GM earnings top forecasts despite headwinds

General Motors made more money than expected so far this year, even as union contracts reached last year increased labor costs, its customers faced higher interest rates to buy cars and its electric vehicles still aren’t turning a profit — yet.

But GM said it expects its North American EV business to turn a profit in the second half of the year. That and strong demand for traditional gasoline-powered vehicles allowed it to raise its earnings forecast for the year.

Reaching a profit on its EV business would be a major milestone, which have yet to make the kind of cash that hybrids and gasoline-powered cars make for traditional automakers, who are planning a shift to EVs in the years ahead. GM officials said Tuesday it believes its EV offerings will be even more profitable moving into 2025, despite the slowdown in growth of demand for EVs in its home market.

The company said that it had adjusted net income of $3.0 billion, down 2% from the $3.1 billion it reported on that basis a year earlier. But the company announced a $10 billion share repurchase last fall following its labor deal with the United Auto Workers union. The fewer number of shares outstanding allowed it to report improved earnings per share, which is closely watched by investors. That resulted in adjusted earnings per share of $2.62, up 18.6%, easily topping forecasts that EPS would slip to $2.13.

Revenue rose 7.6% to $43 billion, which also topped forecasts by $2 billion, despite a 3% slip in the number of vehicles sold to 1.3 million cars and trucks. But that drop in total vehicle sales came from the company pulling back on lower-priced sales to fleet customers, such as rental car companies, and concentrating more on retail sales to consumers. Fleet sales fell to nearly 16% of its overall sales, down from 19 % of year-ago sales.

But more significantly it raised its full-year earnings forecast to between $10.1 billion - $11.5 billion, which is up $300 million from its earlier guidance. And it raised its adjusted earnings before interest and taxes guidance for the year by $500 million.

The EPS and revenue beats and the stronger guidance helped lift shares of GM by 4% in premarket trading.

Still, there have been rising concerns about the demand for electric vehicles weakening. Tesla, the world’s largest producer of EVs, just reported its first year-over-year drop in global sales since the pandemic and announced it is cutting 10% of its staff. And some established automakers, including GM, have pulled back slightly on its EV production plans.

But GM said it is seeing strong retail demand for EVs. CFO Paul Jacobson told reporters on a conference call that much of the pullback on GM’s EV plans are a result of it being “more deliberate.”

He said that much of the overall slowing in EV demand is due to Hertz announcing it would stop buying EVs in the near term and sell off 20,000 of the electric vehicles already in its fleet.

“When you start to break down some detailed registration info, retail EVs [sales] are not down as much as a lot of folks think,” he noted. “The retail customer is actually holding up pretty strong. We feel good where we’re going with the 200,000 to 300,000 units of [EV] production this year.”

Profits across the auto industry have been helped by limited supplies of some raw materials, which cut production of traditional gasoline powered cars and trucks despite strong consumer demand resulting in record new car prices.

Those production constraints are largely a thing of the past, and increased production should help to push down pricing. Jacobson told reporters that the company is still looking at between a 2% to 2.5% decline in average pricing over the course of the year although he added that with continued strong consumer demand, “We haven’t seen it yet.”

“Our consumer has been remarkably resilient in this period of higher interest rates,” he said. “We think in this environment we can continue to perform.”

This is a developing story. It will be updated.

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