The auto industry faced the headwinds of high inflation, interest rate hikes, and supply chain disruptions last year. The sales of light vehicles in 2022 fell to their lowest level since 2012. Over 13.75 million light vehicles were sold the previous year, representing a year-over-year decline of 8% to 9%. However, General Motors Company (GM) stood out, registering a 2.5% year-over-year rise in vehicle sales last year.
Last year, the company also reclaimed the top spot as America’s leading automaker from Toyota Motor Corporation (TM). Auto sales are expected to bounce back this year. According to Cox Automotive, new-vehicle sales for 2023 are forecasted to increase 3% year-over-year to 14.20 million units.
GM continued its momentum during the first quarter as its first-quarter U.S. auto sales rose 17.6% year-over-year to 603,208 vehicles. GM’s Executive Vice President and President of North America, Steve Carlisle, said, “We gained significant market share in the first quarter, pricing was strong, inventories are in very good shape.”
GM’s strong portfolio of ICE and electric vehicles helped the company beat the consensus earnings and revenue estimates for the quarter. Its EPS came 26.9% above the forecast, while its revenue beat the consensus estimate by 1.5%.
GM updated its fiscal 2023 guidance, with its GAAP net income attributable to stockholders now expected to come between $8.40 billion and $9.90 billion, compared to the previous expectation of between $8.70 billion and $10.10 billion. Its adjusted EBIT is expected to come between $11 billion and $13 billion, compared to the previous outlook of between $10.50 billion and $12.50 billion.
It also raised its outlook for net automotive cash provided by operating activities to $16.50 billion and $20.50 billion, compared to the previously expected $16 billion and $20 billion. GM has plans to build one million EVs in North America by 2025 and to stop selling gasoline-powered vehicles by 2035.
GM has set some bold long-term targets where total revenue is expected to grow at a 12% CAGR through 2025, reaching more than $225 billion. The company has pledged to invest $35 billion in electric and autonomous vehicles between 2020 and 2025. Revenue from EVs is expected to be more than $50 billion in 2025. The company’s revenue is expected to double, reaching between $275 billion and $315 billion by 2030.
GM’s stock has gained 3.3% in price over the past month. On the other hand, it has declined 1% year-to-date to close the last trading session at $33.29.
Here’s what could influence GM’s performance in the upcoming months:
Favorable Recent Developments
On April 25, 2023, GM and Samsung SDI announced that they plan to invest more than $3 billion to build a new battery cell manufacturing plant in the United States, slated to start operations in 2026.
GM Chair and CEO Mary Barra said, “GM’s supply chain strategy for EVs is focused on scalability, resiliency, sustainability, and cost-competitiveness. Our new relationship with Samsung SDI will help us achieve all these objectives. The cells we will build together will help us scale our EV capacity in North America well beyond 1 million units annually.”
On February 9, 2023, GM and GlobalFoundries Inc. (GFS) announced a strategic, long-term agreement to establish a dedicated capacity corridor exclusively for GM’s chip supply. This agreement will help GM reduce the number of unique chips required to power its complex, tech-heavy vehicles.
On January 31, 2023, GM and Lithium Americas Corp. (LAC) announced that they would jointly invest in developing the Thacker Pass mine in Nevada, with GM investing $650 million in LAC. It is the most significant investment by an automaker to produce battery raw materials, and lithium carbonate from Thacker Pass will be used in GM’s Ultium battery cells.
Robust Financials
GM’s revenue for the first quarter ended March 31, 2023, increased 11.1% year-over-year to $39.99 billion. Its adjusted EPS came in at $2.21, representing an increase of 5.7% over the prior-year quarter. The company’s automotive operating cash flow increased 36.5% year-over-year to $2.23 billion. Also, its adjusted net income attributable to common stockholders increased 0.9% year-over-year to $3.10 billion.
Mixed Analyst Estimates
GM’s EPS for fiscal 2023 and 2024 is expected to decline 12.7% and 2.8% year-over-year to $6.63 and $6.44. Its fiscal 2023 and 2024 revenue is expected to increase 4.9% and 2% year-over-year to $164.46 billion and $167.67 billion. Its EPS and revenue for the quarter ending June 30, 2023, are expected to increase 45.6% and 17.1% year-over-year to $1.66 and $41.87 billion, respectively.
Solid Historical Growth
GM’s net income grew at a CAGR of 24.5% over the past three years. Its EBIT grew at a CAGR of 20.3% over the past three years. In addition, its EPS grew at a CAGR of 25.7% in the same time frame.
Discounted Valuation
In terms of forward non-GAAP P/E, GM’s 5.02x is 63% lower than the 13.57x industry average. Its forward EV/Sales of 0.87x is 19.2% lower than the 1.08x industry average. Also, the stock’s 6.65x forward EV/EBITDA is 28% lower than the 9.23x industry average.
Mixed Profitability
In terms of the trailing-12-month net income margin, GM’s 5.84% is 34.8% higher than the 4.33% industry average. Likewise, its 11.05% trailing-12-month EBITDA margin is 1.6% higher than the industry average of 10.88%. Furthermore, the stock’s 13.76% trailing-12-month Capex/Sales is 330% higher than the industry average of 3.20%.
On the other hand, GM’s trailing-12-month gross profit margin of 13.39% is 62% lower than the 35.27% industry average. Likewise, the stock’s 0.62x trailing-12-month asset turnover ratio is 38.4% lower than the industry average of 1.01x.
POWR Ratings Show Promise
GM has an overall rating of B, equating to a Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. GM has a B grade for Growth, consistent with its historic and expected growth.
It has a B grade for Value, in sync with its discounted valuation.
GM is ranked #19 out of 59 stocks in the Auto & Vehicle Manufacturers industry. Click here to access GM’s Momentum, Stability, Sentiment, and Quality ratings.
Bottom Line
Stricter emission norms and government subsidies drive the shift from internal combustion engine (ICE) vehicles to electric vehicles (EVs). A giant automaker like GM is well-positioned to capitalize on the enormous demand for EVs in the long term, given its investments and strategic partnerships to boost its EV manufacturing capabilities.
Given its robust financials, solid growth attributes, and discounted valuation, it could be wise to buy the auto stock.
How Does General Motors Company (GM) Stack Up Against Its Peers?
GM has an overall POWR Rating of B, equating to a Buy rating. Check out these other stocks within the Auto & Vehicle Manufacturers industry with an A (Strong Buy) or B (Buy) rating: Mercedes-Benz Group AG (MBGAF), Honda Motor Co., Ltd. (HMC), and Wabash National Corporation (WNC).
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GM shares were trading at $33.29 per share on Monday afternoon, up $0.88 (+2.72%). Year-to-date, GM has declined -0.81%, versus a 10.25% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...
