Tariff Relief And Supply Chain Shifts Will Drive Profits And EV Expansion

Key Takeaways

• Aggressive EV expansion, U.S. manufacturing investments, and cost controls are set to boost market share and margins despite regulatory and tariff challenges.
  
• Growth in software-related recurring revenue and advanced digital technologies promises improved profitability and greater shareholder returns.
  
• Rising costs, slower EV growth, competitive pressures, and regulatory shifts threaten profitability, margin strength, and the effectiveness of planned investments.

Catalysts

Designs, builds, and sells trucks, crossovers, cars, and automobile parts worldwide.

• GM's rapid expansion of its electric vehicle (EV) portfolio-especially through crossover success, luxury Cadillac EV leadership, and affordable models like the Equinox EV-positions the company to gain market share and drive revenue growth as global electrification accelerates and consumer demand recovers.
  
• Strategic investments in U.S. manufacturing and battery production, including new chemistries (LMR, LFP) and flexible plant capacity, are expected to offset regulatory/tariff headwinds, reduce per-unit costs, and widen margins as scale increases and new capacity comes online by 2027.
  
• The growing monetization of software and services such as Super Cruise and OnStar, evidenced by $4 billion in deferred revenue and rapid subscriber growth, creates higher-margin recurring revenue streams, supporting long-term earnings expansion beyond traditional vehicle sales.
  
• GM is leveraging enhanced digitalization, AI, and over-the-air diagnostics to improve vehicle quality and manufacturing efficiency, which should drive down warranty costs, boost customer loyalty, and improve net margins over time.
  
• Shareholder return via buybacks (with 15% reduction in shares outstanding last year) and dividend support remains robust, underpinned by strong free cash flow and a resilient balance sheet, setting up potential for sustained growth in earnings per share (EPS).

General Motors Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming General Motors's revenue will decrease by 0.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.5% today to 4.3% in 3 years time.
• Analysts expect earnings to reach $8.0 billion (and earnings per share of $8.55) by about September 2028, up from $6.5 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $12.2 billion in earnings, and the most bearish expecting $6.8 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.7x on those 2028 earnings, down from 8.5x today. This future PE is lower than the current PE for the US Auto industry at 18.6x.
• 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 12.32%, as per the Simply Wall St company report.

General Motors Future Earnings Per Share Growth

Risks

• Persistently high tariffs and uncertainty around trade agreements, especially with Korea, Canada, and Mexico, are resulting in $4–5 billion in annual headwinds, with mitigation limited to 30% in the near term, which could depress net margins and earnings if not resolved quickly.
  
• Higher warranty expenses, including increased claims related to components and software issues in early EV launches, have risen by $300 million year-over-year and are expected to remain a headwind, indicating quality control risks that may impair net margins and customer loyalty.
  
• The removal of EV tax credits and regulatory changes are expected to reduce consumer incentives; combined with slower-than-anticipated EV adoption and possible decline in scale benefits, this threatens GM's ability to reach profitability on affordable EV models, weighing on both long-term revenue growth and margins.
  
• Intense competition in both domestic and international markets-particularly from new EV entrants in Europe and China and the ongoing need to keep pricing competitive in fleet sales-creates ongoing pricing pressure and market share vulnerabilities, putting top-line revenue and earnings at risk.
  
• Significant and sustained levels of capital and R&D expenditures (projected at $10–12 billion annually for the next several years), in the context of a more moderate EV growth outlook, elevate the risk of suboptimal returns on investment and could strain the balance sheet if anticipated improvements in EV profitability and volume do not materialize.

Valuation

• The analysts have a consensus price target of $57.2 for General Motors based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $80.0, and the most bearish reporting a price target of just $38.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $185.3 billion, earnings will come to $8.0 billion, and it would be trading on a PE ratio of 7.7x, assuming you use a discount rate of 12.3%.
• Given the current share price of $58.01, the analyst price target of $57.2 is 1.4% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.