GM Beats Expectations as Costs, an EV Retreat and a Flat Outlook Hit Its Stock
General Motors reported third-quarter results on Oct. 20 that beat market expectations, but its shares fell 6.8 percent. Investors weighed the costs beneath the earnings table, the retreat from electric vehicles, and a full-year outlook that did not move any higher more heavily than the results themselves.
GM’s third-quarter revenue rose 2.9 percent from a year earlier to $50.02 billion, above the $48.7 billion consensus estimate compiled by LSEG and reported by CNBC. Adjusted earnings per share came to $3.70, topping the $3.63 estimate and rising 32 percent from a year earlier.
Net income more than doubled to $3.3 billion from $1.3 billion a year earlier. Adjusted operating income rose 21.6 percent to $4.1 billion, lifting the margin to 8.2 percent. The North American business earned $3.6 billion in adjusted operating income, accounting for most of the total.
Full-size pickup trucks carried the results. According to the Detroit Free Press, GM’s full-size pickups posted record third-quarter sales, and sales to corporate fleet customers were also strong. Sales excluding electric vehicles rose slightly.
The first reason the stock fell anyway was the full-year outlook. GM narrowed its full-year adjusted operating income guidance to between $14.5 billion and $15.5 billion, but the midpoint stayed at $15 billion, unchanged from before. The midpoint of its adjusted earnings per share outlook, $13.25, fell short of the $13.42 market estimate. The quarter beat, but the year stood still.
The second burden was costs. According to Yahoo Finance, Chief Executive Mary Barra said on the earnings call that inflationary pressure is growing. GM expects raw material price increases alone to add about $2 billion in costs this year, and logistics costs and memory chip prices have also risen. Tariff costs remain at the low end of the expected range of $2.5 billion to $3.5 billion, but they have not disappeared. Benefits the company had expected from regulatory easing shrank to about $500 million.
The third was the content of sales. GM’s third-quarter U.S. sales fell 6 percent to 670,974 vehicles, and its market share slipped to 16.1 percent from 16.8 percent a year earlier. Adjusted profit from international operations shrank sharply to $28 million from $226 million a year earlier.
An EV Retreat After Skipping Hybrids
The biggest change showed up in electric vehicles. GM’s third-quarter U.S. EV sales plunged 61.7 percent from a year earlier to 25,473. EVs accounted for 3.8 percent of GM’s total U.S. sales, less than half the 9.4 percent share of a year earlier. Sales of the Chevrolet Equinox EV, once a mainstay, fell 92.4 percent.
GM said costs from restructuring its EV business have reached a cumulative $11.2 billion since the second half of last year. Of that, $7.4 billion was actual cash spending, with $238 million added in the third quarter alone. The company said the related cost recognition is effectively in its final stage.
The market moved toward the segment GM had skipped. Energy Information Administration data show hybrids accounted for a record share of about 16 percent of U.S. new vehicle sales this year, while the EV share fell to around 6 percent. Barra acknowledged on the earnings call that the hybrids U.S. consumers are buying are concentrated in small cars and minivans, segments GM does not compete in, but said the company would add hybrids across its core models going forward. She added that the program can be pursued without additional capital spending.
Shareholder returns grew instead. After completing an existing $6 billion share buyback, GM’s board approved a new $20 billion multiyear repurchase plan with no set expiration. Shares outstanding fell from 904 million at the end of last year to 849 million at the end of September. The autoworkers union, however, criticized the decision over capital allocation priorities.
GM executives projected that next year’s results will top this year’s if demand holds and cost pressures ease. The stock’s drop on the day of the announcement showed the market’s judgment that two assignments, costs and electric vehicles, are not finished yet, ahead of that promise.
