Semiconductor Shortage to Chip Away at General Motors' Earnings

The electronics Covid-19 boom left the car industry short of much-needed semiconductor chips.
KellyFeb 10,2021,15:55

General Motors (NYSE: GM) stock fell despite beats on fourth-quarter estimates and offering solid guidance for 2021. The stock slid on concerns that a shortage of semiconductor chips will eat into profits.

Since the pandemic began, demand for chips has skyrocketed. With more people at home using a slew of chip-powered devices for both work and pleasure, a semiconductor shortage is one of the major hurdles car companies will need to overcome in 2021.

However, while competitor Ford Motor Co. (NYSE: F) said that the chip shortage would adversely affect sales of its iconically popular truck, the Ford F150, GM's CEO Mary Barra made a bold statement that the chip shortage would not impact electric vehicle initiatives or truck sales; the company plans to prioritize both trucks and SUVs, two of the car company's bestselling automobile makes.

While GM announced extended production cuts at three global plants through the middle of March due to the chip shortage, the company plans to keep churning out production of full-size pick-up trucks and certain SUVs, its high-profit vehicles.

GM has been on a roll - and investors have taken note. The company, which teamed up with Microsoft (MSFT) on cloud technology for internet-connected, self-driving cars, also launched BrightDrop, a new EV venture for the logistics and delivery market. The company is putting $27 billion into electric and autonomous vehicles as it reinvents itself into an EV company.

GM has seen Tesla (Nasdaq: TSLA) and even China start-up Nio (NYSE: NIO) surpass the American car company in market capitalization on investor enthusiasm over electric vehicles. With a market cap now over $65 billion, the loss-generating China-based Nio is nearly $10 billion more valuable than General Motors.

If General Motors, once viewed as one of - if not the most - stalwart car companies in the world, keeps posting growth, the opporunity for investors at these levels is significant.

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Topics:general motors, us car sales, chips, semiconductors,