GM's blowout earnings show 'long-awaited turnaround appears to be under way'

By Steve Gelsi and Emily Bary

CEO says car maker is benefitting from lower EV costs.

General Motors Co.'s stock rose 5% on Tuesday after the car giant reported better-than-expected first-quarter earnings, increased its profit outlook for the full year and said the cost of batteries for its electric vehicles has dropped.

GM (GM) also reported a 21% year-over-year increase in retail deliveries for its electric vehicles.

Wedbush analyst Dan Ives reiterated an outperform rating on GM and said the three-month period marked a "major 'prove me' quarter for GM and shows the long-awaited turnaround appears to be underway."

Less bullish was CFRA analyst Garett Nelson, who reiterated a hold rating and boosted his 12-month price target for GM to $45 a share, up $1. EVs weighed on overall sales volume with a 20.5% drop in the first quarter, he noted.

"We think the company could lose additional market share in the near- and intermediate-term due to its lack of hybrid vehicle offerings and free cash flow will hampered by its massive planned capex (about $11 billion in 2024) and heavy spending related to EVs and battery cell development," Nelson said.

General Motors earned $2.98 billion, or $2.56 a share, compared with $2.40 billion, or $1.69 a share, in the year-ago period.

On an adjusted basis, GM earned $2.62 a share, up from $2.21 a share a year before, while analysts tracked by FactSet were modeling $2.13 a share.

Revenue increased to $43.0 billion from $40 billion, beating the FactSet consensus figure of $41.1 billion.

The car company upped its full-year forecasts and now expects $9 to $10 a share in adjusted earnings. GM's prior outlook was $8.50 to $9.50 in adjusted earnings per share.

Analysts have been expecting 2024 earnings of $8.89 a share for General Motors.

GM's raised 2024 guidance "may still be conservative," John Murphy at BofA Securities said.

GM "remains a leader among the industry," and its ongoing execution and strength in its core business "continues to enable the company to make investments in EVs, AVs, and other areas to future-proof the business, while continuing to return value to shareholders," Murphy said.

In a letter to shareholders, Chief Executive Mary Barra said the car maker is seeing "good early sales momentum" for EVs such the Cadillac Lyriq as it benefits from "scale, material cost and mix improvements."

The cost of battery cells "came down significantly" as its Ultium Cells joint venture plant in Ohio ramped up production, while lower raw material costs provided a tailwind, the company said.

GM is also ramping up its second Ultium Cells plant with Korean electronics giant LG Energy Solution Ltd. (KR:373220), which opened this year in Tennessee, she said.

GM also competes with Tesla Inc. (TSLA) and other EV car makers on price with the Chevrolet Equinox EV, which the car maker describes as the most affordable EV with more than 300 miles of range.

GM's stock has gained 26% so far this year, compared with a 6% rise by the S&P 500 SPX.

Meanwhile, the spreads on GM's corporate bonds have tightened against U.S. Treasurys as investors see less risk in the company's debt, according to data from BondCliQ:

Although spreads have tightened, yields have climbed as interest rates remained high in the overall market. The combination of lower spreads and higher yields is somewhat rare in the corporate bond market.

Also read: Tesla's stock remains under pressure as company cuts prices for many models

Claudia Assis in San Francisco contributed.

-Steve Gelsi -Emily Bary

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04-23-24 1142ET

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