Stock of General Motors Jumps After Big Profit Beat, Progress on Ev Profitability

Shares of General Motors (GM) surged to a multiyear high on Tuesday after the automaker posted impressive third-quarter earnings, which significantly exceeded expectations, and raised its full-year outlook. The strong results were driven by improvements in electric vehicle (EV) profitability and a better performance in China.

‍

In a letter to shareholders, GM's Chief Executive Officer, Mary Barra, noted that the company had grown its U.S. retail market share, benefiting from higher-than-average pricing, well-managed inventories, and lower-than-average incentives. Barra emphasized that GM was able to maintain strong pricing and inventory control, which contributed to its success.

‍

During the post-earnings call with analysts, Chief Financial Officer Paul Jacobson highlighted that GM's incentives in the U.S. were 2.4 percentage points below the industry average, an improvement from the prior year when they were just 1 percentage point below the average. This improvement in managing incentives reflects GM's ability to control costs and maintain strong pricing in a competitive market.

‍

GM’s stock soared by 8.2% in morning trading, its highest level since February 2022. The gains were further boosted by the opening bell, setting the stock on track for its largest one-day increase since November 2023, when it jumped 9.4%. The stock's rise helped GM lead the gainers in the S&P 500 index.

‍

Barra highlighted the company's progress in China, where sales improved from the second quarter and dealer inventory saw a significant reduction. Additionally, she confirmed that GM remains on course to meet its 2024 targets for EV production and profitability, reinforcing the company’s strategic focus on electrification.

‍

For the third quarter, GM reported a net income of $3.056 billion, or $2.68 per share, compared to $3.064 billion, or $2.20 per share, in the same period the previous year. While net income slightly declined, earnings per share rose due to a reduction in the number of outstanding shares, which dropped to 1.12 billion from 1.37 billion. This reduction was driven by GM’s repurchase of $1 billion worth of common stock during the quarter, which bolstered earnings per share.

‍

Excluding one-time items, GM posted adjusted earnings of $2.96 per share, well above the FactSet consensus estimate of $2.38 per share. This marked GM’s ninth consecutive quarter of exceeding earnings expectations, with the beat margin being the largest since the first quarter of 2023, when earnings exceeded expectations by 28%.

‍

Revenue for the quarter increased by 10.5% to $48.76 billion, surpassing the FactSet consensus estimate of $44.67 billion. This strong revenue growth reflects GM’s ability to capture higher market share and maintain strong pricing in key regions.

‍

Dan Levy, an analyst at Barclays, noted that GM’s strong earnings and revised guidance reaffirm the company’s resilience and earnings strength. Levy emphasized that GM's outlook for 2024 sets a high bar, with expectations for earnings before interest and taxes (EBIT) to remain consistent with this year. He added that if GM can achieve flat EBIT in the coming year, the stock could see significant gains.

‍

Meanwhile, Garrett Nelson, an analyst at CFRA, raised his price target for GM’s shares by $3 to $38. Despite the positive outlook, he expressed some caution, highlighting potential risks related to GM’s ability to ramp up production of its EV models using the Ultium platform. Nelson believes that while GM’s sales exceeded expectations, skepticism remains around its near-term execution.

‍

GM’s total global vehicle sales declined by 8.8% to 1.48 million vehicles, with market share slipping to 6.7% from 7.3%. In North America, vehicle sales fell 0.8% to 790,000 units, although market share slightly increased to 15.9% from 15.8%. In the U.S., GM sold 660,000 vehicles, a 2.1% decrease from the previous year, while the overall auto industry experienced a 2.4% decline. This resulted in a slight increase in U.S. market share to 16.53% from 16.48%.

‍

In China, GM sold 426,000 vehicles in the third quarter, representing a 6.5% market share. This was an improvement from the 373,000 vehicles sold in the second quarter, but a decline from the 542,000 vehicles sold a year ago, when GM held an 8.3% market share.

‍

Barra pointed out that GM’s progress in EV profitability is due to strategic investments in a dedicated EV platform, U.S. battery cell manufacturing, and flexible assembly capacity. These investments have helped reduce costs, giving GM a competitive edge in the rapidly growing EV market. Barra noted that GM holds the No. 2 EV sales position for the quarter, with its share of the EV market approaching 10%. She also highlighted that more than 60% of GM's EV buyers are switching from other brands, showcasing strong demand for GM's electric models.

‍

In China, new energy vehicles, including plug-in hybrids, outsold internal combustion vehicles for the first time, reflecting the growing shift toward electrification in one of GM's key markets. Additionally, GM has successfully reduced dealer inventory by more than 50% since the start of the year, allowing the company to better manage pricing and control costs.

‍

Looking ahead, GM raised its full-year guidance for adjusted earnings per share to a range of $10.00 to $10.50, up from the previous range of $9.50 to $10.50. The company also increased its forecast for adjusted automotive free cash flow to $12.5 billion to $13.5 billion, from an earlier range of $9.5 billion to $11.5 billion.

Year-to-date, GM’s stock has risen 47.4%, significantly outperforming the S&P 500, which has advanced 22.4% during the same period.

‍