GM Earnings: Favorable Auto Tariff Policy Change Should Reduce 2025 Tariff Damage

Key Morningstar Metrics for General Motors

• Fair Value Estimate: $73.00
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High

What We Thought of General Motors’ Earnings

On April 29, General Motors GM reported first-quarter adjusted diluted EPS of $2.78, up 6.1% year over year and ahead of the $2.74 LSEG consensus. However, a looming US auto tariff policy change caused GM to delay its earnings call until May 1. It also withdrew 2025 guidance. GM China returned to profitability.

Why it matters: We expected GM to withdraw its guidance, due to multiple large tariffs affecting the US auto industry. GM said it’s updating 2025 guidance on May 1, but it’s unclear whether no 2025 guidance will be issued or if GM will instead lower the guidance it gave on Jan. 28.

• The Wall Street Journal reported that on April 29, the United States will just set a 25% foreign auto tariff, instead of stacking tariffs on top of other ones, such as the 25% tariff on steel and aluminum. We don’t fault GM for needing more time.
• GM China posted negative equity income for all four quarters of 2024, as Chinese automaker competition is greater than ever before. We’ve been skeptical of GM China’s turnaround efforts working, but $45 million of first-quarter equity income is a nice start to the turnaround effort.

The bottom line: We will review our GM fair value estimate after the April 29 tariff executive order and May 1 earnings call. Given that on March 30 we made an over-50% EPS reduction to estimate the 2025 tariff impact, a modest fair value increase is possible with fewer tariffs.

• The 25% foreign auto tariff in effect since April 3 should remain. A 25% parts tariff starts May 3, but the policy change is likely to permit automakers a 3.75% reimbursement on a US-made vehicle’s value in the first tariff year and 2.5% in the second year to let the automotive supply chain adjust.
• We think limiting tariffs to 25% may help German automakers more than GM and Ford, as these firms were already immune from the 25% tariff on Mexican products due to USMCA compliance.