The emerging electric vehicle (EV) industry is expected to play a vital role in reducing the carbon footprint of the transportation sector. Big automakers are striving toward the manufacturing of EVs on a large scale, driven by a favorable regulatory backdrop and high consumer interest. However, amid supply issues of key battery metals such as lithium, nickel, and cobalt, they are splurging over the procurement of raw materials to keep the production flow intact.
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Recently, with the aim of creating “strong, sustainable, and resilient supply chains,” General Motors Company (NYSE: GM) inked a multi-year deal with Glencore PLC (GLEN) for the supply of cobalt, a vital ingredient in the production of EV batteries. The financial terms were kept under wraps.
Cobalt has heat-resistant properties and is added to lithium-ion battery cathodes. This, in turn, enhances the energy density and durability of the battery.
Terms of the Agreement
Glencore will supply cobalt from its Murrin Murrin operation in Australia. Cobalt will be used by General Motors to power its ultium battery cathodes, used in electric vehicles like the Chevrolet Silverado EV, GMC HUMMER EV, and Cadillac LYRIQ.
Jeff Morrison, GM vice president at Global Purchasing and Supply Chain, said, “GM and our suppliers are building an EV ecosystem that is focused on sourcing critical raw materials in a secure sustainable manner.”
Commenting on the collaboration, Glencore, one of the world’s largest global diversified natural resource companies, said that the deal complements its target of achieving net-zero total emissions by 2050.
GM’s Plans
After bearing the brunt of supply chain issues on its global production, the company is striving to secure an uninterrupted and more vertically integrated production operation. With this in mind, General Motors anticipates manufacturing 1 million electric vehicles in North America by the end of 2025.
Similar Actions
Recently, Ford Motor Company (F) inked a deal to buy tons of lithium manufactured at Lake Resources’ (LLKKF) Kachi project in Argentina. Lithium is a key raw material in battery manufacturing, used in many EVs.
Ford is a global automobile company and is the third-largest car manufacturer in the United States.
Analyst Recommendations
According to Barclays analyst Brian Johnson, the auto sector is experiencing a number of headwinds, including risks related to rising interest rates and inflation. Cost pressure created by inflation has raises car prices, which hurts buyers’ affordability, along with more difficult financing options. Therefore, the imbalance in the sector can be a huge blow to the overall market.
Though Johnson has a negative view of the sector, he maintained a Buy rating on General Motors but lowered the price target to $59 (47.35% upside potential) from $68.
Consensus among analysts is currently a Strong Buy rating based on 14 Buys and three Holds. The average General Motors price target of $71.13 implies 77.65% upside potential from current levels. Shares have lost 31.54% over the past year.
Website Traffic
TipRanks’ Website Traffic tool, which uses data from SEMrush Holdings (SEMR), offers insight into General Motors’ performance in the first quarter.
According to the tool, a website traffic uptrend was visible. In Q1 2022, total estimated visits to gm.com showed an increasing trend, representing a 91.9% surge, on a sequential and global basis. Notably, year-to-date website growth, compared to year-to-date website growth in the previous year, came in at 104.59%.
Concluding Remarks
Despite ongoing headwinds in the auto sector, supply constraints, pricing pressure squeezing profit margins, and General Motors trading at near 12-month lows, investors might opt for the stock when considering their portfolios.
Given the company’s long-term potential, high analyst ratings, capability to withstand crises (the 2008-09 financial crisis and the COVID-19 outbreak in 2020), and favorable website traffic (indicating the company might have recorded strong revenues in Q1 2022), investor gains may very well be in the cards in the coming period.
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