Auto stocks grind higher as GM’s strong Q3, upbeat outlook fuels gains

By managing its inventory and offering vehicles that are still in high demand, General Motors (NYSE:GM) reported a better-than-expected third quarter, delivering the beat and raise that investors were counting on to drive shares to their highest level since February 2022 and its largest intraday percentage gain since the beginning of this year.

“We believe this was a large step in the right direction as management continues to navigate the choppy waters and ultimately, was a long-awaited turnaround for the GM story,” Wedbush analyst Dan Ives said in a note on Tuesday.

The North American ICE division continued to be the company’s cash cow, but even sales in its electric vehicle division did not disappoint. The company increased its market share in EVs to just below 10%, an increase from 7.1% in Q2, outperforming its rivals in the alternative-fuel space. And the company plans on expanding its dominance further with the addition of lower-cost and longer-range pickup trucks and SUVs, including the Silverado EV with a range of 500 miles on a full charge, and Equinox and Blazer EV models, both of which will launch in early 2025.

“We believe the direction of travel for GM profitability, going forward, is the balance between sustaining the currently strong double-digit North American ICE margins and mitigating/lowering the drag from the EV and AV business units,” Morgan Stanley’s Adam Jonas said.

During the company’s earnings call with analysts, GM CFO Paul Jacobson and CEO Mary Barra both warned of the challenges the company continues to face, namely lost market share in China, lingering warranty issues, and managing inventory levels. The combination resulted in a $700M adjustment in Q3 with high labor costs largely responsible for increased warranty expenses.

And for the current quarter, GM (GM) cautions that earnings will likely be impacted by lower-than-expected ICE wholesale volumes, attributed to downtime at its pickup and SUV facilities from Hurricane Helene, and 8 fewer production days in the quarter due to the holidays.

“Any production changes will have an outsized impact on profitability,” Jacobson said, adding that a softer Q4 should not materially impact the company’s improved projections for FY24.

“GM is continuing to deliver on its goals while raising its bottom-line guidance to consistently return excess to the bottom line and on track to achieve free cash flow to shareholders and optimize returns through repurchases and heightened dividend,” Ives added.

GM’s upbeat outlook pulled shares as much as 10% higher, giving a lift to Ford (F) and Stellantis (STLA), both of which are up more than 1%.