Chevrolet Electric Vehicles: GM Scrambles on Saftey Concerns, Stock Still Worth $26

December 8th, 2011 by Trefis Team
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Downside
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Market
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Trefis
GM: General Motors logo
GM
General Motors

GM (NYSE:GM) has moved swiftly to allay customer concerns about safety of Chevrolet Volt after one of its cars caught fire during crash tests by The National Highway Traffic Safety Administration (NHTSA). [1] See our previous post on this: Chevrolet Electric Vehicles: Safety Concerns Could Cause Car Buyers to Hit the Brakes. The company has now deployed a senior engineering team to develop changes for troubleshooting potential post-crash electrical fires and has established a Volt owner satisfaction program under which Volt owners concerned about vehicle safety can avail free GM vehicle loan until resolution of the issue. [2] But concerns remain as Volt sales were falling short of GM’s targets by a wide margin even before the safety concerns emerged, which is only going to make reaching the sales target tougher in the near-term. GM primarily competes with other automakers such as Ford (NYSE:F), Toyota (NYSE:TM), Daimler AG(NYSE:DAI), Honda (NYSE:HMC), Hyundai (SEO:005380) and Nissan (PINK:NSANY).

We currently have a Trefis price estimate of $26 for General Motors’s stock, which is more than 20% above the current market price.

See our complete analysis for GM

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Lagging Volt sales; Marketing costs will pinch margins

At 6,142 units, Chevy Volt’s year-to-date sales is well short of GM’s sales target of 10,000 units for this year. [3] We believe that the lagging sales were not due to the safety concerns raised by NHTSA as that came out towards the end of November. However safety concerns will only make it more difficult in reaching its targets in the near-term.

GM is staying on track to increase Volt’s annual production to 60,000 units starting January, out of which it aims to sell 45,000 units in U.S. next year. GM already loses money on every Volt it sells because the scale is not there yet. [4] We believe that GM’s efforts to allay customer’s safety concerns about Chevrolet Volt and expanding sales almost 7 times by next year will increase pressure on margins further in the near-medium term due to increasing marketing costs.

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

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Notes:
  1. Statement of the National Highway Traffic Safety Administration On Formal Safety Defect Investigation of Post-Crash Fire Risk in Chevy Volts [↩]
  2. GM Builds on Battery Safety to Ensure Confidence in Chevrolet Volt [↩]
  3. GM’s Chevrolet Volt Will Miss 2011 Sales Target [↩]
  4. Slow Sales Dogged Volt Before Fires [↩]