General Motors (GM) Gets Back on Track Following Q2 Earnings Slide

Business Insider

3 days ago

General Motors (GM) is recovering from a minor setback this week. The U.S. automaker announced highly anticipated earnings results on Tuesday, with revenues dipping 1.8% compared to the same period a year ago, and net income down a stark 35% in Q2. The news sent the stock reeling. After a sharp drop on Tuesday, GM stock has been steadily rebounding in the days that followed, according to TipRanks' chart data.
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Despite these setbacks, normalized earnings per share (EPS) exceeded expectations by $0.05, and revenue surpassed consensus by $1.13 billion. This suggests that the market may have been overly pessimistic. The key concern is that EBIT (earnings before interest and taxes) was weighed down by $1.1 billion in tariffs during the quarter, with management forecasting a full-year impact of $4–5 billion. Given the mixed picture, I'm maintaining a cautious Neutral stance on General Motors.
Tariffs Weigh on GM as EV Sales Accelerate
Margins in the automotive industry are being impacted by a 25% U.S. import tariff on vehicles and components. This has led to North America EBIT for GM being sharply down from 10.9% in Q2 2024 to 6.1%. Excluding tariffs, EBIT would probably be around 9%. Compounding these margin pressures is that the EV (electric vehicle) segment remains unprofitable, as it continues to incur high battery and manufacturing costs.
To combat tariffs, GM is investing $4 billion to shift vehicle production from Mexico/Korea back to the U.S., adding around 300,000 units per year. The goal here is to offset at least 30% of the tariff headwinds through domestic capacity expansion within 18 months.
On the positive front, EV sales surged 111% year-over-year to reach 46,300 units, and Chevrolet (owned by GM) is now the #2 EV brand in the world behind Tesla (TSLA). As a more concrete example of the success Chevrolet is experiencing, consider that its Chevrolet Equinox EV sold 17,420 units in Q2, representing a 1,620% year-over-year increase. However, the company's strong ICE (internal combustion engine) sales continue to underpin revenue.
Management aims to achieve EV profitability by early 2026 at the latest. GM must be making strategic, long-term investments in electric vehicles now, as the shift toward electric and autonomous mobility is inevitable over the coming decades. Encouragingly, GM is already gaining traction in the EV space.
GM Positioned as a Cheap Value Stock
EV sales will need to accelerate meaningfully. It's not enough for the segment to simply turn a profit — it needs to deliver standout performance. That requires patience from capital allocators, especially while internal combustion engine (ICE) vehicles still dominate GM's revenue.
Looking ahead, the rise of autonomous technology is poised to disrupt the entire automotive business model within the next five to ten years. For now, GM appears more likely to deliver stable, moderate returns rather than becoming a breakout value play — though markets, of course, can always surprise.
From a valuation perspective, GM's forward P/E ratio is 70% lower than the sector median, while its forward EPS growth is 46% higher. On the other hand, forward revenue growth lags behind the sector median by 48%, and its forward price-to-sales ratio is 70% lower. This suggests GM may be fundamentally mispriced — but mispricing doesn't guarantee correction. Markets are often driven more by sentiment and psychology than by cold facts.
It's also important to recognize that not all EV-related developments offer upside potential. The macroeconomic impact of tariffs is substantial, particularly for a vertically integrated manufacturer like GM with global operations. These cost pressures are a real drag on margins and dampen the likelihood of a near-term sentiment shift or catalyst-driven rally in the stock.
Is GM a Good Stock to Buy Now?
On Wall Street, GM has a consensus Moderate Buy rating based on 13 Buys, seven Holds, and two Sells. GM's average stock price target of $56.83 suggests a potential upside of ~7% over the next 12 months.
The consensus among analysts shows a conservative and realistic return horizon. In my opinion, we can expect a total return of approximately 15% from this stock over the next 12 months in a conservative bull case.
GM Is Great, but GM Stock Is Only Good
have a strong appreciation for GM as a company — from its iconic car brands to its proactive stance on the future of electric vehicles. But admiration alone doesn't make for a winning investment. A successful stock requires both solid fundamentals and strong market sentiment, and GM currently falls short on the latter. In investing, there's no room for emotion — decisions have to be driven by returns. While a 15% annual return is solid and may suggest some alpha, a broad S&P 500 (SPX) index fund offers similar performance with better diversification and lower risk. For now, I remain Neutral on GM stock.