Tesla vs. GM: Cowen Reveals Which Auto Stock Holds Greater Upside

Globe and Mail

14-03-2025

Cars are more than just a way to get from point A to point B – they're a significant economic force. For over a century, the automobile industry has fueled job creation, consumer spending, and market dynamics, shaping America's financial landscape. Owning a car isn't just about convenience; it's an investment in mobility, efficiency, and even social status. Whether it's the daily grind of commuting or the thrill of a cross-country road trip, vehicles influence both personal choices and broader economic trends. And with the rise of electrification and automation, the industry continues to shift gears, impacting everything from manufacturing to Wall Street.
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Yet, despite its undeniable impact, auto stocks remain surprising underperformers. The sector draws plenty of attention, but at its core, the industry is still rooted in traditional manufacturing –making it vulnerable to the same headwinds that weigh on the broader U.S. industrial sector.
Still, the auto stocks are not going away. In fact, Cowen analyst Itay Michaeli sees them as solid long-term plays, even if the road ahead comes with a few bumps.
'US auto stock sentiment feels as depressed as ever with most trading at/near historical multiple lows. Yet the sector has a long history of groupthink and over-extrapolations that led to alpha opportunities, making it ripe for stock picking. The key is to identify optimal exposures (exposures matter) and multiple paths to outperform. Automaker stocks are volatile/complex but are often where the most LT upside potential exists,' Michaeli opined.
Following this line of thought, Michaeli goes on to look at two US auto manufacturing giants, Tesla (NASDAQ:TSLA) and General Motors (NYSE:GM), and picks out which of these auto stocks holds the greater upside given the currents of today's automotive market. Let's dive in.
Tesla
First up is Tesla, Elon Musk's best-known business venture. This company has done more than most others to redefine the 21st-century automotive business – it was the first pure-play EV company to reach profitability in the US markets, and under Musk's leadership, Tesla has become not just the largest EV company in the world, but the largest car maker of any stripe. Despite a sharp pullback in share price this year, the company still boasts an $800 billion market cap, more than triple the valuation of second-place Toyota.
While EVs make up Tesla's bread and butter, Musk has a broader vision and is pushing toward self-driving vehicles and other robotics technologies. Tesla has unveiled a robotaxi, the Cybercab, and is developing Full Self-Driving (FSD) software to make autonomous vehicles safe and reliable. The company has also revealed designs and plans for an autonomous humanoid robot, Optimus, built with human proportions and intended for a wide range of general-purpose manual labor tasks. Tesla aims to integrate AI with cars and robots to achieve full autonomy. Though still in its early stages, this vision is ambitious.
When we turn to financial results, we find that in Tesla's last reported quarter, 4Q24, the company generated total revenues of $25.7 billion, up 2% year-over-year but missing estimates by $1.44 billion. Automotive sales accounted for $19.8 billion of that total, marking an 8% year-over-year decline, while the company's energy generation and storage segment saw a 113% year-over-year increase, reaching $3.06 billion. Tesla's earnings for the quarter, with a non-GAAP EPS of 73 cents, missed the forecast by 4 cents per share.
Cowen analyst Michaeli acknowledges that there are both upsides and downsides to Tesla right now – but he comes out for the bulls on this stock.
'We see merits in both bull & bear case cases, but ultimately come out tactically bullish on the shares given the recent share price pullback coming ahead of several potentially consequential catalysts this year… While there's no shortage of challenges this year (IRA, tariffs, competition, brand concerns), the list of potentially game-changing level catalysts across EV, AV and robotics are robust enough to tilt risk/reward favorably with the shares pulling back meaningfully from recent highs. To be sure, we do expect a challenging Q1 (consensus deliveries look high), but once Tesla clears Q1, the catalyst path should look brighter,' Michaeli opined.
The analyst goes on to give TSLA shares a Buy rating, and sets its price target at $388, indicating potential for a 48% upside in the coming year. (To watch Michaeli's track record, click here)
The Cowen view represents the bulls here; overall, Tesla stock gets a Hold (i.e., Neutral) rating from the analyst consensus, based on 37 recent Wall Street reviews that include 12 to Buy, 13 to Hold, and 12 to Sell. The stock's $247.10 trading price and $331.07 average target price together imply a ~34% one-year upside potential. (See TSLA stock forecast)
General Motors
Next up is one of Detroit's legacy names, General Motors. This company is the largest of the Motor City's Big Three, with a $48 billion market cap, revenue of $187 billion last year, and total 2024 vehicle sales of 2.7 million. The company has sold cars under a long list of brand names in its 117-year history, but in recent years has streamlined its offerings and sells cars under four nameplates: Chevrolet, Buick, Cadillac, and GMC. In addition to building and selling cars and trucks for the commercial market, GM also has a defense division, producing light vehicles for the US military, and owns the ACDelco auto parts company.
By the numbers, GM is an impressive manufacturing company. It has 156 facilities in the US, employing over 91,000 people, and sells its vehicles through a network of more than 4,000 dealers. In the past decade, the company has invested more than $35 billion into its US facilities, to maintain a cutting-edge industrial plant – and that is hardly the company's only contribution to the overall US economy. As of 2023, GM had business relationships with more than 10,000 suppliers of various types, and spent $87 billion on its purchase contracts with them.
While internal combustion engines remain GM's foundation, the company has already put together a line-up of EVs – and has committed to converting its consumer production to all-electric vehicles by 2035. This is part of the company's overall plan to achieve both sustainability and safety with zero emissions, zero crashes, and zero congestion.
On the defense side, GM is known for its infantry vehicles – the Squad, Cargo, and Utility vehicles that feature reliable off-road capability in a range of terrains – and for its Suburban Shield vehicle, an armored SUV designed for law enforcement.
When we look at the company's results, we find that GM generated $47.7 billion in revenue for 4Q24, a figure that beat the forecast by $4.13 billion and was up 11% year-over-year. The company's bottom line in the quarter came to $1.92 by non-GAAP measures, 8 cents per share better than expected. The company's adjusted automotive free cash flow hit $14.05 billion in the quarter, growing by almost $2.4 billion year-over-year.
Those were strong results, and combined with the company's solid positions in the defense industry and the EV transition, led Cowen's Michaeli to take a highly upbeat position on GM.
'GM is our Top Pick. The elevator pitch is that GM isn't your typical 'legacy' automaker, for three reasons: (1) The majority of GM's earnings come from a unique Defensive Franchise (NA Pickup Trucks & Large SUVs) that alone can be valued at ~$90/share, with virtually every bear case in Global Auto not meaningfully applying to GM's Truck Franchise. This in part explains why GM's earnings have consistently outperformed global peers; (2) For GM, we believe EVs can become uniquely accretive due to GM-specific segmentation and regional considerations, with early evidence emerging to support this… (3) The combination of aggressive share buybacks (on a ~20% FCF yield), ample levers to drive further earnings growth and an increasingly stale/wrong 'peak auto' overhang set the stock up to continue grinding higher on upward consensus EPS revisions and sentiment improvement,' Michaeli stated.
Along with these bullish reasons, the Cowen analyst rates GM stock as a Buy – and his $105 price target implies that it will gain a robust 115% over the course of the coming year.
Looking at the consensus breakdown, GM's Moderate Buy consensus rating is based on 10 Buys, 4 Holds and 1 Sell. GM stock is priced at $48.64 and its $63.80 average price target points toward a ~31% gain in the next 12 months. (See GM stock forecast)
All in all, while the Cowen analyst sees upside for both Tesla and GM, GM's stock presents the more compelling opportunity with its projected 115% gain, far surpassing Tesla's 48%. However, Tesla's innovation-driven strategy remain key factors that could support its upward trajectory.
To find good ideas for auto stocks trading at attractive valuations, visit TipRanks' Best Stocks to Buy, a tool that unites all of TipRanks' equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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