GM Flirts with BMW for Collaboration in Fuel Efficiency Push

September 27th, 2011 by Trefis Team
+0.49%
Upside
44.86
Market
45.08
Trefis
GM: General Motors logo
GM
General Motors

With fuel efficiency standards becoming increasingly strict in the coming years, many major automakers are joining hands to develop engine technology that could meet future standards while controlling the upfront R&D costs. [1] Late last month Ford (NYSE:F) and Toyota (NYSE:TM) announced a partnership aimed at jointly developing technology for hybrid trucks. [2] (See: Ford & Toyota Hybrid Collaboration Could Win Market Share as Emission Standards Tighten) Now GM (NYSE:GM) is looking to partner with BMW (ETR:BMW) and is also targeting fuel-efficient engine technologies. [3] We believe that if this tie-up materializes then not only will GM be able to develop a more extensive line-up of fuel-efficient vehicles but also lower its R&D costs, providing further upside to our estimate for GM stock. GM primarily competes with other automakers such as Ford, Daimler AG (NYSE:DAI), Honda(NYSE:HMC), Toyota, Hyundai (SEO:005380) and Nissan (PINK:NSANY).

We currently have a Trefis price estimate of $27 for General Motors’s stock, which is around 30% above the current market price.

Fuel-efficiency standards tightening in coming years

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U.S. fuel-efficiency standards will soon become more stringent with the eventual aim to achieve fuel economy of 54.5 miles per gallon for cars and light-duty trucks by model year 2025. [1] In the near-term, fuel efficiency requirements will be raised to 35.5 mpg for model years 2012-2016 vehicles. Therefore, given the amount of investment that will be required by individual automakers to meet these standards, it makes increasingly more sense for automakers to cooperate in technology and share the related costs, risks and benefits.

New engine technology would provide further upside to GM and BMW

While GM has an advantage in fuel cell technology and electric vehicle technology that is used in GM’s Opel Ampera electric vehicle, BMW has an advantage in gasoline and diesel engines technology. A partnership will thus help both companies build upon each other’s technology advantage while keeping their capital expenditures and R&D costs low.

Also sharing technology will provide GM with a competitive advantage in technology over other automakers and develop an extensive line-up of fuel-efficient vehicles, which will help it in maintaining and growing its market share over the mid to long term.

We believe that this partnership between GM and BMW could ultimately prove fruitful and provide further upside to our estimate of GM’s stock.

You can drag the trend lines in the modifiable charts above to see the impact of these trends on GM’s stock value.

See our complete analysis for GM.

Notes:
  1. President Obama announces historic 54.5 MPG fuel efficiency standard [↩] [↩]
  2. Ford, Toyota to Collaborate on Developing New Hybrid System for Light Trucks, SUVs [↩]
  3. General Motors Seeks To Co-operate With BMW [↩]