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A General Motors logo at the General Motors Detroit-Hamtramck Assembly plant in Hamtramck, Mich., on Jan. 27, 2020.

Paul Sancya/The Associated Press

If you are wondering whether Tesla Inc. still has a stranglehold on investor affection for electric vehicles, check out the recent rise of General Motors Co. (GM-N)

GM, the old-guard Detroit-based automaker long associated with gas-guzzling pickup trucks and SUVs, has been on a tear recently: Its shares have risen 34 per cent since the start of 2021, outperforming Tesla – itself no slouch – by nearly 14 percentage points.

The rally could be worth pursuing, but you’ll need steady nerves. The reason: GM is now being valued by the market as an electric vehicle (EV) maker, which means that its share price is reflecting an upbeat scenario of soaring EV sales.

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To be fair, this outlook is grounded on research that points to strong growth in the years ahead. Last month, Goldman Sachs raised its forecasts by double-digits to account for falling battery costs and new government policies (especially in China, Japan and the United States) to promote greener transportation.

From a base of 1.8 million global EV sales in 2020, Goldman Sachs estimates that sales will climb to 8.3 million by 2025, which is a 26-per-cent increase over its previous estimate. By 2035, the investment bank expects that sales will surpass 34 million, up 17 per cent from its previous estimate.

What’s more, the share of internal combustion engines, now at 97 per cent, is expected to fall to just 10 per cent by 2040. The takeaway: Today’s automakers are at the threshold of exciting growth with new tech-forward vehicles, and investors are taking note.

So where does GM fit in here?

It’s among a dozen traditional automotive companies that have taken important steps toward producing electric and hybrid vehicles. Others include Toyota Motor Corp., Volkswagen AG, Ford Motor Co., Nissan Motor Co. Ltd., Honda Motor Co. Ltd. and BMW AG. And of course, Tesla stands above them as a pure EV player, with a stock price that values the company at US$800-billion – or more than 10 GMs.

Investors now appear to be betting that GM can close that gap, as a kind of undervalued Tesla with a stronger EV profile than its rivals. When the company announced on Tuesday that its Cruise unit was partnering with Microsoft Corp. to push ahead on driverless EVs, GM shares surged 10 per cent. The shares hit fresh record highs on Wednesday, closing at US$55.86 in New York.

From their lows in March, GM shares have risen more than 230 per cent. Over the same period, they’ve outperformed Ford (up 165 per cent), Volkswagen (up 70 per cent) and Toyota (up 38 per cent), even as these competitors ramp up their own electric and hybrid ambitions.

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Some analysts believe GM’s outperformance is just getting going. Citigroup’s Itay Michaeli and Justin Barell last week raised their price target for GM (or where they believe the shares will trade within 12 months) to US$70 from US$60 previously. The boost is based partly on the company’s progress with autonomous vehicles, which is gaining greater recognition and should raise the stock’s valuation.

Over the longer term, they expect the stock can eventually climb above US$100, offering a compelling reason to either stick with the current rally or join it, even as they warn that Tesla’s share price is dangerously overvalued.

“We continue to think that [Tesla’s] current valuations reflect future expectations that are simply too high based on the data points we’re tracking ... or expectations that are available to other companies trading at a fraction of Tesla’s valuation,” Mr. Michaeli and Mr. Barell said in their note.

While Tesla shares trade at 1,700-times trailing profits, GM’s price-to-earnings ratio is a quaint 25.

That doesn’t mean that GM shares are necessarily cheap, though. They, too, are being propelled by lofty expectations that are based on EV success, even as rivals pursue similar strategies and internal combustion engines fade. As well, upstarts are vying for investor attention – among them, Rivian LLC, the closely held electric pickup truck and SUV company that is backed by Amazon.com Inc. An investment round this week valued Rivian at US$27-billion.

It will be great for the environment if GM’s EV ambitions work out. Investors hoping for another Tesla, though, might want to keep in mind that there is more than one potential usurper.

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