Here is How General Motors (NYSE:GM) can Benefit from the New Proposed Tax Credits for EVs

By
Goran Damchevski
Published
September 13, 2021
NYSE:GM
Source: Shutterstock

U.S. Democrats proposed an EV tax credit boost for union-made domestically assembled vehicles. Reuters reported that The House Ways and Means Committee will vote Tuesday on the proposal. The intervention is part of a proposed US$3.5t infrastructure bill. The main players impacted by the proposed bill are General Motors ( NYSE:GM ) and Tesla ( NASDAQ:TSLA ). In this article, we will look Focus on GM's fundamentals and get a better feeling as to what might the change mean for the company.

The incentive is likely to drive growth and make EV more affordable in the U.S., which is part of the dedication of the current administration to make sure EVs comprise at least 50% of U.S. vehicle sales by 2030.

U.S. HOUSE DEMOCRATS PROPOSE BOOSTING ELECTRIC VEHICLE TAX CREDITS TO AS MUCH AS $12,500 PER VEHICLE - DRAFT LEGISLATION

HOUSE DEMOCRATIC PLAN INCLUDES $4,500 CREDIT FOR ELECTRIC VEHICLES ASSEMBLED IN UNION-REPRESENTED FACTORIES - DRAFT LEGISLATION $TSLA $GM

— *Walter Bloomberg (@DeItaone) September 11, 2021

If we look at the current income statement of GM, we can see that the company already benefited from tax credits, and it has a chance to expand upon the growth if the proposal passes.

gm-income
NYSE:GM Revenues and Net Income, September 13th 2021

Looking at the forecasts above, it seems that the previously proposed annual revenue growth rate of 5% can be more confidently sustained or possibly increased by a few percentage points. 

In hindsight, it seems that the company was attuned to the upcoming changes from the favorable interventions, since GM is overwhelmingly focused on EV's. GM's last letter to shareholders emphasizes this, as a part of their broad strategy, they state:

  • Accelerating our engineering and capital investments in electric vehicles (EVs) and self-driving technology (AVs) by $8 billion to $35 billion from 2020-2025
  • Developing a full EV portfolio that doesn’t depend on partial solutions like hybrids and “electrified” ICE vehicles. Instead, we’ve focused our investment on achieving the end solution of zero emissions more quickly

The company is primed to make good use of the upcoming proposal, and steer the business in a positive and more efficient future direction. Notably, their last TTM YoY growth rate marked 20.6%, but their growth in COGS was only 11%, which means that GM managed to scale revenues efficiently relative to costs. If the company keeps this up, they will be creating more value for shareholders.

Our current valuation model for GM, calculates the company to be about 3.6% undervalued. Once analysts update their revenues to take into account the pending changes, this can lead to an increase in the company's intrinsic value.

You can keep track of GM's valuation, and also place it in your watch-list to get updates when changes to the situation occur.

Key Takeaways

GM stands to benefit from a proposal led by the Democrats that aims to increase tax credits for EV's. The proposal must pass the senate and is part of a larger US$3.5t bill.

The company seems to be already heavily focused on developing EVs, and is primed to utilize the possible tax credit. In the last quarter, GM also managed to scale efficiently, and is showing sings of improving as a company.

On a separate note, we've found 2 warning signs for General Motors you'll probably want to know about.

While General Motors may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

Simply Wall St analyst Goran Damchevski and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com

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