General Motors surprised Wall Street with substantially stronger earnings than had been expected, more than double what analysts had expected on a per-share basis.
During a conference call with analysts, company officials credited a variety of factors, including cost savings and the unexpectedly strong rebound from the COVID-19 crisis by GM’s North American operations, the company now predicting U.S. sales for the second half will be far stronger than had been feared at the time the U.S. went into pandemic lockdown last spring.
All told, GM reported $4 billion of earnings for the quarter, or $5.3 billion on an EBIT-adjusted basis. That worked out to $2.83 a share, up from the consensus forecast of $1.38, according to Refinitive, which tracks industry analysts.
During the conference call, Chairman and CEO Mary Barra said she hopes that both the plans for the future GM has laid out, along with its strong performance during a tough, pandemic-hammered year “will change the way customers and investors will view our company.”
GM shares initially surged as much as 7% on the news – which was first announced at 7:30 a.m. EST – but soon began to slide back. They were up about 2% around 11 a.m. But, even with the nearly 17% gain in October, GM stock is still holding at roughly the same level as a year ago. And despite general praise from industry analysts, not all were willing to change their opinions.
While Garrett Nelson, lead auto analyst with CFRA Research, increased his 12-month price target for the stock from $22 to $30, he still remains a bear, noting in a Thursday morning report, “We maintain a Sell despite a much better-than-expected quarter and following the stock’s massive rebound from its March low, as we think Q3 represented a high water mark in terms of quarterly earnings for GM and risks related to its transition to an all-electric lineup in the coming years are significant.”
Wall Street has generally been bullish on traditional automotive stocks, even as it embraces often-unproven startups like Lordstown Motors, Fisker and others, never mind Tesla which currently is trading at around $436 a share, even after an autumn stock split. Tesla’s market capitalization is currently $411.7 billion compared to just $51.3 billion for GM. During the Thursday morning earnings call, one analyst noted that little Chinese EV startup NIO now is valued by investors above GM, with a market cap of $52.8 billion.
For her part, Barra acknowledged GM shares will remain a tough sell, but insisted, “Our focus is absolutely on unlocking shareholder value and speed to market.”
The automaker is counting on its new mobility efforts to win back investors – and draw in more consumers. It has announced two key all-electric products in recent months, GM claiming it all but immediately sold out the First Edition version of the GMC Hummer, with demand building for its new Cadillac Lyriq, as well. All told, the company plans to have “at least 20” long-range models in production by 2021.
One of the first of GM’s new wave of BEVs went on sale in China a few months ago and the Wuling Mini quickly became that country’s best-selling battery-electric car, bettering even the Tesla Model 3 that had been the market topper.
In general, Barra noted, GM is having its best results in China in some time, sales up for the first time in two years.
The automaker, she added, expects that continuing strong global profits will help fund not only battery-car programs but also the development of new autonomous vehicles. That’s another area where, she said, GM wants to be perceived as an industry leader.
The coming months could be critical, then. The automaker recently received approval from California regulators to begin testing fully autonomous vehicles with no backup drivers as part of its Cruise ride-sharing service. GM also is waiting for approval from the National Highway Traffic Safety Administration to start testing prototypes of the Origin autonomous vehicle Cruise hopes to put in service. That toaster-shaped vehicle would have no steering wheel or other traditional controls.
While GM is on “a path to an all-electric future,” CEO Barra is fond of saying, it isn’t giving up on conventional vehicles. It is, if anything, struggling to keep up with demand in the light truck segment that has led the U.S. market recovery. Among other things, it plans to add production of full-size pickups at a plant in Oshawa, Ontario that was originally scheduled to close. Barra said she expects strong demand for the trucks to continue well into the future.
Meanwhile, demand has surged for the new wave of full-size SUVs the automaker launched for 2021, including the Chevrolet Tahoe and GMC Yukon. Not only are sales up but average transaction prices have reason by more than $1,000 per vehicle.
Looking forward, GM officials were cautiously optimistic about what they see coming for the rest of 2020 and into 2021. Acting CFO John Stapleton said he expects the key North American market to rise to the high 15 million range on a Seasonally Adjust Annual Rate, or SAAR. But he cautioned that numerous factors could still create “headwinds” for GM, and for the industry overall, next year.