General Motors Company (NYSE:GM) Desperately Steering Though A Pandemic and Dawdling Share Price: $GM

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A strategic alliance with Honda

General Motors Company (NYSE:GM) and Honda will soon be making cars together for the North American market. Honda revealed the decision in a press release where it said the two companies would "explore sharing vehicle platforms and propulsion systems for a variety of core segments."

One of the core segments in focus is the electric vehicle (EV) market. The companies will use the newly expanded economies of scale to accelerate innovation in battery technology and other next-generation technologies that will spruce up their EV venture. As per the statement, discussions for co-development planning began immediately after the agreement, but engineering work should start within the first half of 2021.

This year, GM and Honda agreed to develop electric vehicles for Honda, where the two models would be built on GM's global EV platform. Cooperation between the two giant automakers begins with joint interests in Cruise Origin, established more than 20 years ago. Cruise Origin develops and manufactures autonomous vehicles.

The primary objective of the collaboration is to enable the two companies to cut costs. Reuters quoted GM President Mark Reuss saying, "we believe this alliance would help both companies realize significant cost savings in the development of our vehicle portfolios."

GM has spent the better part of 2020 in scrambling mode

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The deal with Honda is a significant step in the right direction, especially given GM's challenges during the better part of 2020. The COVID-19 pandemic has been GM's major challenge as it forced the company to idle factories in China and North America - GM's two largest markets in that order. Besides, tens of thousands of GM's employees started working from home, which sunk the company into a $9 billion deep expense abyss.

As the crisis unfurled, GM set up a ventilator plant in Kokomo, Indiana, to help treat Covid-19 patients. The $490 million HHS contract helped to inject confidence in GM's operations for a short time. But now the automaker is handing over the ventilator operations to its partner, Ventec Life Systems. Even with the few successes, GM shares are still stuck on the lower side of the $33 per share valuation the company enjoyed during its IPO about ten years ago.

Nonetheless, Ms. Mary Barra, GM's CEO, is certain that the current scramble mode will not sink the iconic automaker. This pandemic, Ms. Barra told the WSJ, has forced the company to rethink its corporate strategy in that they now have to "develop vehicles and services in a remote fashion."

Will the GM-Honda agreement nudge the share price in a positive direction?

The year 2020 has been challenging for GM in the same way many automakers have suffered. By the close of business on Friday, September 4, the share price settled at $30, 21% below the year-to-date high, and 14% below the IPO price. Over the past week, the stock has remained stuck close to $30, except for a slight jump to $31.43 on Thursday after the GM-Honda agreement's announcement. It means the news has not affected that GM management would probably have desired.

Perhaps the cooperation with Honda will have a meaningful impact if supported by more significant developments like a full reopening of North America and China. For the China market, which is the company's most significant, GM has been lucky because it began opening up earlier than the rest of the world. If business returns to normal before the close of the year, GM might be able to pare down the 53% loss it reported in Q2 FY2020.

Outlook of GM

Electric vehicles are all the rage today, especially as the world pushes towards cleaner technology. Automakers would want to exploit the trend to recover the losses incurred from the world's shift away from internal combustion engine vehicles. GM is getting into a significant agreement with Honda for this reason. Many other similar pacts have happened, like the one between Fiat Chrysler Automobiles and France-based PSA, Toyota Motor Corporation and Mazda Motor Corporation and Subaru, and between Volkswagen AG and Ford Motor Company.

But analysts are of the view that the EV dream might not take off soon, primarily due to the impacts of the pandemic on the economy. For instance, the UK consumers feel too squeezed to purchase an EV this year. Consumers are especially worried they might not afford a pure EV because of its high price relative to their petrol rivals.

Therefore, if transforming to EVs was GM's game plan to wriggle out of the current pit, it might take a while to realize the goal. Yet there is still hope for the stock to touch higher values before yearend 2020. Since March, the shares have doubled, and the margin may widen if the economic backdrop improves for the remaining part of the year.

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