Automotive investors will have potentially important news to chew on even before
Tesla
hands over the first Cybertrucks to customers on Thursday.
General Motors
has scheduled an update on its business for Wednesday morning.
There is a lot for management to discuss. The cost of labor is in focus following GM’s new contract with the United Auto Workers. GM’s Cruise unit has been in turmoil. And sales of battery-electric vehicles have fallen short of GM’s own expectations, shaking investors’ confidence in the company.
CEO Mary Barra and CFO Paul Jacobson will make presentations at the event, which is slated to begin at 8 a.m. Eastern time.
Citi analyst Itay Michaeli has a wish list for the meeting. In a Sunday research report, he outlined several issues he wants GM to address. He cited targets for profit margins, how to reduce losses from EVs while jump-starting sales of the cars, accelerating returns of capital to shareholders, and the problems at Cruise.
GM has told investors it can generate an operating profit margin of between 8% to 10% in its North American business. Wall Street is projecting a little below 9% for 2024 and 2024, but investors don’t have a lot of confidence in that number. Higher labor costs are a big reason why.
GM’s deal with the UAW includes base wage increases of roughly 25% over the life of the contract, which runs through April 2028, including an 11% bump that took effect when the contract was ratified. Fully offsetting that could require car prices to rise $300 to $500.
How GM can limit the effect on its margins, whether via higher prices, operating more efficiently, or offering buyouts to older, more expensive workers will be important for investors to learn.
Investors also need reassurance that GM’s new EV models, including the EV Blazer, EV Silverado, and EV Equinox will sell well. Electric vehicles accounted for 3% of GM’s U.S. sales in the third quarter, compared with closer to 9% of U.S. sales volume for the industry as a whole.
Cruise is an additional confidence issue. Kyle Vogt, its CEO and co-founder, resigned shortly after Cruise had its license to operate self-driving taxis in California suspended following an accident. GM is spending billions a year to scale up its robotaxi business. The outlook for spending and who will lead the business isn’t clear.
GM management might not need to spell out clear plans for the next steps at Cruise, or for boosting EV sales, to help the stock. Michaeli wrote that it shouldn’t take much for investors to be happy.
Expectations are low. The stock is trading for about four times the per-share earnings expected for 2024.
Michaeli rates shares at Buy and has a target of $90 for the stock price.
That’s the highest target price on Wall Street and values GM shares at about 14 times estimated 2024 earnings per share. For context, GM’s forward P/E ratio has ranged from about four times to 10 times over the past few years.
As for capital returns, Michaeli also believes that the company can afford to increase stock buybacks. That would be a cherry on top for investors and a sign that GM is optimistic about its ability to generate free cash flow in the future.
Investors in GM could use some good news. As of midday on Tuesday, GM shares were down about 27% over the past 12 months while the
S&P 500
and
Dow Jones Industrial Average
were up 15% and 5%, respectively.
Higher interest rates, a slowing economy, and increased labor costs have all sapped investors’ enthusiasm for shares of traditional auto makers.
Ford Motor
stock is down about 24% over the past 12 months.
Write to Al Root at [email protected]
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