GM investors plug into electrified growth story amid uncertain road

Ives rates GM’s stock at outperform.

GM’s third quarter earnings topped Wall Street estimates on the top and bottom lines. Revenue reached $48.76 billion, beating estimates of $44.69 billion. Adjusted earnings per share came in at $2.96, surpassing the $2.43 that was expected.

The automaker also raised its full-year outlook for the third time.

By comparison, in late October, Ford said it expected to hit the lower end of its full-year profit guidance. Ford guided to about $10 billion in earnings before interest and taxes this year, down from its prior range of $10 billion to $12 billion.

Some strength for GM comes courtesy of its crossover vehicles and a more keen eye toward EV profits, Bank of America analyst John Murphy said on Yahoo Finance’s Opening Bid podcast. He’s bullish on GM’s longer-term product portfolio, a mix of gas-powered trucks, cars, and EVs.

“Importantly, when we get to calendar years ‘27 and ‘28, they have their pickups and large SUVs, which are an unbelievable franchise,” said Murphy, adding that no competitor has achieved this feat. “We may actually hit 18 million units in ‘27 and ‘28. I think there’s a tremendous amount of upside in the cycle.”

Barra had sought to be all-electric by 2035 but has since softened the stance amid industrywide weakness in EV sales.

In July, GM delayed plans for a new Buick electric vehicle. Earlier this month, GM reached an agreement to sell its stake in a nearly completed EV battery plant in Lansing, Mich., to joint venture partner LG Energy Solution. GM expects to recoup its $1 billion investment in the plant.

“We still have a plan that allows us to get there, and so we’re still executing to that plan,” Barra said of the 2035 EV target. “But the most important thing is, and I’ve been saying this for a couple years now, is we’re going to be guided by the consumer. We want to give the consumer choice. What do they want to drive?”

Investors don’t want good money thrown after bad, either.

But it’s the uncertain return on EVs that continues to hold the stock’s valuation back, analysts tell Yahoo Finance.

Despite the year of big-time cost-cutting, stock buybacks, and upside earnings surprises, GM’s stock only trades on a 4.9 times forward price-to-earnings multiple, according to Yahoo Finance data. For perspective, the S&P 500 trades at 23 times forward earnings. Tesla clocks in at 126 times forward earnings.

Even Ford trades at 5.9 times forward earnings.

“Without a doubt as far as the earnings and EBITDA [earnings before interest, taxes, depreciation, and amortization] and free cash flow, we’re going to be at record levels for GM this year,” said Murphy.

“That’s the level that nobody thought would ever be consistently hit and it seems like they may be hitting that for the next few years.”

To stay in the good graces of investors, GM has made a flurry of key decisions late in the year that could shore up profits further.

Besides unloading the aforementioned Lansing EV plant, GM opted this month to restructure its China operations. The restructuring will lead to a $5 billion non-cash charge in the fourth quarter.

For years, GM has owned 50% of its joint venture with SAIC General Motors Corp.

“It was absolutely the right decision to make. And I think there is the chance over time that the rationalization of restructuring of China ultimately means an exit,” Murphy said.

Then, after a series of operational setbacks, GM pulled the plug on its Cruise robotaxi business. The company had invested $10 billion since acquiring Cruise in 2016.

GM said it would merge its Cruise robotaxi business with its in-house, consumer-facing autonomous and driving assist technology group in charge of its Supercruise software.

“I think we made some difficult decisions this year to set the business up for success because we’re trying to really be proactive and look at where’s the business going,” Barra said of the China and Cruise decisions.

More difficult decisions may be in the cards for 2025, if incoming President Donald Trump slaps 25% tariffs on key auto supplier countries Mexico and Canada.

The auto industry is responsible for 26% of imports from Mexico to the US and 12% from Canada, UBS researchers estimate. GM produces highly profitable pickup trucks in Mexico. It has five large assembly plants in the countries.

“Almost a third of GM’s vehicles are coming from outside the US or from mostly from Mexico in North America,” Murphy explained. “And there’s a question of how fast you can react to that. You don’t have a lot of extra capacity in the US to move.”

Barra is clear-eyed about the situation.

“[Tariffs are] going to have an impact depending on what it is, how long it is, it will impact prices, which, you know, I think could have an impact on demand. But I think we don’t want to get ahead of ourselves. I think right now is the time to communicate and make sure people understand the different impacts that will happen based on different decisions,” Barra said.

“And I have confidence that the new administration will look and do what’s best for the American consumer and best for continuing to have great jobs that the auto industry provides.”

Brian Sozzi is Yahoo Finance’s Executive Editor. Follow Sozzi on X @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email brian.sozzi@yahoofinance.com.

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