U.S. legacy automaker General Motors (GM) reported a mixed bag of results for the second quarter of 2024 on Jul 23, eliciting a varied response from investors. Despite surpassing earnings and sales expectations and updating its full-year outlook positively, GM’s stock plunged by 11%. The disappointment stemmed from challenges faced in China, setbacks in the electric vehicle (EV) space, and a substantial charge for its Cruise autonomous vehicle (AV) unit.
Key Insights from GM’s Q2 Report
GM’s stellar financials included an earnings per share of $3.06, beating analysts’ estimates by 14.6%, and revenue of $47.97 billion, reflecting a 5.63% increase from the previous year. The robust performance was predominantly driven by GM North America (GMNA).
The company raised its outlook for 2024, with adjusted EBIT and EPS forecasts indicating growth compared to previous estimates. GM’s share buyback program, amounting to $1 billion in the second quarter, coupled with an additional $6 billion authorization in June, demonstrated confidence in its financial stability.
Despite these positives, GM faced headwinds in China, where unexpected losses continued into the second quarter, sparking concerns among investors. The company’s EV plans also experienced a slowdown, with delays in factory openings and model launches.
The Cruise AV unit confronted challenges, leading to a substantial charge related to its self-driving car project, Origin. However, Cruise pivoted its strategy toward utilizing GM’s existing Chevrolet Bolt for autonomous taxi services.
Evaluating GM’s Prospects
GM’s restructuring efforts in China, combined with ongoing challenges in the EV space, raise concerns in the short term. However, the company’s strong position in the U.S. market, driven by demand for quality trucks and SUVs, underpins its profit growth.
GM’s ambitious EV lineup, including models like Cadillac Celestiq and Chevrolet Silverado EV, reflects its commitment to future mobility. The company’s cost reduction initiatives and robust cash reserves position it well to navigate current challenges.
From a valuation standpoint, GM appears undervalued, trading at a discount compared to its historical multiples and industry peers. Analysts predict an uptick in EPS for 2024 and 2025, with positive estimate revisions supporting GM’s growth narrative.
Investment Outlook for GM
While GM’s recent stock dip may sway some investors, its year-to-date performance remains strong, outperforming industry benchmarks. With a favorable valuation, positive earnings outlook, and a focus on EV and AV advancements, GM presents an attractive long-term investment opportunity.
Considering GM’s compelling fundamentals and growth trajectory, investors could find solace in the company’s resilience amidst market fluctuations. GM’s current Zacks Rank #2 (Buy) further reinforces its potential for sustained growth in the automotive sector.