General Motors could surge 46% as it transitions vehicle software to a recurring subscription model, Wedbush says

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General Motors could surge 46% as it transitions vehicle software to a recurring subscription model, Wedbush says
2024 GMC Hummer EV SUV. GMC
  • General Motors' 10-year plan will see the company transition to a profitable software subscription model, according to Wedbush.
  • The research firm said in a Monday note that recurring revenue from its software business will drive 46% upside in GM stock.
  • "The software and services business attached to the EV shift represents a potential gold mine for the company," Wedbush said.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

General Motors is poised to capitalize on its transition to electric vehicles through the sale of value-added software that will enable autonomous driving capabilities, according to a Monday note from Wedbush.

That should help drive General Motors' stock price to record highs, with Wedbush backing its "outperform" rating and an $85 price target, representing potential upside of 46% from Monday's close.

Wedbush analyst Daniel Ives said General Motors' aggressive 10-year growth plan laid out at its analyst event earlier this month is "clear and hittable." The automaker said it expects to double its revenue from $140 billion to $280 billion by 2030.

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That growth will be driven in part by a software subscription for vehicles, which would enable autonomous and assisted driving capabilities. Ives expects General Motors to realize $2,000 in annual recurring revenue per vehicle from its software offerings.

"The software and services business attached to the EV shift represents a potential gold mine for the company, bringing in $20 billion to $30 billion of incremental services and software [revenue] we see over the next 5 to 7 years," Ives said.

And as the demand for autonomous driving increases, General Motors will have considerable pricing power and be able to raise its software subscription prices throughout the decade, according to Ives. General Motors has been developing its own autonomous driving technology through its 2016 acquisition of Cruise.

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While General Motors' autonomous driving software subscription model is still under development, most important to the company's stock price going higher is a re-rating from Wall Street. That will hinge on the automaker's ability to convert its existing vehicle base to electric.

"The Street for obvious reasons remains skeptical and the Chevy Bolt fiasco and chip shortage have combined cast a dark shadow over the stock and thus kept many investors at bay," Ives explained. But the automaker can shift the narrative among investors as it lays the groundwork to capitalize on a "golden opportunity," according to Ives.

Ives expects General Motors to convert 20% of its customer base to electric vehicles by 2026, and 50% by 2030. That EV base is what will help drive an explosion in software growth for the 113 year-old company.

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Shares of General Motors traded up 1% in Tuesday trades, and are up about 40% year-to-date.

General Motors could surge 46% as it transitions vehicle software to a recurring subscription model, Wedbush says
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