GM Boosts Annual Profit Forecast Amid Strong Truck Sales, Faces Investor Concerns

General Motors reported higher-than-expected profit and revenue for the second quarter, driven by strong demand for gas-powered trucks. Despite this, the company's shares fell 6.4%, likely due to concerns over its strategy for self-driving vehicles, losses in China, and inventory management. GM increased its annual profit forecast yet again.

General Motors reported second-quarter profit and revenue on Tuesday that surpassed Wall Street's expectations, and raised its annual profit forecast for a second time this year, supported by strong pricing and demand for gas-powered trucks. However, the company's shares fell 6.4%.

Analysts attribute the selloff to several factors, including changes in the company's Cruise self-driving vehicle strategy, ongoing losses in China, and concerns that the auto industry will become less disciplined on inventory levels and buyer incentives. "We believe this is just a knee-jerk reaction and the GM quarter was a robust one which should drive the stock higher over the coming weeks and months," said Dan Ives, analyst at Wedbush Securities.

The Michigan automaker is heavily relying on its gasoline-engine offerings to sustain profits amid a slower-than-expected transition to electric vehicles. GM executives assert that the company has laid the necessary foundation to meet ambitious EV ramp-up targets.

"We're encouraged by the early results we're seeing in EVs now that we can build at scale," CFO Paul Jacobson stated during a call with reporters. A Federal Reserve report last week revealed that motor-vehicle production surged to a four-year high in June.

GM raised its adjusted pre-tax profit projection for the year to $13 billion to $15 billion, from a previous range of $12.5 billion to $14.5 billion. The company reported adjusted earnings per share of $3.06, exceeding Wall Street's average estimate of $2.75, according to LSEG data. GM reported $48 billion in revenue for the three-month period, surpassing analysts' consensus of $45.5 billion for the June quarter. Executives also provided an update on its Cruise self-driving unit, indicating a focus on developing a next-generation Chevrolet Bolt rather than the futuristic Origin vehicle that would not have a steering wheel or other human controls.

GM's stock has outperformed its rivals and the S&P 500 in 2024. The company's share price increased 38% as of Monday, while Ford Motor saw an 18% rise, and Stellantis experienced an 11% loss. EV INVESTMENTS AND RETREAT.

GM received additional financial backing from the U.S. government this summer to support its EV goals, although the company has scaled back many targets over the last year. The Biden administration announced that it would award GM $500 million to convert a Michigan gas-engine assembly plant to an EV production facility. GM recently lowered its projected EV output for the year, now estimating the higher end of its 2024 production to be 250,000 units, down from a previous forecast of 300,000 units. CEO Mary Barra informed investors that GM would delay the opening of its Orion Assembly EV truck plant by six months, until mid-2026.

Despite this, GM executives stated the company is ramping up production of the Chevrolet Equinox EV and plans to launch several new battery-powered models in the coming months. "GM seems to be showing that even at lower production they'll be able to rationally roll out EVs and not overspend on that," said Tim Piechowski, portfolio manager with ACR Alpine Capital Research in St. Louis, which owns GM shares.

GM reported a 14% increase in net income over the previous year to $2.9 billion. Although the Detroit automaker remains committed to transitioning its lineup to EVs, Barra has mentioned plans to introduce plug-in hybrids by 2027. Ford, currently benefiting from significant increases in hybrid sales, is set to release its second-quarter results on Wednesday.

The outcome of the upcoming U.S. presidential election will likely affect GM's battery-powered vehicle plans. Former President Donald Trump has criticized President Joe Biden's EV policies, which include significant government subsidies. GM also faces increasing scrutiny from investors regarding its operations in China, which have transformed from profit engines into financial drains over the past decade.

The company recorded a $104-million quarterly loss in China, disappointing executives who had anticipated profitability in the region for the second quarter. "It's a difficult market right now. And frankly, it's unsustainable, because the number of companies losing money there cannot continue indefinitely," said Barra. Jacobson added that GM would collaborate with its joint-venture partner in China to restructure its business and plans to reduce spending in the region.

"It's clear that the steps we have taken, while significant, have not been enough," Jacobson acknowledged. Last month, a leading automotive analyst called on the Detroit Three to withdraw from China to conserve cash for expensive EV production.

(With inputs from agencies.)