Wall Street was not impressed with General Motors even though the automaker posted big gains in second quarter profits, making it one of GM’s strongest quarterly earnings results, and explained that its slow ramp up of electric vehicle production is the fault of an automation equipment supplier.
Tuesday morning, GM’s stock price opened at $37.73 a share, peaking at $38.78 and closing at $37.92. It barely moved despite the automaker’s strong second-quarter results that beat analysts’ expectations. GM also is raising its guidance on what its full-year adjusted earnings before interest and taxes would be by $1 billion, assuming there is no UAW strike.
Still, on Wednesday the stock didn’t do much better. It opened at $37.96 and closed at $37.92.
In a note to investors Wednesday, Deutsche Bank Research Analyst Emmanuel Rosner wrote, “Yesterday’s negative market reaction to GM’s solid (second quarter) results and 2023 guidance raise, in our view, reflected some investor concerns that despite GM’s robust execution there is now limited upside left to (the second half) outlook in light of GM’s higher target, and potential downside risk heading into UAW negotiations.”
A ‘hold’ issued on GM stock
Specific concerns centered on GM’s slow EV launches, the potential for a strike amid the UAW negotiations, which officially started earlier this month, and the risk of economic turbulence bringing down the high vehicle prices that have supported GM’s big profits.
“We think the company’s path to outperforming its revised full-year targets has become somewhat more difficult, given its EV ramp up and uncertainty around the UAW negotiation. Importantly, even if a labor strike is avoided, history suggests that U.S. autos names could underperform materially in the run up to labor contract expiration,” Rosner wrote.
Rosner issued a hold rating on GM stock. That means he does not recommend buying or selling GM stock and expects GM’s stock price to perform with the market or at the same pace as comparable companies.
“Vehicle pricing has driven much of GM’s outperformance thus far and could remain a potential source of upside over the rest of the year,” Rosner said. “However, we see continued risk of price moderation heading into 2024, with the impact partly offset by additional restructuring savings from GM actions.”
GM CFO Paul Jacobson told reporters Tuesday that the company would be able to reduce its fixed costs more than anticipated, adding an additional $1 billion in cost savings on top of the $2 billion it had targeted to cut by the end of 2024.
But Seeking Alpha’s Bill Maurer also issued a hold rating on GM stock in a report Wednesday. Mauer cited GM’s announced 9-cent per share quarterly dividend as disappointing to some investors who had expected an increase given GM’s strong earnings.
There are those who remain bullish on GM stock
Maurer noted that many analysts are positive on GM shares, with the average stock price target at about $50.
One of those is Dan Ives, managing director and senior equity analyst at Wedbush Securities. Ives told the Detroit Free Press on Wednesday that “GM is a compelling name to own and (CEO Mary) Barra is leading the stalwart into its next phase of growth with EVs front and center.”
Ives added there is “some near term noise and the UAW tussle that we view as temporary as this quarter was a big step in the right direction despite the Street’s muted response.”
But Maurer wrote he is not positive at the moment because of “the potential for some U.S. economic weakness later this year and into 2024,” Maurer wrote. “Student loan repayments are about to restart, which could impact consumer spending quite a bit in the coming quarters.”
He wrote he’d be willing to change GM stock to a buy rating if the U.S. economy holds steady, or “if GM decided to give a little bit more income to investors.”
GM to increase EV production as it fixes a supplier problem
During GM’s call with analysts Tuesday, Barra said GM is still on target to produce “roughly 100,000 EVs” in the second half and grow from there. She said demand for EVs remains strong.
But, she added, “We have experienced unexpected delays in the ramp (up) because our automation equipment supplier has been struggling with delivery issues that are constraining module assembly capacity. We are working on multiple fronts to put this behind us as quickly as possible and things are already improving.”
As an example, she said GM has deployed its own manufacturing engineering teams to work on-site with GM’s automation supplier to improve delivery times to help GM get its battery modules assembled faster. GM produced its target of 50,000 EVs through the first half of this year.
But as the Free Press has reported, production of GM’s newest EVs is trickling out of factories despite GM saying its order banks are full. For the first half of this year, GM delivered 49 GMC Hummer EV pickups, which are made at Factory Zero located on the border of Detroit and Hamtramck. That’s down from 371 Hummer pickups delivered in the first half of 2022. GM delivered 2,316 Cadillac Lyriq SUVs in the first half. The Lyriq is assembled in the Spring Hill Assembly plant in Tennessee. There’s no year-ago comparison because GM started building the Lyriq in the third quarter last year.
Barra said that will change because GM has added manual module assembly lines, and “we’re installing more module capacity at our North American EV plants beginning with Factory Zero and Spring Hill this summer, Ramos Arizpe (Mexico) in the fall and CAMI (Canada) in the second quarter of next year. And to address pent-up demand among our Hummer EV customers, we are planning to increase production by thousands of units.”
But Rosner noted that even though GM remains “committed to the accelerated transition toward electrification, with 2023 being a pivotal year for this jump, we believe this could create risk to its near- and mid-term EV targets.”
Not so, said Ives: “This is a Rocky Balboa like comeback in process for GM around the EV Revolution with the naysayers set to be proven wrong and speaks to our bullish thesis on GM.”
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Contact Jamie L. LaReau: jlareau@freepress.com. Follow her on Twitter @jlareauan. Read more on General Motors and sign up for our autos newsletter. Become a subscriber.