General Motors (GM, Financial) is trading lower despite reporting strong Q2 results. GM posted back-to-back $0.35+ quarters and raised its FY24 adjusted EPS to $9.50-10.50 from $9.00-10.00. The company also increased its FY24 adjusted EBIT guidance to $13-15 billion from $12.5-14.5 billion and announced a $6 billion share buyback authorization.
- Adjusted EBIT, GM's most closely watched metric, rose 37% year-over-year and 15% sequentially to $4.44 billion in Q2, with a 9.3% adjusted EBIT margin, up from 7.2% a year ago. This was driven by higher volume, consistent pricing, and lower EV inventory allowance, partially offset by a lower mix and reduced China equity income.
- For 1H24, GM posted adjusted EBIT of $8.31 billion, up 18% year-over-year. However, this suggests a lower 2H adjusted EBIT given the $14 billion guidance midpoint. GM anticipates a bigger pricing headwind in 2H and around $1 billion of 2H-weighted costs, including $400 million higher marketing spend for more launches. The rest is due to higher commodity prices and other EV costs.
- Trucks and SUVs continue to drive GM's overall results. Refreshed midsize SUVs are among the fastest-growing vehicles in their segment, supporting stable pricing and generating stronger margins. US sales of the Chevrolet Silverado and GMC Sierra rose 5% year-over-year, while sales of the redesigned Chevrolet Colorado and GMC Canyon midsize pickups were up 31%.
- EVs also performed well, with total US EV deliveries up 40% year-over-year to 22,000. GM expects EV volumes to build sequentially each quarter in 2024 to meet its full-year target of 200,000-250,000. The company is scaling production of the Chevrolet Equinox EV and plans to launch the GMC Sierra EV and Cadillac LYRIQ, OPTIQ, Escalade IQ, and CELESTIQ over the next several months. GM aims for positive variable profits in EVs by Q4.
- China remains a trouble spot due to significant excess capacity and fierce competition from local brands. GM has been reducing inventories, aligning production to demand, and cutting fixed costs. Despite these efforts, GM reported a loss in China for Q2 and expects challenges to persist for the rest of the year.
The stock initially rose on strong EPS and revenue results. Gasoline vehicles, especially trucks and SUVs, are driving overall performance with solid pricing. Surprisingly, GM's commentary on EVs was positive despite weak industry demand. However, struggles in China and the impact of higher costs on 2H adjusted EBIT are weighing on shares today.
