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Should You Buy, Hold, or Sell GM Stock Post its Investor Day?
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U.S. legacy automaker General Motors (GM - Free Report) held its Investor Day yesterday, offering insights into its ongoing transformation and future outlook. While the automaker is making strides in electric vehicle (EV) technology and cost efficiency, which bode well for the long term, short-term headwinds like slower EV adoption and rising costs persist. Investors are now wondering how they should approach GM stock. Before discussing what you should do with GM stock now, let’s break down the key takeaways from the company’s Investor Day.
Key Takeaways From GM Investor Day
Dropping the "Ultium" Name: A Branding Shift
One of the major surprises from the Investor Day was GM’s decision to drop the "Ultium" branding for its EV batteries and related technology. The company has spent years promoting the Ultium brand as the core of its EV transformation. However, GM’s CEO Mary Barra emphasized that while the name would go, the underlying technology and battery advancements would remain critical to the company’s future.
This decision reflects a shift in how GM approaches its EV strategy, focusing more on product performance and cost reduction rather than flashy branding.
Battery Cell Development Center: A Long-Term Bet on EVs
As part of its EV roadmap, GM announced plans to build a battery cell development center at its Global Technical Center in Warren, MI. While the project won’t break ground until sometime before 2027, this investment highlights GM’s long-term commitment to solidifying its position as a leader in battery technology.
The development center is expected to play a crucial role in GM’s efforts to drive down battery costs—a key factor in making EVs more affordable and profitable. Executives noted that GM is already seeing a positive trajectory in battery cost reductions, particularly as it scales up production at its Ultium Cells plants.
EV Profitability: Light at the End of the Tunnel?
One of the more encouraging updates was GM’s forecast that its EV losses have likely peaked. While the company did not say that its EV business will become profitable by 2025, it does expect to reduce EV losses by $2 billion to $4 billion by 2025, driven largely by improvements in battery production efficiency and economies of scale. GM is on track to achieve positive variable profit on its EVs by the end of 2024, excluding fixed costs — a significant milestone for the auto biggie.
However, GM was more cautious in discussing its long-term profitability goals for EVs, including its previous target of mid-single-digit EV margins by 2025. Investors should take note of the company's progress but also remain aware of the challenges in achieving profitability across its broader EV portfolio.
Mixed EV Production Targets and a Slower Ramp-Up
GM's EV production plans have been revised downward from earlier projections. In June, the company cut its North American EV production target from up to 300,000 units to a range of 200,000 to 250,000 for 2023. GM notified that it is still on track to meet the lower end of this range, reflecting a slower-than-expected consumer adoption of EVs.
This slower ramp-up, coupled with GM’s decision to delay the reopening of its Orion Assembly plant until mid-2026, underscores the ongoing challenges in the EV market. GM, like many automakers, is grappling with lower-than-expected demand for EVs, affordability concerns and increased competition, particularly from Chinese automakers.
Strong Performance in Gas-Powered Vehicles
GM continues to perform well in its traditional gas- and diesel-powered vehicle segments. GM’s CEO Mary Barra said that the company will be launching eight new or redesigned gasoline-powered SUVs in North America over the next year. These vehicles remain a critical part of GM’s strategy, providing steady cash flow as the company transitions to EVs.
With U.S. consumers still heavily reliant on gasoline-powered trucks and SUVs, GM is well-positioned to capitalize on demand in this segment while balancing its push toward electrification.
Challenges in China, Little Details on Turnaround Strategy
GM’s performance in China, once a major profit center, has been lackluster in recent years. In the first two quarters of this year, GM posted a $210 million loss in the region, largely due to fierce competition from both local and international automakers. On the last earnings call, Barra notified that the rest of the year will remain challenging as the headwinds are not likely to ease.
While the CEO reassured investors yesterday that GM is taking steps to restructure its operations in China, details on the restructuring efforts remain sparse. The company is working on reducing inventories and boosting sales, but challenges remain, particularly as local competitors ramp up production of more affordable EVs.
GM’s Stock Performance and Valuation
Year to date, GM stock has surged 28%, outperforming both the broader market and industry peers like Ford (F - Free Report) , which has seen its stock decline by 14% over the same period. GM stock is hovering near its 52-week high of $50.50, currently trading around $46.
YTD Price Performance
Image Source: Zacks Investment Research
From a valuation standpoint, GM appears slightly pricier than Ford. GM is trading at a forward sales multiple of 0.29X. F’s forward sales multiple sits at 0.25X.
Image Source: Zacks Investment Research
GM's Short-Term Challenges Amid Long-Term Promise
GM has delivered solid financial results lately, beating earnings estimates in each of the trailing four quarters.
Image Source: Zacks Investment Research
Find the latest earnings estimates and surprises on Zacks Earnings Calendar.
Despite GM’s long-term potential, the company faces several near-term challenges. GM expects a pricing headwind of 1-1.5% year over year in the second half of 2024, which could impact profitability. Additionally, GM forecast approximately $1 billion in costs for the remainder of the year, driven by higher marketing expenditures and elevated commodity prices, particularly for copper and aluminum. The company’s self-driving unit, Cruise, is also incurring massive losses. GM chief financial officer Paul Jacobson said on the investor day that the business is expected to lose up to $2 billion in 2025. These factors, combined with struggles in China, may weigh on GM’s stock in the short term.
For investors with a shorter investment horizon, this could be an opportunity to lock in profits, particularly as the stock nears its recent highs.
Conclusion
For long-term investors, GM remains a solid bet. The company’s robust lineup of gas-powered vehicles, coupled with its improving EV strategy, positions it well for sustained growth. As GM continues to reduce costs and scale up its EV production, the automaker is on track to deliver value over the long run.
However, for short-term investors, GM’s stock has already seen significant gains this year. With near-term risks such as rising costs, pricing pressure, and slower-than-expected EV growth, those looking for quicker returns may want to consider taking profits now, ahead of the company’s third-quarter earnings report on Oct. 22.
General Motors currently carries a Zacks Rank #4 (Sell).
Image: Bigstock
Should You Buy, Hold, or Sell GM Stock Post its Investor Day?
U.S. legacy automaker General Motors (GM - Free Report) held its Investor Day yesterday, offering insights into its ongoing transformation and future outlook. While the automaker is making strides in electric vehicle (EV) technology and cost efficiency, which bode well for the long term, short-term headwinds like slower EV adoption and rising costs persist. Investors are now wondering how they should approach GM stock. Before discussing what you should do with GM stock now, let’s break down the key takeaways from the company’s Investor Day.
Key Takeaways From GM Investor Day
Dropping the "Ultium" Name: A Branding Shift
One of the major surprises from the Investor Day was GM’s decision to drop the "Ultium" branding for its EV batteries and related technology. The company has spent years promoting the Ultium brand as the core of its EV transformation. However, GM’s CEO Mary Barra emphasized that while the name would go, the underlying technology and battery advancements would remain critical to the company’s future.
This decision reflects a shift in how GM approaches its EV strategy, focusing more on product performance and cost reduction rather than flashy branding.
Battery Cell Development Center: A Long-Term Bet on EVs
As part of its EV roadmap, GM announced plans to build a battery cell development center at its Global Technical Center in Warren, MI. While the project won’t break ground until sometime before 2027, this investment highlights GM’s long-term commitment to solidifying its position as a leader in battery technology.
The development center is expected to play a crucial role in GM’s efforts to drive down battery costs—a key factor in making EVs more affordable and profitable. Executives noted that GM is already seeing a positive trajectory in battery cost reductions, particularly as it scales up production at its Ultium Cells plants.
EV Profitability: Light at the End of the Tunnel?
One of the more encouraging updates was GM’s forecast that its EV losses have likely peaked. While the company did not say that its EV business will become profitable by 2025, it does expect to reduce EV losses by $2 billion to $4 billion by 2025, driven largely by improvements in battery production efficiency and economies of scale. GM is on track to achieve positive variable profit on its EVs by the end of 2024, excluding fixed costs — a significant milestone for the auto biggie.
However, GM was more cautious in discussing its long-term profitability goals for EVs, including its previous target of mid-single-digit EV margins by 2025. Investors should take note of the company's progress but also remain aware of the challenges in achieving profitability across its broader EV portfolio.
Mixed EV Production Targets and a Slower Ramp-Up
GM's EV production plans have been revised downward from earlier projections. In June, the company cut its North American EV production target from up to 300,000 units to a range of 200,000 to 250,000 for 2023. GM notified that it is still on track to meet the lower end of this range, reflecting a slower-than-expected consumer adoption of EVs.
This slower ramp-up, coupled with GM’s decision to delay the reopening of its Orion Assembly plant until mid-2026, underscores the ongoing challenges in the EV market. GM, like many automakers, is grappling with lower-than-expected demand for EVs, affordability concerns and increased competition, particularly from Chinese automakers.
Strong Performance in Gas-Powered Vehicles
GM continues to perform well in its traditional gas- and diesel-powered vehicle segments. GM’s CEO Mary Barra said that the company will be launching eight new or redesigned gasoline-powered SUVs in North America over the next year. These vehicles remain a critical part of GM’s strategy, providing steady cash flow as the company transitions to EVs.
With U.S. consumers still heavily reliant on gasoline-powered trucks and SUVs, GM is well-positioned to capitalize on demand in this segment while balancing its push toward electrification.
Challenges in China, Little Details on Turnaround Strategy
GM’s performance in China, once a major profit center, has been lackluster in recent years. In the first two quarters of this year, GM posted a $210 million loss in the region, largely due to fierce competition from both local and international automakers. On the last earnings call, Barra notified that the rest of the year will remain challenging as the headwinds are not likely to ease.
While the CEO reassured investors yesterday that GM is taking steps to restructure its operations in China, details on the restructuring efforts remain sparse. The company is working on reducing inventories and boosting sales, but challenges remain, particularly as local competitors ramp up production of more affordable EVs.
GM’s Stock Performance and Valuation
Year to date, GM stock has surged 28%, outperforming both the broader market and industry peers like Ford (F - Free Report) , which has seen its stock decline by 14% over the same period. GM stock is hovering near its 52-week high of $50.50, currently trading around $46.
YTD Price Performance
Image Source: Zacks Investment Research
From a valuation standpoint, GM appears slightly pricier than Ford. GM is trading at a forward sales multiple of 0.29X. F’s forward sales multiple sits at 0.25X.
Image Source: Zacks Investment Research
GM's Short-Term Challenges Amid Long-Term Promise
GM has delivered solid financial results lately, beating earnings estimates in each of the trailing four quarters.
Image Source: Zacks Investment Research
Find the latest earnings estimates and surprises on Zacks Earnings Calendar.
Despite GM’s long-term potential, the company faces several near-term challenges. GM expects a pricing headwind of 1-1.5% year over year in the second half of 2024, which could impact profitability. Additionally, GM forecast approximately $1 billion in costs for the remainder of the year, driven by higher marketing expenditures and elevated commodity prices, particularly for copper and aluminum. The company’s self-driving unit, Cruise, is also incurring massive losses. GM chief financial officer Paul Jacobson said on the investor day that the business is expected to lose up to $2 billion in 2025. These factors, combined with struggles in China, may weigh on GM’s stock in the short term.
For investors with a shorter investment horizon, this could be an opportunity to lock in profits, particularly as the stock nears its recent highs.
Conclusion
For long-term investors, GM remains a solid bet. The company’s robust lineup of gas-powered vehicles, coupled with its improving EV strategy, positions it well for sustained growth. As GM continues to reduce costs and scale up its EV production, the automaker is on track to deliver value over the long run.
However, for short-term investors, GM’s stock has already seen significant gains this year. With near-term risks such as rising costs, pricing pressure, and slower-than-expected EV growth, those looking for quicker returns may want to consider taking profits now, ahead of the company’s third-quarter earnings report on Oct. 22.
General Motors currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here