General Motors stock (NYSE:GM): Well positioned for a war of attrition in electric vehicles

A war of attrition could be looming in the automotive industry. If that is the case, it could benefit incumbent manufacturer General Motors (NYSE:GM). Sure, the headlines are all about Volkswagen (OTC: VWAGY) and its billion-dollar investment in Rivian Automotive (NASDAQ:RIVN). However, one of the beneficiaries could be GM, as the focus is increasingly on middle-income consumers. Such a framework favors GM stock, which makes me optimistic.

GM shares possible winners of a surprising development

Last week, Volkswagen sparked a huge surge in Rivian shares after announcing a major deal with the electric car maker. Initially, the German auto giant will invest $1 billion in Rivian, with plans to invest $1 billion each in 2025 and 2026. In addition, another $2 billion could be invested in 2026 to establish a joint venture to develop new architecture and software.

On paper, the two beneficiaries are the obvious parties: Volkswagen and Rivian. For the former, the famous automaker can get ahead of the game in key EV-related technologies. In theory, this effort should strengthen its long-term strategy to eventually dominate the EV market. For the latter, Rivian gets a much-needed financial lifeline.

It’s important not to suffer from immediacy bias when it comes to RIVN stock. Yes, it’s true that Rivian stock gained a little over 30% last week. However, on a yearly basis, shares are still down more than 36%. Moreover, the stock’s value has fallen about 86% since the company went public.

Basically, everything Rivian had tried before didn’t work. And what exactly was the original goal? Selling electric trucks and SUVs, cheapest of which starts at $71,900. At the top end of the truck or SUV format, the price is over $90,000. If the price-performance ratio really resonated with customers, I doubt RIVN stock would have lost 86% since its debut.

So what is Rivian’s answer? It’s the logical one: shift the focus from affluent consumers to middle-income buyers. In 2026, the company plans to launch its R2 model, which starts at $45,000. A year later, it could unveil its R3, with some publications estimating that it could start at $37,000.

However, appealing to an entirely new consumer demographic comes with challenges – challenges that General Motors may be better positioned to meet. That’s why GM stock looks attractive.

Each consumer group has its advantages and disadvantages

I am surprised that relatively few of the analyses that have appeared on RIVN shares discuss the central challenge: each consumer group has its own, very specific advantages and disadvantages. And that makes it risky to shift your focus.

For example, one of the inherent challenges that plagues trying to target only high net worth individuals is that there are so few of them. Rivian’s problem here is that it’s late to the party. Tesla (NASDAQ: TSLA) has already captured a significant portion of the market share in the upper income bracket. In addition, Lucid Group (NASDAQ: LCI) sold its electric vehicles around the same time as Rivian, which added to the logjam.

So Rivian is naturally targeting middle-income consumers. But such a focus will almost certainly benefit the established auto giants and their move toward electric mobility. Let’s be honest. Rivian was founded in 2009. General Motors was founded in 1908.

Of course, a company’s age is only one factor when a consumer is evaluating a product, but when a big spend of money is involved, brand reputation becomes extremely important, especially for—you guessed it—middle-income shoppers.

Look at it this way: A wealthy consumer may not be put off by the risks of buying a flashy $90,000 electric vehicle from a young company. But a customer who earns a living doesn’t have that luxury. If something goes wrong with the vehicle, such a buyer needs the reassurance that help is available. A growing body of evidence suggests that electric vehicles are actually not that reliable.

Therefore, Rivian could make a smart move by moving down the income scale. However, other companies can do the same thing and turn an innovative deal into a war of attrition. General Motors will likely win this war in a head-to-head comparison.

The numbers speak for themselves. In 2023, GM had free cash flow of nearly $23 billion. On the other hand, Rivian’s free cash flow was -$5.89 billion. It will likely take some time for that number to turn positive. Sure, Rivian’s foray into the modest-income scene should lead to an increase in sales and profits. However, if Rivian is successful, it would inevitably mean that consumer demand for low-cost electric vehicles has increased.

That would be better for GM stock in the long run. The company has the facilities, dealer and service network, and economies of scale to dominate the middle-class sector. In the meantime, GM can sell its hybrid vehicles and other popular internal combustion engine-based products. If the demand profile allows, the company could shift gears and refocus on electric vehicles.

And that’s ultimately the point. Yes, Rivian could get an initial sales boost with its R2 and R3, but such momentum would essentially prove that price trumps everything else. Once interest in inexpensive electric vehicles increases, GM can outperform various up-and-coming rivals thanks to its numerous advantages, including established brand trust, a dense dealer network and a proven ability to tailor production to the commuter’s budget.

Playing the patience game

Currently, GM stock is trading at 0.35 times last year’s sales. On paper, that’s extremely undervalued compared to the underlying auto manufacturing sector, which averages a multiple of 1.34. So why isn’t everyone scrambling to buy General Motors stock?

The forecasts are not particularly special. In the 2024 fiscal year, experts expect sales of $176.29 billion, an increase of 2.6% over the previous year’s figure of $171.84 billion. In the 2025 fiscal year, growth is expected to be only 0.9% to $177.84 billion.

However, if the electric car war spills over into the middle-income segment, General Motors will have the edge. If you’ll forgive the exaggeration, GM has been around forever and its dealers are everywhere. Regular car buyers would almost certainly trust GM more than a company younger than them.

Are GM shares a buy according to analysts?

As for Wall Street, GM stock has a Moderate Buy consensus rating based on 12 Buy, three Hold, and one Sell ratings. The average price target for GM stock is $56.60, implying an upside potential of 21.7%.

Conclusion: GM shares could get a boost from an independent deal

While the headlines in business are focused on Volkswagen’s multibillion-dollar deal with Rivian Automotive, investors should really be focusing on General Motors. Because the underlying theme is that Rivian will focus on middle-income buyers. But that framework fits GM stock because the underlying company has brand trust and a wide-reaching presence. These qualities make GM a stock worth considering.

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