GM went public 10 years ago, and it’s been a mediocre investment — here’s how it can improve for the next 10

Ten years ago, General Motors made its second debut on the New York Stock Exchange in what was then the largest initial public offering in U.S. history — ushering in a new era of renewed optimism for the company and U.S. economy after emerging from bankruptcy in the Great Recession.

Then-CEO Dan Akerson rang the opening bell on Nov. 18, 2010 with an entourage of executives that included former vice chairman Steve Girsky, current President Mark Reuss and then-GM Treasurer Dan Ammann, who now leads the automaker’s majority-owned Cruise autonomous vehicle subsidiary.

“To ring the bell, to me, that was the first step to success, then we had to go to work,” Akerson told CNBC on Wednesday, adding he remembers walking onto the trading floor to applause. “It was really humbling. I got emotional … I had never felt as proud as I did the GM organization.”

Investor interest was high amid hopes that one of America’s most storied companies could make a comeback. GM initially raised $20.1 billion and its shares opened at $35, up $2 from the IPO price.

A decade later, the “new GM” has a sound balance sheet and the company is the leanest its been in decades. The stock, however, has produced an abysmal annualized total return, including dividend payments, of 5.2% over the last decade, compared with 14% for the S&P 500, according to FactSet. Put another way, $10,000 invested in GM at it’s IPO and reinvesting dividends along the way would be worth roughly $15,879 today, compared with $36,742 in the S&P 500.

“It’s basically been a treadmill stock, where the market’s gone up and to the right. It’s been a significant underperformer,” Dan Ives, managing director at Wedbush Securities. “There’s been some hits, but many misses and I think that’s been the frustration of investors for such a stalwart with so much R&D, technology and distribution under the hood.”

Morningstar’s David Whiston, who’s long been bullish on GM, described the company’s stock performance as “volatile and frustrating” over the last decade. “It’s been in the mid-teens and it’s been over $45. But even when it’s done well, it never really sustains it,” he said.

At its peak, GM’s stock was up more than 40% from its IPO price at $46.76 a share during intraday trading in October 2017. Its shares have lost all of that momentum since then, falling 57% from its IPO to an intraday low of $14.33 a share on March 18 after GM, Ford Motor and Fiat Chrysler announced temporary closures of all U.S. factories due to the coronavirus.

“The stock has really struggled if you annualize it over the last decade,” said Garrett Nelson, senior equity analyst at CFRA Research. “It’s a pretty low return.”

Current CEO Mary Barra and other GM executives have been steadfast in saying they will control what they can regarding the business to prove the company’s worth to Wall Street, promising to do anything and everything to create shareholder value. A company spokesman reiterated those comments Tuesday.

Since GM stock hit its all-time low earlier this year, shares have rallied. They’re up 19.9% so far this year, fueling a 33% increase since the company’s IPO at $33 a share.

But the gains are miniscule when compared with Tesla, which went public five months before GM in June 2010. While more volatile, Tesla’s shares have skyrocketed by more than 400% so far this year, leading the company past Toyota Motor to become the most valued automaker in the world.

GM’s ability to compete against Tesla as well as the cost of switching its vehicle fleet to all-electric are main reasons why CFRA Research has a “sell” rating on GM, according to Nelson.

“While they’re planning to shift their portfolio to an all-electric future, they’re still pretty early in that process,” he said. “I think they’ve had a lot more misses than hits if you look at their EV models that they’ve introduced over the last decade. None have sold particularly well.”

He’s predicting a “very difficult road ahead” if they want to compete against Tesla in EVs.

GM has tried to get investors to value it more like Tesla, which is seen as more of a tech disruptor than an automaker. That thinking has allowed Tesla’s market value to skyrocket to more than $400 billion despite years of losses. GM, on the other hand, is 112 years old, has decades of profitable years behind it and consistently beats Wall Street’s earnings expectations — yet it has a market value of just $60 billion.

Whiston described the GM-Tesla situation as a “double standard,” saying if a traditional automaker were to do what Tesla has done, including announcing plans to go all-electric years ago, their stocks would have plummeted.

“Yet, while Tesla’s doing it and hemorrhaging cash, it’s a growth story,” he said. “I’m not trying to take away from what Tesla’s accomplished, they’ve accomplished a ton. It’s amazing. But I don’t buy the argument that only Tesla will be able to provide EVs to everybody. In reality, just about every automaker will.”

Ahead of Covid-19 shuttering its factories in March, GM announced plans to invest $20 billion in all-electric and autonomous vehicles through 2025. The company, despite the pandemic, has said it will maintain, if not increase, those investments.

Many analysts view GM’s plans, including a long-term goal of exclusively offering electric vehicles, as hope the next decade may be better than the previous one for the “new GM.”

“They’ve thrown a lot of darts with many that have missed. The Street’s kind of wiped that out in terms of the historical and going forward,” Ives said. “It’s of course about their core automobile franchise but the golden goose is EV.”

GM has “nailed” the strategy, he said. “Now it comes now to execution, but that’s the key.”

Several analysts have recently raised their price targets on GM, after the company significantly outperformed Wall Street expectations during the pandemic and successfully launched its all-electric GMC Hummer. Many cited the company’s performance as well as its future EV strategy.

GM is “fully back on track and likely enjoys strong momentum well into 2021,” UBS analyst Patrick Hummel said earlier this month. Investors will start to see GM as more of an “aggressive” electric vehicle company over the next year or two, instead of a slow-growth manufacturer like the rest of the Detroit carmakers, he said.

“With a focus on crystallizing value of its EV strategy … GM will likely get more credit for being a relative winner in the transition,” Hummel wrote in an investor note Nov. 9.

Ives agrees: “If GM finds success on EVs, they’re going to start to see a re-rating as part of that. I think that’s what investors are starting to recognize when they look at GM going forward. On the EV side, I think they can become a legitimate player over the next decade.”