When Valuing General Motors Cruise Unit (Self-Driving And EL

When valuing GENERAL MOTORS CRUISE UNIT (SELF-DRIVING AND ELECTRIC VEHICLES SUBSIDIARY) what sources could one consult to set or estimate the WACC

Although Tesla is most firmly implanted in the public consciousness as a pioneer and major player in the electric vehicle space, General Motors (GM) also presents a significant entrant through its Cruise unit, which focuses on electric and autonomous vehicles. Since Cruise is a subsidiary and does not trade separately in the open market, its valuation requires careful estimation of its Weighted Average Cost of Capital (WACC), industry risk premia, and size premia. These parameters are crucial for assets impairment testing, valuation in potential IPO scenarios, or negotiations involving Spin-offs or mergers. Determining accurate inputs involves consulting various financial data sources, each providing specific information necessary for precise valuation modeling.

Sources to Estimate WACC and Industry Risk Premia for GM’s Cruise Unit

To accurately value the Cruise unit, financial professionals must gather data from multiple credible sources. These sources include financial data providers, market analysts, corporate filings, and specialized industry reports. Each source offers unique insights into different components needed for WACC calculation—such as debt and equity market values, interest rates, and risk premiums. Below is an in-depth description of key sources and how they can be accessed for this purpose.

1. Bloomberg Terminal

The Bloomberg Terminal is a premier financial data platform widely used by investment bankers, financial analysts, and valuation professionals. It provides real-time data on a company's outstanding bonds, including bond yields, credit spreads, maturities, and ratings. Bloomberg also offers detailed information on a company's market capitalization, share prices, outstanding shares, and cost of debt. Using Bloomberg, analysts can extract the yield-to-maturity (YTM) on comparable bonds, estimate the company's current debt costs, and retrieve broad market risk premium estimates. Access to Bloomberg requires a subscription, which is typically available at financial institutions, universities, or large corporations.

2. Yahoo Finance

Yahoo Finance is a widely accessible online platform providing a broad overview of market data, including current stock prices, recent SEC filings, corporate financial statements, and convertible debt information. While less detailed than Bloomberg, Yahoo Finance can be used to estimate market capitalization, track the number of outstanding shares, and review recent bond issuance details reported by the company. Although it does not provide detailed yield data on corporate bonds, it is useful for quick overviews and cross-verification. Access is free, making it a valuable starting point for initial research.

3. Moody’s and S&P Global Ratings

Moody’s and S&P Global Ratings are credit rating agencies providing detailed credit ratings and outlooks for corporate bonds and issuers. They offer information about the credit spreads over risk-free rates, which are essential for estimating the cost of debt component in WACC. Analysts can subscribe to these services or access some of their reports via institutional access, university libraries, or through industry contacts. Ratings reports also offer industry outlooks and sector risk premiums, helping contextualize industry-specific risk premia.

4. Duff & Phelps (Refinitiv/Credit Ratings Reports)

Duff & Phelps, now part of Refinitiv, supplies valuation services and market data that include industry-specific risk premia, discount rate surveys, and sector risk premiums. These reports compile market-based estimates of industry risk premiums, which are essential for setting the equity risk premium specific to the electric and autonomous vehicle industry. This source usually requires subscription access through firms, academic institutions, or professional affiliations.

5. SNL Financial / S&P Capital IQ

SNL Financial, now part of S&P Capital IQ, offers comprehensive financial statement data, market multiples, and detailed bond information. It provides data on outstanding bonds, preferred shares, and other securities, including their yields, maturities, and covenants. Analysts can estimate the cost of debt and equity by analyzing the market spreads and financial ratios of comparable companies. Accessing this platform often involves institutional subscription through corporate or university licenses.

6. Federal Reserve Economic Data (FRED) and U.S. Treasury Data

The Federal Reserve’s FRED database provides historical and current risk-free rates derived from U.S. Treasury securities. Estimating a reasonable risk-free rate is crucial for WACC calculations. Treasury yields, especially the 10-year Treasury bond rate, serve as a baseline for the risk-free component in the WACC formula. The FRED database is freely accessible online, and the data is frequently updated.

7. Industry Reports and Market Studies

Industry-specific research from organizations like McKinsey & Company, Deloitte, or IHS Markit provides valuable insights into industry risk premiums and growth prospects. These reports often include sector risk assessments and premiums estimated based on recent market conditions. While some reports are paid, many summaries and key findings are available through online publications or academic library subscriptions.

8. Company Financial Statements and SEC Filings

Direct access to GM’s and Cruise’s financial statements, including 10-K and 10-Q filings available through the SEC EDGAR database, provides primary data on debt levels, market capitalization (if publicly traded), and other financial metrics. Though Cruise is a private subsidiary, related disclosures or recent filings may include estimates or references to market valuations, bond issuance details, or recent capital raises. These filings are freely accessible via the SEC’s website.

9. Equity Risk Premium Estimation Tools

Various financial consultancies and academic sources provide tools and surveys to estimate the equity risk premium specific to certain sectors. For example, Damodaran’s online data repository offers sector-specific risk premiums and market risk premiums, which can be used to refine the inputs for WACC estimation based on current market conditions. These resources are freely available online, often compiled by well-known valuation experts.

10. Industry Benchmarks and Competitor Data

Data from peer companies such as Tesla, Ford, and other significant automotive and tech firms provide benchmarks for cost of equity and industry risk premiums. Comparative analysis using these companies’ market data, bond yields, and equity premiums can help estimate appropriate risk parameters for Cruise. Financial data providers like S&P Capital IQ, FactSet, or Thomson Reuters Eikon can facilitate access to this data.

Conclusion

In valuation scenarios for GM's Cruise subsidiary, a comprehensive approach combining multiple credible sources is essential to derive accurate WACC estimates and industry risk premia. The Bloomberg Terminal, Moody’s and S&P Global ratings, Duff & Phelps reports, and S&P Capital IQ provide detailed bond and market data essential for estimating the cost of capital components. Free platforms such as Yahoo Finance and FRED serve as initial research tools, while industry reports from consulting firms help contextualize and verify sector risk levels. Access to these sources, whether through institutional subscriptions or free online platforms, is crucial for thorough and credible valuation assessments in complex corporate valuation contexts.

References

  • Damodaran, A. (2023). Equity Risk Premiums — A Global Perspective. New York University, Stern School of Business. Retrieved from https://pages.stern.nyu.edu/~adamodar/
  • Bloomberg Terminal. (2023). Market and company-specific financial data. Available through institutional access.
  • Moody’s Investors Service. (2023). Corporate Bond Credit Ratings and Spreads. Retrieved from https://www.moodys.com
  • S&P Global Ratings. (2023). Industry Risk and Credit Spreads. Retrieved from https://www.spglobal.com
  • Refinitiv. (2023). Industry Risk Premiums and Valuation Data. Available via institutional subscription.
  • S&P Capital IQ. (2023). Financial Data and Market Valuations. Available through institutional access.
  • Federal Reserve Economic Data (FRED). (2023). U.S. Treasury Yields. Retrieved from https://fred.stlouisfed.org
  • SEC EDGAR Database. (2023). Company filings and disclosures. Retrieved from https://www.sec.gov/edgar
  • Deloitte. (2023). Automotive Industry Outlook and Sector Risk Analysis. Available at https://www2.deloitte.com
  • IHS Markit. (2023). Market Reports and Industry Data for Automotive Electric Vehicles. Available via subscription.

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