General Motors’ Stock Takes a Hit After Earnings Report
A Sudden Reversal
General Motors’ (GM) stock has taken a surprising tumble following its latest earnings report on Tuesday. The auto giant’s shares plummeted as much as 11% on Tuesday, closing down 9%. This marked the worst day for the stock since March 2020. The downward trend continued on Wednesday, with the stock shedding another 1% by midday.
A Stellar Performance Prior to the Earnings Report
Before this sudden reversal, GM’s stock had been on a roll, gaining 50% in 2024. The company’s swift cost-cutting measures and aggressive stock repurchases had been driving its success. In fact, GM repurchased over $7 billion in stock in 2024 and more than $11 billion in 2023. These repurchases played a crucial role in boosting GM’s profits by reducing shares outstanding and supporting a higher stock price.
Analysts Weigh In
According to BofA auto analyst John Murphy, the lack of a new share buyback announcement was a significant factor in the stock’s decline. However, Murphy believes the market’s reaction was overdone. He cited several reasons why GM’s stock might remain under pressure in the near term, including policy uncertainty, negative mix in the fourth quarter, concerns about price declines, flat volume outlook, and the lack of new buyback authorization.
Tariffs Loom Large
Tariffs, in particular, pose a significant threat to auto sector stocks and their valuations. The auto industry is heavily reliant on imports from Mexico and Canada, with GM producing highly profitable pickup trucks in Mexico and relying on the country to manufacture EVs such as the Chevy Blazer and Cadillac Optiq. Any changes to tariffs could have a significant impact on GM’s bottom line.
GM’s Response to Tariff Uncertainty
GM chair and CEO Mary Barra expressed confidence in the company’s ability to navigate any potential tariff changes. “We’ve done a lot of scenario planning and we know the levers that we can pull to minimize any impact,” Barra stated. However, investors may have been unnerved by the assumption of a “stable” policy environment in GM’s guidance, which may not reflect the current reality.
Guidance and Outlook
GM’s full-year 2025 EPS guidance of $11 to $12 was ahead of consensus forecasts, but it didn’t assume any impact from additional tariffs. This lack of “kitchen-sink guidance” may have contributed to the stock’s decline. Despite this, Barra expressed confidence in the company’s ability to adapt to changing circumstances and maintain a strong manufacturing sector.
Leave a Reply