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General Motors to Restructure in China: Time to Buy GM Now?
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General Motors (GM - Free Report) , once a dominant force in the Chinese automotive market, is contemplating a significant restructuring in an attempt to regain its footing in the world’s largest auto market. The company’s plans include job cuts and a strategic shift toward producing more upscale models and electric vehicles (EVs), underscoring the challenges it faces amid fierce competition from domestic Chinese automakers. With the company now embarking on a major revamp of its Chinese operations, let’s see if this is the right time to buy GM stock.
The Rise and Fall of GM in China
Not very long ago, GM was a leader in the Chinese automotive market. The U.S. legacy automaker was not just competing but thriving, with sales in China surpassing those in the United States in 2010. China was a key pillar of GM’s global strategy. In 2017, the company committed to launching 20 EVs in the country over five years, aligning with the Chinese government's ambitious EV goals.
However, the landscape has shifted dramatically since the COVID-19 pandemic. China’s strict pandemic restrictions, combined with the government’s strong push for EV adoption, have altered the competitive environment. Chinese automakers like BYD Co Ltd (BYDDY - Free Report) , NIO Inc. (NIO - Free Report) , and XPeng have marched ahead by focusing on affordable EVs, a segment where GM has struggled to keep pace. They are prioritizing market share over profit, producing vehicles at costs far below foreign competitors, including GM's China joint venture. As a result, GM's China operations have suffered amid intense competition and pricing pressure.
Last year, GM’s overall sales in China almost halved from the 2017 peak. In the last reported quarter, GM’s China sales plunged 29% to 373,000 vehicles. The company’s China operations have posted consecutive quarterly losses in 2024, with a $104 million loss reported in the three months ended Jun 30. What’s worse, GM’s CEO Mary Barra expects the rest of the year to remain challenging as the headwinds are not likely to ease. This has forced GM to rethink its strategy in China.
GM’s Strategic Overhaul in China
In response to its declining fortunes in China, GM is implementing a significant overhaul of its operations in the country. This restructuring includes job cuts, particularly in the research and development department. The company is also in discussions with its local partner, SAIC Motor Corp, to explore further capacity reductions and other structural changes.
A key part of GM’s new strategy is to focus on producing more premium models and EVs, targeting a segment where it believes it can compete more effectively. However, GM is not abandoning the lower end of the market entirely. Through its joint venture with SAIC and Wuling Motors, GM will continue to produce and export smaller, affordable EVs — an area where this JV has remained relatively strong despite the broader market challenges.
The GMNA Strength, Upbeat View & EV Optimism
While GM’s struggles in China are concerning, the company remains the top-selling automaker in the United States, with strong demand for its pickups and SUVs driving profits. It successfully increased its market share in the country to 16.6% in the second quarter of 2024, up 1.2 percentage points sequentially. GM’s North American sales surpassed pre-pandemic levels for the first time in four years. Operating margins were also high due to the ongoing optimization of production processes.
General Motors is also optimistic about its EV business for the long term, with the Ultium Drive system and battery plants in Ohio, Tennessee and Lansing expected to enhance its e-mobility capabilities in the long term.Thanks to scaled-up production, better assembly efficiency and lower battery costs, GM expects EVs to achieve variable profit by the fourth quarter of 2024.
Financially, GM is in a strong position. It is on track to achieve its $2 billion net cost reduction program by the end of 2024 and has sufficient cash reserves to handle short-term challenges, with total automotive liquidity of $35.8 billion as of Jun 30, 2024.
The company has raised its full-year guidance for 2024, with adjusted EBIT expected to be between $13 billion and $15 billion and automotive free cash flow projected at $9.5 billion to $11.5 billion.
Investment Considerations: Is GM a Buy?
Year to date, GM is up 21%. It has handily outperformed its industry, sector and S&P 500.
YTD Price Performance
Image Source: Zacks Investment Research
From a valuation perspective, General Motors is trading cheap. Going by its price/earnings ratio, the company is trading at forward earnings multiple of 4.37, below its median of 5.91 over the last five years. It is also trading at a significant discount compared to the industry. The company has a Value Score of A.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for GM’s 2024 sales and EPS implies a 4% and 29.4% uptick, respectively, on a year-over-year basis. Encouragingly, GM is also witnessing northbound earnings estimate revisions for the current and the next year over the past 30 days.
Image Source: Zacks Investment Research
General Motors' overhaul of its Chinese operations is a bold move in response to a rapidly changing market. Despite the company’s ongoing challenges in China, its strong performance in the United States, strategic focus on cost reduction, EV innovation, attractive valuation and positive estimate revisions make us bullish on the stock.
Image: Bigstock
General Motors to Restructure in China: Time to Buy GM Now?
General Motors (GM - Free Report) , once a dominant force in the Chinese automotive market, is contemplating a significant restructuring in an attempt to regain its footing in the world’s largest auto market. The company’s plans include job cuts and a strategic shift toward producing more upscale models and electric vehicles (EVs), underscoring the challenges it faces amid fierce competition from domestic Chinese automakers. With the company now embarking on a major revamp of its Chinese operations, let’s see if this is the right time to buy GM stock.
The Rise and Fall of GM in China
Not very long ago, GM was a leader in the Chinese automotive market. The U.S. legacy automaker was not just competing but thriving, with sales in China surpassing those in the United States in 2010. China was a key pillar of GM’s global strategy. In 2017, the company committed to launching 20 EVs in the country over five years, aligning with the Chinese government's ambitious EV goals.
However, the landscape has shifted dramatically since the COVID-19 pandemic. China’s strict pandemic restrictions, combined with the government’s strong push for EV adoption, have altered the competitive environment. Chinese automakers like BYD Co Ltd (BYDDY - Free Report) , NIO Inc. (NIO - Free Report) , and XPeng have marched ahead by focusing on affordable EVs, a segment where GM has struggled to keep pace. They are prioritizing market share over profit, producing vehicles at costs far below foreign competitors, including GM's China joint venture. As a result, GM's China operations have suffered amid intense competition and pricing pressure.
Last year, GM’s overall sales in China almost halved from the 2017 peak. In the last reported quarter, GM’s China sales plunged 29% to 373,000 vehicles. The company’s China operations have posted consecutive quarterly losses in 2024, with a $104 million loss reported in the three months ended Jun 30. What’s worse, GM’s CEO Mary Barra expects the rest of the year to remain challenging as the headwinds are not likely to ease. This has forced GM to rethink its strategy in China.
GM’s Strategic Overhaul in China
In response to its declining fortunes in China, GM is implementing a significant overhaul of its operations in the country. This restructuring includes job cuts, particularly in the research and development department. The company is also in discussions with its local partner, SAIC Motor Corp, to explore further capacity reductions and other structural changes.
A key part of GM’s new strategy is to focus on producing more premium models and EVs, targeting a segment where it believes it can compete more effectively. However, GM is not abandoning the lower end of the market entirely. Through its joint venture with SAIC and Wuling Motors, GM will continue to produce and export smaller, affordable EVs — an area where this JV has remained relatively strong despite the broader market challenges.
The GMNA Strength, Upbeat View & EV Optimism
While GM’s struggles in China are concerning, the company remains the top-selling automaker in the United States, with strong demand for its pickups and SUVs driving profits. It successfully increased its market share in the country to 16.6% in the second quarter of 2024, up 1.2 percentage points sequentially. GM’s North American sales surpassed pre-pandemic levels for the first time in four years. Operating margins were also high due to the ongoing optimization of production processes.
General Motors is also optimistic about its EV business for the long term, with the Ultium Drive system and battery plants in Ohio, Tennessee and Lansing expected to enhance its e-mobility capabilities in the long term.Thanks to scaled-up production, better assembly efficiency and lower battery costs, GM expects EVs to achieve variable profit by the fourth quarter of 2024.
Financially, GM is in a strong position. It is on track to achieve its $2 billion net cost reduction program by the end of 2024 and has sufficient cash reserves to handle short-term challenges, with total automotive liquidity of $35.8 billion as of Jun 30, 2024.
The company has raised its full-year guidance for 2024, with adjusted EBIT expected to be between $13 billion and $15 billion and automotive free cash flow projected at $9.5 billion to $11.5 billion.
Investment Considerations: Is GM a Buy?
Year to date, GM is up 21%. It has handily outperformed its industry, sector and S&P 500.
YTD Price Performance
From a valuation perspective, General Motors is trading cheap. Going by its price/earnings ratio, the company is trading at forward earnings multiple of 4.37, below its median of 5.91 over the last five years. It is also trading at a significant discount compared to the industry. The company has a Value Score of A.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for GM’s 2024 sales and EPS implies a 4% and 29.4% uptick, respectively, on a year-over-year basis. Encouragingly, GM is also witnessing northbound earnings estimate revisions for the current and the next year over the past 30 days.
Image Source: Zacks Investment Research
General Motors' overhaul of its Chinese operations is a bold move in response to a rapidly changing market. Despite the company’s ongoing challenges in China, its strong performance in the United States, strategic focus on cost reduction, EV innovation, attractive valuation and positive estimate revisions make us bullish on the stock.
GM currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.