Expanding EV And Super Cruise Will Build Future Strength

Key Takeaways

• Strategic partnerships and broadened luxury EV lineup are expected to enhance product offerings, driving growth through cost efficiency and market share in profitable segments.
  
• Expansion in Super Cruise technology and restructuring in China aim to boost GM’s revenue streams and net margins through subscription growth and profitable equity income.
  
• Policy changes and trade regulations could harm GM's revenue and margins, while restructuring in China and EV challenges threaten profitability and earnings.

Catalysts

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• General Motors is heavily investing in its electric vehicle (EV) portfolio, with plans to wholesale 300,000 units in 2025, contributing to higher future revenues and improving EV profit margins over time.
  
• The company is expanding its Super Cruise technology across more models, planning to double its fleet size, which will likely generate high-margin subscription revenue streams in the future, potentially reaching $2 billion annually.
  
• Strategic advancements and partnerships, such as those with Hyundai, aim to enhance product offerings and increase capital efficiency, promising to drive future earnings growth through optimized resources and cost reductions.
  
• General Motors' restructuring efforts in China are expected to lead to profitable equity income in 2025, helping to improve net margins as the company realigns operations in a significant international market.
  
• The focus on broadening the luxury EV lineup with Cadillac models is expected to sustain market share growth in high-margin segments, contributing positively to overall profitability and earnings.

General Motors Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on General Motors compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming General Motors's revenue will grow by 2.9% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 3.8% today to 6.1% in 3 years time.
• The bullish analysts expect earnings to reach $12.4 billion (and earnings per share of $14.21) by about April 2028, up from $7.2 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 6.4x on those 2028 earnings, up from 6.2x today. This future PE is lower than the current PE for the US Auto industry at 18.0x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.41%, as per the Simply Wall St company report.

General Motors Future Earnings Per Share Growth

Risks

• Changes in public policy and trade regulations could adversely impact GM, introducing uncertainty in revenue forecasts and net margins if tariffs or tax reforms are imposed.
  
• GM's exposure and ongoing restructuring initiatives in China highlight operational challenges that could hurt long-term profitability and balance sheets, especially if restructuring costs escalate.
  
• As EV competition intensifies, the risk of achieving lower-than-anticipated EV sales could affect GM's ability to meet its target for EBIT improvements, thus impacting overall earnings.
  
• The decision to refocus Cruise's autonomous strategy and terminate robotaxi development may not yield the anticipated $1 billion savings if unexpected challenges arise, potentially affecting net margins.
  
• Higher warranty costs driven by inflationary pressures and stricter regulatory environments could continue to impact GM's profitability and net income, hindering its margin targets.

Valuation

• The assumed bullish price target for General Motors is $71.84, which represents one standard deviation above the consensus price target of $56.62. This valuation is based on what can be assumed as the expectations of General Motors's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $105.0, and the most bearish reporting a price target of just $34.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $204.0 billion, earnings will come to $12.4 billion, and it would be trading on a PE ratio of 6.4x, assuming you use a discount rate of 11.4%.
• Given the current share price of $44.54, the bullish analyst price target of $71.84 is 38.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.