GM’s growth isn’t limited to electric vehicles
The Chevy Bolt. The Hummer EV. The Chevy Silverado EV. The Cadillac Lyriq.
For at least a few years, General Engines (GM -2.87%) has gone from leading the production of full-size gas-powered pickup trucks to producing a full line of high-tech 21st century electric vehicles like those listed above. It’s these efforts (and plans to spend $35 billion on the projects) that have drawn all the attention and reports to this auto giant.
But electric vehicles aren’t the only company GM is pursuing in its effort to revive a stock price that’s barely budged in a full five years. It turns out that GM is also trying to get back into the defense contracting business.
GM has a history of military dealings
Once upon a time – during World War II, to be precise – General Motors was one of the major defense contractors in the United States. Converting 94 factories in the United States to military production, GM produced thousands of Wildcat fighter jets and Avenger torpedo bombers for the US Navy, and more than 850,000 M5 “Stuart” trucks, transports and light tanks for the US Navy. ‘army. As historian AJ Baime said Arsenal of Democracy“American soldiers rode into battle in GM tank destroyers, ‘DUCK’ amphibious trucks and two-and-a-half-ton troop carriers, and they fired GM-built submachine guns, bullets and mortars.”
Indeed, for more than 50 years after During World War II, General Motors continued to supply the military with everything from medium-duty trucks to light armored vehicles to “Stryker” armored personnel carriers – until it sold its defense activities General dynamics (GD -2.28%) in 2003. And yet, after more than a decade of pacifism, GM trumpeted its return to the military business in 2017 with a reconstituted GM Defense division.
Uncle Sam wants YOU… to build trucks for him!
In 2020, GM Defense scored its first big win when it won a $214.3 million contract to supply the Army with 649 infantry vehicles ($330,200 per ISV) based on its own Chevrolet Colorado midsize truck design. ZR2, a contract that could triple in size over time. . And this week, GM set its sights on an even bigger goal, announcing it would partner with Germany’s Rheinmetall to offer a new truck for the Army’s Common Tactical Truck program, which is seeking a replacement for its fleet of “Family of heavy tactical vehicles”.
According to the companies, the army is soliciting bids to produce around 5,700 heavy trucks for the army – a potential windfall of $5 billion for the winner. GM and Rheinmetall will offer an “Americanized” model based on the latter’s HX3 – the HX3-CTT – with “an advanced, interchangeable protected cab design, advanced driver assistance systems (ADAS) and cable-operated operation [and the ability to scale in size] from 4×4 to 10×10.”
Competitions and deadlines
So far, GM’s (and Rheinmetall’s) offer is the only one I know of, but the military says it’s looking for offers from at least three suppliers – so GM isn’t guaranteed to win here . Whether he is at least in contention to win should be known soon, however. The Army sent out its RFP for prototypes in June and expects to award prototyping contracts at very short notice, by December 2022.
Then there will be a “runoff” at the end of 2023 as the military puts the various prototypes through their paces. The Army will pick a single winner, with an official contract award and a promise of $5 billion in revenue in 2025. The new trucks should then be ready for deployment in 2028.
Granted, even $5 billion in new revenue won’t move the needle much for GM (which, according to data from S&P Global Market Intelligence, made more than $127 billion in revenue last year) . But even this contract might just be the start of some good news.
As The Detroit News reported in June, with one big defense contract already in the bag, and another possibly on the way, GM Defense is “going international” with a plan to start marketing its military trucks first in Canada, then in Europe, the Middle East and Southeast Asia as well. Its partnership with Rheinmetall could also be useful here – while GM Defense has been absent from the international market for some time, Rheinmetall has been very active. Indeed, the company already has around twenty customers worldwide, covering the entire length of the alphabet, from Austria to New Zealand.
Combined with GM’s already global reach in civilian vehicles, this should be a formidable partnership, combining great economies of scale by supplying the world’s largest military buyer with established relationships to further increase sales anywhere in the world. That $5 billion might just be the start for GM.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.