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GM All Charged Up on Volt and IPO

July 27th, 2010
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07.27.2010

GM All Charged Up on Volt and IPO

original article written by Net Advisor

GM is all charged up with the coming release of the new Chevy Volt, and upcoming IPO.
The cost of the Volt will vary based on what options a person might want. The base prices is reportedly going to be $41,000. If you want a more fully-loaded version the MSRP is closer to $44,600. There are currently a whopping $7,500 in tax credits to purchase a new Volt. (Source: GM-Volt.com) The credit will be for the first 250,000 vehicles sold.

Recharging Costs of GM Volt according to GM in 2009 estimates. Source: mcclatchydc.com

Costs of Operation
The cost of fuel/energy is much lower than the standard gasoline, as long as electricity rates don’t skyrocket or are subject to additional municipal, state and federal taxes. Some states will cost more money to charge the Volt. California (CA), NJ, NY, VT, NH, RI, MA, CT, and ME have amongst the highest energy costs. States such as KY and WV have some of the lowest energy costs. (Source: GM-Volt.com) Read More.

The Shocker
Probably one of the biggest challenges of the new Volt other than price is that the vehicle is not desired to go that far on the road in hybrid form.

“The Volt can drive for 40 miles on a single full electric charge of its battery pack. It is a known fact that the battery pack will be allowed to drain down from 80% to 30% before the gas-generator kicks in. Since the battery pack holds 16 KWH of energy, that means 8 KWH will get you 40 miles.”

— Source: GM-Volt.com

After the 40 miles of gas-free driving exhausted, the one liter gas engine kicks in. But according to GM, the Volt will be able to get up to an impressive 50 MPG. (Source: GM-Volt.com) On a full tank of gas (8 gallons) the Volt should be able to drive up to 400 miles. (Source: GM-Volt.com Faq) This will of course vary how the car is driven, and what other energy demands are being used while driving such as using the heater or air-conditioning.

Charge Time
GM suggests that it will take up to 6.5 hours to charge the Volt using a standard 100 volt home plug-in outlet. For those with a 220 volt outlet, the charge time decreases to about 3 hours. (Source: GM-Volt.com Faq)

General Specs

  1. 4 Doors plus trunk
  2. Seating: 4 people
  3. Horse Power: 150
  4. Top Speed: 100 MPH
  5. Battery: Lithium-ion
  6. Wheel size: 17″ standard

(Read More/ Source: GM Volt.com Specs)

White House will be buying the first 100 Chevy Volts to add to the Federal fleet of 5,603 hybred cars. (Image source: GM-Volt.com)

Reportedly some of the first buyers will be the tax payers, but you won’t get to drive it. The Obama Administration is buying 100 Chevy Volts (about $4.1 million worth if purchased at $41,000 each) to be included in the government fleet of 5,603 vehicles.

“Obama also said that his administration “is doubling the number of hybrid vehicles in the federal fleet.” This amounts to 5603 hybrid vehicles.

Among them, the administration said it would “purchase the first 100 plug-in electric vehicles to roll off American assembly lines,” which is identified as Chevrolet Volts.”

— Source: Chevy-Volt.com

Volt Costs & Offers
The price of the Chevy Volt is not exactly cheap even with the tax credits. GM is offering a limited 3-year lease in some markets including California for $349 per month on the base model. (Source: Reuters) Keep in mind that if you want to add navigation, upgraded systems, leather seats, or other premium features the cost is much higher. There are no specs yet on what these individual premium costs are that we could find.

Also keep in mind the purchase price or the lease price does not include any “dealer prep” (extra profit), state sales tax, motor vehicle registration or license fees. In states with high sales tax such as California, this could add another $31 a month or more based just on a 8.75% sales tax rate. (Source: CA State Board of Equalization, Pub 71, April 1, 2010, pps 7-21, pdf)

The Business of GM
GM recently purchased AmeriCredit for $3.5 Billion in cash. AmeriCredit is already sitting on $9 Billion in outstanding loans. (Source: Reuters)

The reason why GM made this purchase of a finance company is to sell cars to those with lower credit standards. AmeriCredit is a subprime auto lender. (Source: Reuters Video) The question becomes obvious: Isn’t this part how the problem began – lending to those who could not repay loans?

It was suggested that, only “4% (four percent) of GM buyers fall into this (subprime) group.” (Source: CNBC) However according to GM’s CEO Chris Liddell, “When you look at the population, about 40 percent falls into non-prime.” (Source: Automobile.com)

GM has reportedly been in talks with major U.S. banks to obtain lines of credit and to make leases and purchases of GM cars to those with more stellar credit. (Source: Reuters)

IPO
GM plans to file its new Initial Public offering (IPO) during the week of August 16, 2010. (Source: Reuters) GM plan to issue no dividends on its stock, arguably due to the company has a very long way to go to try and gain to profitability, let alone be able to cover the loans the U.S. government (tax payer) made to GM.

GM IPO Predictions
I would expect the GM IPO to get a ton of press coverage and fanfare. Thus I expect this will be the biggest hype of an IPO since the .com era.

The size of the IPO is likely to be huge, close to the largest IPO in U.S. history, if not the largest. The reason is there are so many people and governments (U.S., Canada, Union (UAW), and Bondholders in this thing post bankruptcy, there are a ton of shares these groups will want to turn from non-tradable paper to real cash.

After watching many large IPOs over the last 20+ years, the bigger the float, the smaller the price increase on the first day of trading. If I had to guess, and this is only a guess based on experience, the stock may trade flat to slightly up or down on the first day. I would be bias to predicting a slight up move because a negative close would not set a positive tone for the stock out of the starting gate.

What I also think may happen is that the hype around the GM IPO will bring in a ton of much younger and much older investors. The younger investors will want to ‘get in on the ground floor of a new major auto company.’ The older investors, will remind themselves how big GM once was, and many will want to buy in the early days of the IPO and hope the stock moves back to what it once was.

The problem with these kinds of investment decision is it is based on self-created belief, not fundamental reality.

  1. GM is not exactly a ground floor opportunity. GM is not a new to the auto industry, and has a ton of competitors such as Ford, Toyota, Honda and Nissan, VW and others who are all producing more competitively priced hybrid and other vehicles, and have better sales numbers than GM.
  2. of all of these other car companies mentioned above, none required a bailout by any government, nor did they face debt restructuring in a bankruptcy.
  3. The notion that GM’s stock price will get back to where it was at its peak is far from realistic.

But the unique thing about stocks is that hype can drive prices higher despite any fundamentals let alone profiles. A recent and perfect example of this is Tesla Motors.

So the GM IPO could receive enough excitement that the stock could go up anyway despite fundamentals. After the press is gone and they move on to the what’s hot now story, reality will come back to the stock market and analysts will take a hard look at GM’s earnings potential and apply a multiple on the stock. Keep in mind that earnings is the true driver of a stock long term, not hope, or belief. GM has a lot of work to do, and hopefully the taxpayers won’t have to bailout GM again like we did Chrysler.

Please again note this Disclaimer.

GM Related Articles by Net Advisor™
Did GM Repay Its Debts? A Lesson in Semantics 04.27.2010
Shhhhhh! (Not Everyone is Paying Back TARP) 12.15.2009
Motors Liquidation Company (MTLQQ) FAQ 08.14.2009
General Motors Post History 07.14.2009 and dating about to June 2008

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