General Motors (NYSE:GM)
Despite a better-than-expected first quarter and an increased earnings forecast, shares of General Motors (NYSE:GM) fell on Tuesday.
The carmaker headquartered in Detroit increased its American market share by 1.3% and posted better-than-expected earnings and revenue. The automaker has also revised its full-year EBIT prediction, pegged at $10.5B to $12.5B but is now expected to be between $11.0B and $13B. Compared to the prior expectation of $5B to $7B, GM now anticipates reporting an adjusted automotive free cash flow of $5.5B to $7.5B.
In light of the encouraging findings, research firm CFRA upgraded the company from its prior “underperform” status. The brokerage increased its price estimate for the stock from $31 to $35 and moved it from the Sell to Hold category.
“We continue to believe that GM’s transition to electric vehicles will have a big effect on earnings in the short term. We have doubts about its production ramp-up plan and ultimate demand for its EV models. However, the company continues to benefit from better demand for its vehicle brands, as U.S. sales of Buick (+99% Y/Y), Cadillac (+29%), and Chevy (+16%) were all up strongly in Q1,” the upgrade note explained.
Evercore ISI shared optimism over the outcomes; the analyst firm praised the management team’s ability to successfully implement a price increase and outperform the competition. Analysts at the company believe the findings “complicate bearish positioning/narratives” on the GM stock.
Certainly, several sell-side analysts had their doubts. For instance, Wells Fargo kept its rating at the same level as a Sell.
The increase in the cost of battery raw materials has dampened optimism about the financial viability of BEVs and, by extension, GMs. Additionally, equities analyst Colin Langan said that “automakers will likely be forced to sell BEVs to meet targets” due to US fuel efficiency laws. Overall, we see few near-term catalysts as the expected volume gains are likely offset by the normalization of new car prices and rising input costs. We also anticipate negative effects from the UAW contract discussions in 2023.
During a call with investors on Tuesday morning, the business acknowledged the extra expenses inherent in its EV drive and the “aggressive measures” it must take to reduce key structural costs essential to compete in China. Approximately 75% of planned investments will go toward EVs over the next several years.
We have said that EVs account for around 75% of CAPEX. We still have certain ICE mid-cycle cars in development, which adds to our capital and engineering costs. “Most of our engineering and funding is being put into the electric vehicle side,” CFO Paul Jacobson told investors. Over the following five years, as we complete the change, that number will naturally increase to 100%.
In Tuesday’s afternoon session, GM stock moved 4.05%.
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