GM Q3 results beat expectations as ICE sales compensate for market share loss in China

Fueled by the strength of its internal combustion engine (“ICE”) business which accounts for over 80% of its U.S. business, General Motors’ (NYSE:GM) Q3 results beat Wall Street’s expectations with profit and sales exceeding the consensus estimates.

Shares were launched higher in reaction to the results, but have since retraced some of its earlier premarket gains to trade modestly higher into the open.

As the automaker continues to trim costs and consolidate electric vehicle operations, the company’s profit improved to $2.96 per share from $2.28 a year ago beating expectations by $0.56 on a 10.5% increase in revenue to $48.76B, also exceeding expectations.

“I’m proud that GM is delivering our best vehicles ever with strong financial results. But I want to be clear that we are not mistaking progress for winning,” CEO Mary Barra said in a letter to investors.

“Competition is fierce, and the regulatory environment will keep getting tougher. That’s why we are focused on optimizing our ICE margins and working to make our EVs profitable on an EBIT basis as quickly as possible,” she added.

North American sales increased by 16% in the latest quarter with trucks and SUVs continuing to make up the bulk of the increased sales. In China, the company’s market share shrunk to 6.5% from 8.3% a year ago, resulting in a loss of $137M versus a profit of $192M in Q3 2023. CFO Paul Jacobson attributes the profitability challenge in China to a “sizable inventory build” that necessitated incentive pricing.

While ICE made up the majority of the company’s U.S. profits, GM (GM) continues to undertake efforts to improve efficiencies and profitability for its EV business.

“EV demand ebbs and flows,” Jacobson said in an interview on CNBC, adding that the company continues to build infrastructure that is flexible, putting the company on a path to achieve profitability. EVs currently make up just 7.6% of GM’s total U.S. market share, with hybrids at 11.1%.

For the remainder of 2024, GM again raised its bottom-line profit forecast to $14B to $15B from the previous forecast of $13B to $15B. Net income forecasts were raised to $10.4B – $11.1B from initial guidance of $10.0B – $11.4B, which should result in an adjusted EPS of $10.00 to $10.50 from the company’s previous forecast of $9.50 to $10.50. Adjusted automotive free cash flow is now expected to be between $12.5B to $13.5B from $9.5B to $11.5B in the company’s previous forecast.