Why General Motors’ inventory is climbing today

What happened

Actions of General Motors (NYSE: GM) were up on Monday, after a Deutsche Bank analyst argued that GM should exit its electric vehicle (EV) business.

As of 1:30 p.m. EDT, GM shares were up about 9.9% from Friday’s closing price.

So what

In a note released Monday morning, Deutsche Bank analyst Emmanuel Rosner added GM to the bank’s “short-term catalyst call list”, a list of stocks that could surge price on important short-term news. Rosner thinks it’s possible GM could part ways with its EV business, creating a separate company (and stock) that could have a valuation closer to that of You’re here – a potential windfall for existing GM shareholders, who would likely receive shares in the split company.

GM is developing a line of electric vehicles around a new modular architecture and an advanced battery system called Ultium. Image source: General Motors.

Rosner had asked CEO Mary Barra about the possibility of an EV spin-off during GM’s earnings call on July 29. Although Barra has not made a commitment, Rosner argued in another memo last week that such a fallout would be a “no-brainer” with the potential to unlock billions of dollars in shareholder value.

Rosner argued that if a new GM EV company could be valued at between $ 15 billion and $ 95 billion, the legacy business (the rest of GM) would not lose much value after the spin-off, as its valuation is already well below that of its purely EV peers.

A related point: With a higher valuation than GM, a new GM EV company would have easy access to capital (via stock offerings) at a lower cost than GM currently has.

Now what

Would a spin-off from GM’s EV business really be obvious, providing billions of dollars in “unlocked” value to auto investors? I tend to agree with my insane colleague Adam Levine-Weinberg, who explained earlier today why it wouldn’t be as simple as Rosner argues. Simply put, the EV business would be very difficult to separate from GM and its long-standing brands, and GM’s legacy would decline without EVs.

But what are the chances that the fallout will occur, whether simple or not? As a longtime GM observer (and shareholder), here is my carefully thought-out take: Don’t hold your breath.