We recently compiled a list of the 7 Most Undervalued Auto Stocks To Buy According To Analysts. In this article, we are going to take a look at where General Motors Company (NYSE:GM) stands against the other undervalued auto.

Evolving Dynamics in the Auto Industry

As reported by TipRanks, Morgan Stanley recently released a report, in which in which it pointed out major changes in the automotive industry, mainly due to China’s growing production capabilities. The firm mentioned that China is now making 9 million more cars than it sells, which is shaking up competition in the Western market.

Due to this, the bank has downgraded its assessment of the U.S. auto industry from Attractive to In-Line. The change reflects rising vehicle inventories in the U.S., affordability challenges for consumers, and an increase in credit defaults among less-than-prime borrowers.

On a brighter note for car dealerships, the bank upgraded several franchise dealer stocks to Overweight.

The firm believes that worries about franchise dealers have diminished, especially compared to the challenges faced by automakers linked to China and their electric vehicle investments. The perspective shows a shift in attention, as China moves from being a source of demand to one of surplus supply, impacting global automotive trends.

Moreover, in another report by the bank named “The Future of Cars,” the firm discussed that advancements in technology are projected to drive a rise in software-defined vehicles (SDVs), potentially making up 90% of vehicle production by 2029 and dominating the market by 2040.

SDVs will feature improved computing power that allows for remote updates similar to smartphone apps, which could lead to an expected increase in chip spending of approximately $15 billion over the next five to six years.

However, the path to widespread SDV adoption will involve challenges. Manufacturers need to make sure these vehicles are viewed as safe, addressing cybersecurity concerns and redesigning traditional vehicle architectures. By consolidating multiple functions into fewer high-performance processors, automakers can streamline designs and support advancements in automation and self-driving technology.

Long-Term Perspective on EV Industry in the West

Like every other industry in the 21st century, the auto industry is also evolving and the most common topic of discussion is the EV industry. While the industry has grown significantly over the last few years, it has experienced a slowdown recently due to several factors including slow growth of infrastructure and higher prices compared to ICEs.

In a recent interview with CNBC, Christian Kames, managing director of Lazard, addressed concerns from European automakers about declining demand for electric vehicles and potential reductions in electrification plans.

He suggested that these worries might be overstated, as the automotive industry is undergoing a significant transformation, with new technologies often facing initial hype followed by periods of disappointment.

Kames acknowledged the current lack of demand and insufficient charging infrastructure but highlighted that global initiatives are being implemented to improve EV infrastructure and technology investments. He expressed confidence that electrification will ultimately succeed. He suggested that European manufacturers need to keep investing to maintain competitiveness in the long run.

When discussing future leaders in the EV market, Kames recognized the rising competition from Chinese brands but argued that it is too soon to discount Western automakers. He emphasized that all major car companies are aware of the ongoing transformation and are taking action to adapt, which will be crucial in the next few years.

Apart from electrification, autonomous vehicles are the next big thing. According to Precedence Research, the global market for autonomous vehicles was valued at approximately $158.31 billion in 2023 and is expected to reach around $2.75 trillion by 2033. This represents a compound annual growth rate of 33% from 2024 to 2033.

Our Methodology

For this article, we used stock screeners to identify over 70 auto manufacturers along with auto and truck dealership stocks. Next, we narrowed our list to 7 stocks with forward price-to-earnings ratios below 15 and the highest average analyst price target upside, as of October 4. The most undervalued auto stocks are listed in ascending order of their average analyst price target upside. We also added the hedge fund sentiment around each stock which was taken from Insider Monkey’s database of 912 hedge funds as of Q2.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

General Motors Company (NYSE:GM)

Number of Hedge Fund Holders: 72

Forward PE Ratio: 4.58

Average Price Target Upside: 19.31%

General Motors Company (NYSE:GM) is a major global automaker known for designing, building, and selling trucks, cars, crossovers, and automotive parts. The company’s well-known brands include Buick, Cadillac, Chevrolet, GMC, Baojun, and Wuling. It distributes its products through a wide network of retail dealers and distributors, serving both individual buyers and fleet customers. It is one of the most undervalued auto stocks to buy.

The company is moving toward electrification with its Ultium Platform. It is GM’s electric vehicle battery and motor system designed for flexibility across various brands and models. It was launched in 2020 and features a modular design with pouch-style battery cells and shared power electronics.

Ultium Drive includes five drive units and three types of electric motors that support front, rear, and all-wheel drive configurations. The system uses nickel-cobalt-manganese-aluminum battery chemistry. Ultium batteries are scalable and support different vehicle sizes and power needs.

In the third quarter, General Motors (NYSE:GM) and its dealers saw a 3% increase in U.S. retail sales, delivering a total of 659,601 vehicles, though overall deliveries were down 2%. The company achieved a record quarter for EV sales, with 32,095 deliveries, marking a 60% year-over-year increase and a 46% rise from the previous quarter.

In the fourth quarter, the company is planning to launch five ICEs including 2025 models of GMC Terrain, GMC Yukon, Chevy Suburban, Cadillac Escalade, and Chevy Tahoe. It is also launching two EVs, which include the 2025 Cadillac Escalade IQ and the 2025 Cadillac Escalade OPTIQ.

On October 1, The Fly reported that Goldman Sachs increased its price target for General Motors (NYSE:GM) from $53 to $61 while maintaining a Buy rating. The change is part of a broader review of the U.S. auto and industrial sectors.

The firm has also lowered its forecast for the U.S. Seasonally Adjusted Annual Rate, as the firm noted that it has been weaker this year, at an average of around 15.5 million vehicles. Additionally, surveys show that fewer lower-income consumers plan to buy vehicles.

Despite these issues, Goldman Sachs is still positive about General Motors’ (NYSE:GM) long-term profit potential, pointing out that it has outperformed other auto stocks this year due to good pricing strategies and capital management.

Diamond Hill Capital stated the following regarding General Motors Company (NYSE:GM) in its Q2 2024 investor letter:

“Other top Q2 contributors included Extra Space Storage and General Motors Company (NYSE:GM). Shares of automobile manufacturer General Motors (GM) rose as its internal combustion engine business has also received a boost from the recent slowdown in electric vehicle adoption among consumers. GM also announced additional share repurchases in Q2, reinforcing its commitment to returning cash to shareholders.”

Overall GM ranks 5th on our list of the most undervalued auto stocks to buy according to analysts. While we acknowledge the potential of GM as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than GM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

Read Next: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.

Disclosure: None. This article is originally published at Insider Monkey.