General Motors (NYSE: GM) is doing plenty right for investors these days. It has a cash cow business with its high-margin trucks and SUV sales, has executed significant cost reduction programs, has significantly reduced share count to drive earnings-per-share power, and is expanding its software revenue for additional high-margin business. Those developments helped GM’s stock double over the past three years, and the good news is that more high-margin business is on the way, and many investors have overlooked the potential of what’s happening.
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The mainstream automotive industry is known for being capital-intensive and for generating razor-thin margins. That changes for the better as you move higher into luxury auto brands, or even super-luxury (such as Ferrari), but largely the automotive industry isn’t looked at as lucrative. That’s beginning to change, and GM’s push with OnStar and Super Cruise is showing signs of its potential to drive significant profits.
This year, GM expects to generate $3.1 billion in realized revenue and $7.5 billion in deferred revenue from OnStar and Super Cruise subscriptions. That’s a sizable jump from only 2020, when those two subscriptions drove $1.7 billion in realized revenue and only $200 million in deferred revenue. As more and more vehicles hitting the roads today are loaded with infotainment technology, sensors, and computers to analyze conditions for autonomous driving, among other things, those subscriptions can certainly energize GM’s business model.
“These software-like margins that are coming in the connected business can actually drive, and potentially over time, dwarf even the wholesale business, which is remarkably strong and remarkably large,” GM CFO Paul Jacobson told investors at Bank of America‘s Global Automotive Summit earlier this month.
One hurdle GM must navigate is subscription fatigue as consumers face mounting subscriptions in nearly every facet of life, from food delivery to streaming platform options. To battle this fatigue, GM is playing the long game and giving consumers long-term subscriptions with vehicle purchases beginning with the 2025 model year — it will include an eight-year basic subscription to OnStar and three years with Super Cruise.