To The Moon

$General Motors(GM)$

Earning Overview

In the fourth quarter of 2024, General Motors reported a loss of $2.96 billion, not quite the $3 billion it initially seemed. This loss was largely due to a $4 billion charge related to restructuring its troubled business in China. However, GM did achieve a record adjusted global profit and a strong performance in North America for the year, although it's likely that this trend won’t continue into 2025.

To put it in perspective, GM shifted from making $2.1 billion in net income in Q4 2023 to a loss of $2.96 billion in Q4 2024. Despite that, adjusted earnings before interest and taxes (EBIT) surged by 43% to $2.5 billion, driven by cost-saving measures and higher sales volumes, with revenue climbing 11% to $47.7 billion.

However, even with these positive numbers, GM's revenue growth doesn't paint the full picture. For 2024, GM's net income dropped 41% to $6 billion, although adjusted pre-tax earnings rose 21% to a record $14.9 billion, and revenue increased by 9.1% to $187 billion. Revenue figures can be misleading because, as the saying goes, a company could have massive revenue but still be losing money overall—so focusing only on that metric isn't always meaningful.

In 2024, GM's CEO Mary Barra expressed optimism, noting the company's strong portfolio of full-size pickups, redesigned SUVs, and expanding electric vehicle offerings. Despite the challenges, GM’s performance remained solid, though the road ahead may be tougher, especially considering the restructuring efforts and other financial pressures.

Fundamental Analysis

Before I continue, I want to highlight that 2025 will be a tough year for General Motors for a few reasons, one of the biggest being Trump's tariffs on cars made in Mexico and Canada. GM operates factories in both countries, and with a 25% tariff on vehicles from these plants, it will make those vehicles less competitive in the U.S. market. GM won’t be able to make a profit if they keep selling cars under those conditions—especially since margins in the auto industry are already thin. So, if the tariffs are enforced, it will create significant challenges for GM.

However, there are also other factors outside of the tariffs that could cause difficulties. On the positive side, GM’s North American pre-tax profit rose 13% to $2.3 billion in the fourth quarter and 18% to a record $14.5 billion for the full year. Employees represented by the UAW will receive profit-sharing checks up to $14,500, the highest amount GM has ever paid, which is equivalent to over two months’ extra wages. Despite that, GM’s stock fell more than 9% in morning trading, signaling a lack of confidence in the company’s future outlook.

A key reason for this stock drop was that special items, totaling $5.2 billion, turned GM’s fourth-quarter adjusted profit into a net loss. The largest charge was a roughly $4 billion expense for restructuring and writing down equity in its 50/50 joint venture with China’s SAIC Motor Corporation, a state-owned car conglomerate. GM had warned about this charge in December. In addition, GM took $643 million in charges for 2023 buyouts of Buick dealers and $520 million to end funding for its Cruise Robo-taxi operations. These charges dragged GM’s full-year earnings well below its previous guidance of $10.4 billion to $11.1 billion.

On a more positive note, GM’s adjusted pre-tax earnings for 2024 finished at the top end of its expected range, between $14 billion and $15 billion. Looking ahead to 2025, GM projects net income of $11.2 billion to $12.5 billion and adjusted earnings before interest and taxes of $13.7 billion to $15.7 billion. However, these projections assume that North American policy will remain stable, without the impact of Trump’s tariffs. If those tariffs go into effect, particularly on the cars GM makes most profit from in Mexico, those numbers will likely change.

Guidance

Inventory Reduce

Mary Barra recently said that GM believes President Trump wants to implement policies and regulations that will strengthen, not harm, domestic manufacturers like GM, and that the company looks forward to continuing to work with the administration to find a balanced approach. However, I doubt that Donald Trump will be particularly swayed by Mary Barra’s stance. General Motors and Ford have not been aligned with Trump in the past, and there’s no real incentive for him to cater to their requests. Trump is no longer running for re-election, so he can act freely without worrying about the political consequences of appeasing GM or Ford.

Barra also commented on potential tariffs, saying GM is preparing its supply chain, logistics network, and assembly plans to mitigate any near-term impacts, and that many of the actions GM is taking have minimal or no cost. However, she emphasized that GM is cautious about spending significant capital without clarity on the situation.

Another major issue GM is likely not highlighting to investors is that none of the top 10 "most American-made" cars are General Motors vehicles. The list is dominated by Teslas, with a Ford and a few Hondas, but no GM models, not even GMCs or Cadillacs. This is important because a large portion of the parts in GM vehicles come from countries like China, Mexico, and South Korea, which means tariffs could severely impact their profitability. And if Elon Musk has any influence over Trump, he might push for tariffs on parts made outside the U.S., which could hurt GM significantly, while Tesla would be less affected since most of its parts, including batteries, are sourced from within the U.S.

Bernstein Research recently issued a note stating that GM’s 2025 guidance leaves little room for error and doesn’t account for potential regulatory changes in the U.S., especially regarding tariffs and EV support. It’s shaping up to be a difficult year for GM, especially since sales in China have been declining for the past four years, and there's little chance of improvement in 2025. In fact, things may worsen. GM’s factories in China are highly inefficient, operating at less than 50% capacity. Reports indicate that GM may have to shut down some of its factories in China and write off billions more in losses there this year.

If you're looking at General Motors’ profits this year, it's important to consider the inevitable impact of their struggles in China, which will hurt their bottom line. GM has acknowledged this, as they reported increased EV sales and market share in 2024, alongside new models launching this year. They also mentioned hitting a key profitability metric in Q4: positive variable profit, which excludes fixed costs. That’s an unusual term, but essentially, they’re saying that their increased production and lower battery costs are helping improve their bottom line. While it's good that batteries are becoming cheaper, GM still has a long way to go to achieve consistent profitability with EVs.

In 2024, GM produced and sold 109,000 EVs, just 11,000 short of their 200,000 goal. They're aiming for 300,000 EVs in 2025, which they expect will help reduce losses by at least $2 billion. While that’s positive, it also reveals that GM is still losing money on EVs, and the scale benefits are coming slower than anticipated. CFO Jacobson stated that they expect savings in the range of $2-4 billion, but these savings will come at a lower volume than initially projected.

GM’s leadership has made bold promises in the past, with Mary Barra claiming the company would beat Tesla in EV sales by 2025. There are videos of interviewers repeatedly asking her if she was sure, and she confidently confirmed it. Now, if this were a fair situation, there might be consequences for misleading investors, but it seems unlikely that the SEC would intervene in this case. It's clear that GM won't be anywhere near beating Tesla in EV sales in 2025, and the company should address this discrepancy.

Jacobson also mentioned that GM has multiple strategies to respond to potential policy changes from the new administration, such as tariffs or cuts to EV tax credits, though they haven’t detailed what those strategies are. GM's EV inventory decreased from a 100-day supply to a 70-day supply in Q4, which is a good sign, indicating they’re selling more EVs. They also ended 2024 with a 53-day supply of gasoline vehicles, in line with their target.

Free Cash Flow

As of the latest available data, General Motors (GM) reported a negative free cash flow of -$6.291 billion for the period ending September 30, 2024. This represents a significant decline of 680.52% compared to the same period last year.

Technical Analysis

Here are the current support and resistance levels for General Motors (GM) stock:

Support Levels:

• $52.00 - $52.43: This zone is formed by a combination of multiple trend lines and important moving averages in various time frames.

• $49.84 - $50.67: Another support zone formed by multiple trend lines in different time frames.

• $46.72: Support from a trend line in the weekly time frame.

Resistance Levels:

• $54.45: This is a key resistance level.

These levels can help you identify potential entry and exit points for your trades. 

Risks and Challenges

If you're looking at General Motors’ profits this year, it's important to consider the inevitable impact of their struggles in China, which will hurt their bottom line. GM has acknowledged this, as they reported increased EV sales and market share in 2024, alongside new models launching this year. They also mentioned hitting a key profitability metric in Q4: positive variable profit, which excludes fixed costs. That’s an unusual term, but essentially, they’re saying that their increased production and lower battery costs are helping improve their bottom line. While it's good that batteries are becoming cheaper, GM still has a long way to go to achieve consistent profitability with EVs.

In 2024, GM produced and sold 109,000 EVs, just 11,000 short of their 200,000 goal. They're aiming for 300,000 EVs in 2025, which they expect will help reduce losses by at least $2 billion. While that’s positive, it also reveals that GM is still losing money on EVs, and the scale benefits are coming slower than anticipated. CFO Jacobson stated that they expect savings in the range of $2-4 billion, but these savings will come at a lower volume than initially projected.

GM’s leadership has made bold promises in the past, with Mary Barra claiming the company would beat Tesla in EV sales by 2025. There are videos of interviewers repeatedly asking her if she was sure, and she confidently confirmed it. Now, if this were a fair situation, there might be consequences for misleading investors, but it seems unlikely that the SEC would intervene in this case. It's clear that GM won't be anywhere near beating Tesla in EV sales in 2025, and the company should address this discrepancy.

GM is forecasting more than 16 million vehicle sales in the U.S. in 2025, along with improved financial results in China and reduced spending on its Cruise robotaxi business. However, many investors are skeptical about GM's ability to improve in China. After years of declining sales there, it seems unrealistic for them to turn things around in 2025, and the guidance might have contributed to the drop in investor confidence. Analysts would likely have asked Mary how exactly they plan to improve their performance in China, as the company hasn’t offered clear answers.

Tariff Risks: Potential tariffs on vehicles and parts made in Mexico and Canada could significantly hurt GM’s profitability, as the company has a large manufacturing presence in those countries. If these tariffs are implemented, GM might struggle to maintain its margins.

General Economic Environment: Broader economic factors, including interest rates and consumer spending, will also play a role in GM's stock performance. A slowdown in consumer spending could affect car sales, particularly for higher-priced EVs and gas-powered vehicles.

Management and Strategic Shifts: GM's exit from the Cruise robotaxi business may be a short-term cost-saving measure, but it also signals a shift away from a potentially transformative future technology. The company’s focus on restructuring and cutting costs, like in China and the Cruise division, may improve short-term financials but doesn't guarantee long-term growth.

Valuation

GM's stock valuation is likely to face pressure in 2025. While they could see some improvements in North America and from lower battery costs, the broader challenges surrounding tariffs, China, and the slow ramp-up of profitable EVs might keep their stock price volatile. Investors will likely be looking for clear signs of improved profitability, particularly in their EV segment and China, before showing more confidence in the stock. If the stock back to $30 it will be a good buying opportunity.

Market sentiment

CFO Paul Jacobson told reporters that GM is still uncertain about the potential impact of tariffs on North American trade partners or any other federal policy changes under President Trump. In other words, they’re hoping Trump won’t follow through with the tariffs. GM has been working to expedite shipments of inventory from Mexico and Canada to stay ahead of potential tariffs. Jacobson mentioned that how trade taxes and environmental policies will evolve under the Trump administration remains unclear, and frankly, it seems like even Mary Barra, GM’s CEO, doesn’t know for sure.

Electric Vehicle Transition: GM has been increasing its EV production but has yet to reach profitability on these vehicles. While they're projecting sales of 300,000 EVs in 2025, analysts are still cautious, given the slower-than-expected scale benefits. The success or failure of GM's EV transition will heavily impact their stock valuation.

Challenges in China: GM’s performance in China continues to decline, and there's little belief that the company will see significant improvements in this market in 2025. This could negatively impact their global revenue, given the importance of the Chinese market.

Conclusion

GM does have a broad portfolio of both internal combustion and electric vehicles, and the company believes it can respond with flexibility and efficiency. They do make some good electric cars, though they’re not exactly revolutionary. However, there’s one key problem: If GM starts selling more electric cars in the U.S.—its largest market—it won’t make much profit. The company has never stated that it profits from electric vehicle sales, and it likely won’t for a few more years. They might claim profits on higher-end electric vehicles like the $100,000 electric pickup trucks or the Hummer EV, but it’s unlikely they’re making a profit on volume models like the Chevy Blazer or Chevy Equinox.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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