla stock? A high margin (25% in Q2), luxury business like Ferrari trades at 38 times earnings, and legacy automakers like Ford and Toyota trade at five and ten times earnings, respectively. In the long term, a PE ratio of around 20 seems reasonable, but that is when Tesla is a mature business and not growing rapidly, which could be years or even a decade. For now, investors must make a personal decision if the stock is too expensive or forget about valuation and focus on the long-term prospects. It's not an easy choice, but many of the stock market's biggest winners have seldom looked cheap. Tesla isn't a stock to purchase if you want to make a quick buck. Instead, investors should be focused on Tesla's long-term potential in the shift to EVs. I believe the company is well positioned to compete against new EV offerings and could solidify its industry leadership with a few key product launches. 10 stocks we like better than Tesla When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.* They just revealed what they believe are the ten best stocks for investors to buy right now... and Tesla wasn't one of them! That's right -- they think these 10 stocks are even better buys. *Stock Advisor returns as of August 11, 2022 Keithen Drury has positions in Tesla. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc. Today’s Big Picture Asia-Pacific equity indexes ended today’s session mixed. Hong Kong’s Hang Seng fell 0.67%, China’s Shanghai Composite ended the day essentially flat, down a mere 0.02% while Australia’s ASX All Ordinaries gained 0.50%, Taiwan’s TAIEX advanced 0.84%, and Japan’s Nikkei rose 1.14%. India’s markets are closed to mark the country’s Independence Day holiday and South Korean markets are closed today to mark that country’s Liberation Day. Interestingly, Liberation Day is celebrated in both South and North Korea. By mid-day trading, major European equity indices are up moderately, and U.S. futures point to a down open later this morning. Following the robust movement in equities over the last few weeks, as we start the new week off, they look to give back at least some of those gains. The surprise rate cut by the People’s Bank of China this morning raises fresh questions over the speed of the global economy, especially after July economic data for China missed expectations. Even though we have a sizable downshift in the number of companies reporting their quarterly earnings this week, we see a meaningful pivot toward retail companies, the majority of which were plagued with bloated inventories when they reported their prior quarter. Expectations are for margin and bottom line pain as they look to clear out those inventories in time to prepare for the important holiday shopping season. As these reports roll in, we’ll know how bad the pain is and whether consumers are biting. Data Download International Economy The People's Bank of China surprised by cutting its one-year lending facility rate by 10 basis points to 2.75% and cut the seven-day lending rate, the same amount to 2%. The move preceded weaker than expected July data for the country. China's July Industrial Production rose 3.8% YoY, below the expected 4.6%, and slightly lower than June’s 3.9% figure. Retail sales increased 2.7% YoY in July below the 5% forecast. Manufacturing hubs and popular tourist spots imposed lockdown measures in July after fresh outbreaks of the more transmissible Omicron variant were found. On Friday, China reported more than 2,000 local Covid-19 cases as infections in the southern Hainan island edged higher with mass testing and several lockdowns resulting. Japan’s preliminary GDP for 2Q 2022 came in at 2.2% YoY, better than the 0.1% reading for the prior quarter but below the expected 2.5% figure. On a QoQ basis, the preliminary reading was 0.5%, up from 0.0% in 1Q 2022 but again below the expected figure of 0.6%. Wholesale prices in Germany increased by 19.5% YoY in July of 2022 following the 21.2% gain the prior month. Compared with the previous month, wholesale prices fell 0.4% in July, the first decline since October 2020. Domestic Economy At 8:30 AM ET, we’ll get the NY Empire Manufacturing Index data for August and the headline reading is projected to fall to 5.5 from July’s 11.1 reading. AT 10 AM ET, the NAHB Housing Market Index for August will be published, and the consensus view has it unchanged MoM at 55. The U.S. House of Representatives voted 220 to 207 along party lines on Friday to pass the Inflation Reduction Act, paving the way for wide-ranging reforms in healthcare and clean energy. President Biden is expected to sign the bill into law. Data from AAA put the national average gas price at $3.959 over the weekend, but Goldman Sachs (GS) sees the price surging back to $5 by the end of the year with Brent crude returning to $130 a barrel as the market still needs to balance rising demand and tight supplies. Following last week’s inflation data, markets see a 50% chance the Fed will hike by 75 basis points in September and that rates will rise to around 3.50-3.75% by the end of the year. Meanwhile, the bond market continues to question if the Fed can deliver a soft landing, with the yield curve remaining deeply inverted. Markets Markets closed the week on a strong note with Friday seeing almost all sectors up over 1.00% and Consumer Discretionary names well over 2.00%. The Dow rose 1.37%, the S&P 500 advanced 1.73% and both the Nasdaq Composite and the Russell 2000 posted a 2.09% gain on the day. In reviewing top contributors to returns across the sectors, Apple (AAPL) and Microsoft (MSFT) combined to account for about 48% of Technology sector returns, while Tesla (TSLA) managed to do that all on its own for the Consumer Discretionary sector. Here’s how the major market indicators stack up year-to-date: Dow Jones Industrial Average: -7.09% S&P 500: -10.20% Nasdaq Composite: -16.60% Russell 2000: -10.19% Bitcoin (BTC-USD): -48.93% Ether (ETH-USD): -48.19% Stocks to Watch Before trading kicks off for U.S.-listed equities, Clear Secure (YOU), Li Auto (LI), Tufin Software (TUFN), and Weber (WEBR) will be among the companies issuing their latest quarterly results and guidance. Bloomberg reports Wells Fargo (WFC) is looking to shrink its once dominant mortgage business. Shares of PlayAGS (AGS) jumped in after-hours trading on Friday after confirming Inspired Entertainment (INSE) made a $10 per share offer for the slot machine maker. IPOs GigaCloud Technology (GCT) and Innovative Eyewear (LUCY) could price their respective IPOs this week. Readers looking to dig more into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page. After Today’s Market Close Fabrinet (FN), Global-E Online (GLBE), Navitas Semiconductor (NVTS), World Wrestling (WWE), and ZipRecruiter (ZIP) are expected to report their quarterly results after equities stop trading today. Those looking for more on which companies are reporting when, head on over to Nasdaq’s Earnings Calendar. On the Horizon Tuesday, August 16 UK: Employment Change, Average Hourly Earnings – June Germany: ZEW Current Conditions & Economic Sentiment – August Eurozone: ZEW Economic Sentiment – August US: Housing Starts & Building Permits – July US: Industrial Production & Capacity Utilization – July Wednesday, August 17 Japan: Core Machinery Orders – June Japan: Imports/Exports – July UK: CPI, PPI – July Eurozone: 2Q 2022 GDP US: Weekly MBA Mortgage Applications US: Retail Sales – July US: Business Inventories – June US: Weekly EIA Crude Oil Inventories US: Federal Reserve FOMC Meeting Minutes - July Thursday, August 18 Eurozone: CPI - July US: Weekly Initial & Continuing Jobless Claims US: Philadelphia Fed Index – August US: Existing Home Sales – July US: Weekly EIA Natural Gas Inventories Friday, August 19 Japan: CPI – July UK: Retail Sales – July Germany: PPI - July Thought for the Day “People who avoid failure also avoid success.” ~ Derrick Lewis Disclosures Tufin Software (TUFN) is a constituent of the Foxberry Tematica Research Cybersecurity & Data Privacy Index Tesla (TSLA), Li Auto (LI) are constituents of the Tematica BITA Cleaner Living Index Tesla (TSLA), Li Auto (LI) are constituents of the Tematica BITA Cleaner Living Sustainability Screened Index Apple (AAPL), Microsoft (MSFT) are constituents of the Tematica Research Thematic Dividend All-Stars Index The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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