General Motors Surpasses Expectations in Q3 Results

Shares Surge Nearly 10% Following Strong Revenue Growth and Increased Guidance

General Motors (NYSE:GM) reported impressive Q3 2024 results, leading to a nearly 10% rise in stock price on Tuesday. This uptick has brought the total gains for the year to about 50%. The company saw a year-over-year revenue increase of 10.5%, reaching $48.8 billion, while net income attributed to stockholders surged to $3.1 billion, largely driven by a robust performance in North America. GM also raised its 2024 estimates, projecting adjusted operating profits between $14 billion and $15 billion, up from a prior forecast of $13 billion to $15 billion. Adjusted automotive free cash flow was upgraded to a range of $12.5 billion to $13.5 billion, compared to the previous forecast of $9.5 billion to $11.5 billion.

Several factors fueled growth in this quarter. GM expanded its U.S. market share, propelled by heightened demand for its trucks and SUVs. Retail sales experienced a nearly 3% rise, driven by GMC, Cadillac, and Buick. However, Chevrolet faced a decline in sales, particularly with the Silverado pickup and other models. In the electric vehicle sector, GM recorded peak deliveries of 32,095 units, a remarkable 60% increase year-over-year. The company capitalized on favorable pricing and reduced incentives, benefiting from strong consumer demand alongside a robust employment landscape in the U.S.

In the third quarter, GM’s average vehicle price exceeded $49,000, attributed to increased prices and fewer discounts. The company’s agreement with the United Auto Workers, completed last November, has had a limited impact on earnings so far. Even with rising costs, including a $700 million increase in warranty expenses and a $200 million hike in manufacturing costs, GM’s adjusted operating margins improved slightly to 8.4%, a rise of 30 basis points compared to the previous year.

Looking ahead, changes in U.S. monetary policy may favor GM and similar automotive firms. Recently, the Federal Reserve implemented its first rate cut in nearly four years, reducing the federal funds rate by 50 basis points to a 4.75% to 5% range. Further rate cuts could lower borrowing costs, potentially spurring demand for larger purchases, including vehicles.

Over the past four years, GM’s stock performance has fluctuated considerably, exhibiting greater volatility compared to the S&P 500. Returns for GM were 41% in 2021, a decline of 42% in 2022, and a modest increase of 8% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, comprising 30 stocks, consistently outperformed the S&P 500 during the same period. Given the current unpredictable macroeconomic conditions related to rate cuts and international issues, there’s uncertainty over GM’s trajectory in the coming year—whether it will replicate its challenges from 2022 and 2023 or see a robust recovery.

The current price target for GM is $48, approximately 10% below the existing market price. The company faces challenges in China—the largest automotive market—where it reported a loss of about $137 million last quarter. Plans to restructure operations in China may act as a short-term hurdle. Additionally, GM’s transition to electric vehicles (EVs) raises concerns. Recent success has mainly come from gasoline-powered vehicles, while the slowdown in the EV sector appears temporary.

In the long run, EVs are projected to dominate the market, and GM may find it challenging to keep pace with competitors. Tesla leads the U.S. EV market, and Chinese manufacturers are rapidly emerging with competitive, well-designed vehicles at affordable prices. Currently, GM’s EV sales constitute only about 4% of its U.S. sales. For more insights, see our analysis on General Motors Valuation: Expensive Or Cheap. Additionally, explore our dashboard on General Motors Revenue: How GM Makes Money.

[1] Returns as of 10/24/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.