General Motors Company

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General Motors Company stock analysis GM overview
Bullish +75

GM Doesn't Get Enough Credit for This Overlooked Revenue Stream

📈 General Motors has outperformed the S&P 500 significantly over the past three years, nearly doubling its return while navigating industry headwinds like chip shortages and tariffs.

🚗 GM's first quarter earnings showed another solid performance for the Detroit automaker despite a strong market environment.

🔮 Management believes its OnStar and Super Cruise subscription business is an early-stage revenue stream that deserves more credit than it currently receives.

📜 GM changed its strategy to include an eight-year OnStar subscription and three-year Super Cruise subscription in the price of every new vehicle to ensure a 100% take rate.

🔄 Early data indicates strong adoption, with at least 30% of expiring Super Cruise subscriptions renewed last year and subscriber numbers rising 70% year-over-year in Q1.

📊 OnStar deferred revenue reached $5.8 billion at the end of Q1, up more than 50%, while recognized revenue exceeded $750 million, representing a 20% increase.

🏃‍♂️ GM is on track to reach 13 million total subscribers by the end of this year across its connected services portfolio.

🚀 Super Cruise subscriber growth is expected to push paid numbers past 850,000 by year-end, with projected revenue reaching nearly $400 million in 2026.

💰 GM CFO Paul Jacobson noted that software-like margins from the connected business could eventually dwarf the company's traditional wholesale automotive profits.

📉 The high-margin connected business offers GM a chance to improve industry-typical razor-thin profit margins despite potential consumer subscription fatigue.

⚖️ Investors are being urged to consider that this valuable revenue stream and valuation might not be fully reflected in GM's current share price.

🚫 Despite its recent success, General Motors was not included in The Motley Fool Stock Advisor's list of top 10 stocks for investors to buy now.

💹 The article highlights past success stories like Netflix and Nvidia from the Stock Advisor list to illustrate potential market outperformance over long periods.

⚠️ Readers are reminded that Daniel Miller holds positions in General Motors and that The Motley Fool officially recommends the stock despite its absence from their top 10 list.

📰 This article was originally published by The Motley Fool, which maintains a specific disclosure policy regarding analyst positions and recommendations.

Bullish Signals
  • GM nearly doubled the S&P 500's return over the past three years, demonstrating strong investment performance.
  • The automaker successfully turned around its money-losing operations in China and navigated industry challenges like chip shortages and tariffs.
  • Super Cruise subscriber numbers surged 70% during the first quarter compared to the prior year, with expectations to surpass 850,000 paid subscribers by the end of the year.
  • OnStar deferred revenue reached $5.8 billion at the end of the first quarter, representing a more than 50% increase compared to the prior year.
  • OnStar recognized revenue exceeded $750 million in Q1, marking a 20% year-over-year growth.
  • GM remains on track to achieve 13 million subscribers by the end of this year, expanding its high-margin connected business.
  • Super Cruise revenue grew 85% compared to the prior year's first quarter and is projected to reach nearly $400 million in 2026.
  • GM executives believe the connected software-like margins could eventually dwarf the wholesale business, signaling significant future valuation upside.
Risk Factors
  • The article notes that GM's connected business revenue and subscriptions are still in their 'early innings,' indicating significant uncertainty about the trajectory of this high-margin growth strategy.
  • Management plans to 'force' a 100% take rate on services by bundling them into vehicle prices, which could potentially alienate consumers and fuel subscription fatigue as noted in the text.
  • Despite promising early data, Super Cruise subscriber numbers are expected to reach only 850,000 paid subscribers by the end of this year, a number that may not fully reflect the 'major driver of profits' potential cited by management.
  • GM was explicitly excluded from The Motley Fool Stock Advisor's list of the '10 best stocks for investors to buy now,' suggesting analysts may view it as inferior to other opportunities despite its recent performance.
  • The article characterizes GM's current valuation as potentially undervalued based on this new revenue stream, which implies significant upside potential remains unproven and risks if the connected business fails to meet projections.
Full Analysis
General Motors is gaining attention not just for its recent strong financial performance, which includes nearly doubling the S&P 500's return over the last three years and improving operations in China, but also for an underappreciated revenue stream within its connected vehicle business. Management at General Motors views its OnStar and Super Cruise subscription services as a future major profit driver with potential to outperform traditional wholesale automotive sales. To accelerate adoption, the company is implementing a strategy that effectively guarantees 100% of new vehicle owners receive an eight-year or three-year subscription to these services, aiming to build habit and retention before offering standalone renewals. Early data supports this approach, with renewal rates for expiring Super Cruise subscriptions reaching at least 30%, while total paid subscribers grew approximately 70% in the first quarter alone and are projected to exceed 850,000 by year-end. Financial metrics indicate the strength of this connected business segment, with OnStar deferred revenue reaching $5.8 billion at the end of the first quarter, a more than 50% increase from the prior year, while recognized revenue surpassed $750 million, up 20%. Super Cruise revenue also saw significant growth, rising 85% year-over-year in the first quarter, with projections expecting nearly $400 million by 2026. General Motors' Chief Financial Officer, Paul Jacobson, noted that the high-margin software-like economics of this connected business could eventually dwarf the margins generated from vehicle sales alone. This shift toward a subscription model aims to address industry-wide concerns about razor-thin hardware margins and offers GM significant valuation potential that may not be fully reflected in its current share price, despite facing potential challenges like consumer subscription fatigue. Beyond the operational details, the article highlights General Motors' recent stock performance as an example of the company's value for investors, noting it has done a lot of good things in recent years through stock repurchases and navigating sector headwinds like chip shortages and tariffs. However, the piece concludes by referencing The Motley Fool Stock Advisor’s current top 10 list of stocks to buy, stating that General Motors was notably absent from their recommendation for new purchases. While acknowledging Daniel Miller holds positions in General Motors and that the company is recommended by The Motley Fool according to a disclosure policy, the article suggests investors should still consider the overlooked subscription potential before deciding to enter or add to positions. The content focuses on specific financial figures, strategic moves regarding subscription bundling, growth trajectories for connected services, and comparative valuations against traditional auto manufacturing margins.