GM Earnings: China Problems Worsening While EV Volumes Rise and Combustion Business Strong

Key Morningstar Metrics for General Motors

• Fair Value Estimate: $77.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High

What We Thought of General Motors’ Q2 Earnings

General Motors GM reported good second-quarter results with adjusted diluted earnings per share of $3.06, up 60.2% year over year, beating the LSEG consensus of $2.75. The company raised 2024 adjusted EBIT and adjusted EPS guidance (the latter’s midpoint is now $10.00 instead of $9.50). However, the stock fell 6.4% on July 23, which we attribute to worsening China results and the higher EPS guidance mostly from adding back more special items than in previous guidance. We also calculate that adjusted EPS would have been about $2.53, excluding share repurchases.

We are lowering our fair value estimate to $77 per share from $84, primarily from lowering our total equity method income over 2024-28 by nearly $3.4 billion. Management in April said China’s first-quarter equity income loss of $106 million would turn into a profit for the second quarter. Still, significant competition from foreign and Chinese automakers led to negative $104 million in second-quarter China equity income. We expect a full-year loss for China, and until GM shows its restructuring efforts there overcoming competitive pressure and industry overcapacity, we model negative equity income for each year of 2024-28 for a cumulative total of $1.76 billion.

GM’s internal combustion business continues to post robust results, and the company’s total adjusted EBIT margin increased by 210 basis points to 9.3%. In contrast, adjusted automotive free cash flow fell 4.5% to $5.3 billion on higher capital spending and fewer add-backs for special items in this year’s quarter. Adjusted EBIT of $4.4 billion increased by 37.2% on $800 million volume tailwinds plus $300 million in pricing contribution and $1.3 billion in cost reductions. Mix was a $500 million headwind on higher GM North American electric vehicle volume. Total GMNA wholesales rose 8.4% on good demand for new crossovers like the Traverse, and the firm’s full-size US pickup truck sales increased about 5% in the first half of the year, gaining 350 basis points of share.