Mary Barra, CEO of General Motors Co., on the South by Southwest festival in Austin, Texas on March 14, 2023.
Jordan Vonderhaar | Bloomberg | Getty’s paintings
DETROIT – Doubts are emerging on Wall Street for the remaining of 2023 General Motors.
The corporate beat Wall Street expectations for first-quarter earnings on Tuesday and raised its 2023 forecast above analysts’ consensus, but investors are raising questions on the corporate’s ability to act amid broader economic challenges and an auto industry that’s normalizing away from expensive vehicles and record profits.
That helps explain why GM shares fell nearly 6% from GM’s first-quarter report back to Wednesday, trading just above $32 a share. Wednesday posted its lowest closing price since October, with shares 26% down from a 52-week high of $43.63 a share. The stock is down 2.75% over the 12 months after closing at $32.72 on Thursday.
“GM continues to do the fitting thing, but we imagine cycle normalization and EV ramp challenges present a tough investment thesis,” Barclays analyst Dan Levy said in a note to investors on Wednesday, reaffirming the equal weight rating but lowering the corporate’s stock price goal by $3 to $42 per share.
Analysts say declining price power, labor concerns and the challenges of manufacturing electric vehicles will pose major challenges for the Detroit-based automaker.
Price pressure
GM chief financial officer Paul Jacobson said on Tuesday that the corporate expects latest vehicle prices to stay flat in comparison with last 12 months. He said consumers paid a mean of $50,263 per vehicle within the US in the course of the quarter, down 1% from a 12 months earlier.
Higher prices are bad news for consumers but good for automakers, as BofA Securities analyst John Murphy noted in a Wednesday note to investors titled “You Hate It, We Like It: Execution and Price Drive Beat and Conquer.”
GM stock price since Mary Barra became CEO of the automaker on January 15, 2014.
On Tuesday, GM raised its full-year adjusted profit guidance to a range of $11 billion to $13 billion, from the previous range of $10.5 billion to $12.5 billion. Nonetheless, these results represent a 10% to 24% drop from the roughly $14.5 billion in adjusted earnings it reported in 2022.
Wells Fargo analyst Colin Langan on Wednesday called GM’s forecast increase “surprising given price risks, particularly in China, and rising steel costs.” He singled out the corporate’s price expectations, which he called “bullish”, because the principal problem.
GM has shown restraint in avoiding overproduction this 12 months, helping to maintain inventories in step with demand and driving up prices. The corporate halted pickup truck production at its Indiana plant at the tip of the quarter to maintain inventories below historical levels.
Nonetheless, it might have such a list later this 12 months amid growing concerns over a union strike.
EU threats
GM is approaching negotiations with the United Auto Staff and the Canadian union Unifor, which brings potential work stoppages and increased labor costs.
Labor costs don’t often skyrocket as a results of periodic bargaining, but a latest leadership team is in place on the UAW for the primary time in many years and guarantees more contentious bargaining than in recent history. The brand new union leadership operated on platforms of reforming the organization and opposing the automakers.
“We’re here to return together to arrange for war against the one true enemy: multi-billion dollar corporations and employers who’re denying our members their justifiable share,” latest UAW president Shawn Fain told members ultimately month’s union convention in Detroit. “It’s a latest day on the UAW.”
Labor strikes will be costly and deplete vehicle supplies. A 40-day strike against GM in the course of the last round of negotiations 4 years ago cost GM roughly $3.6 billion in 2019, including $2.6 billion in profit before interest and taxes within the fourth quarter.
GM CEO Mary Barra told investors on Tuesday that the automaker was working to “construct a strong relationship with the brand new management”, but declined to invest concerning the talks and the corporate’s expectations for negotiations.
“We’re working to construct a strong relationship with the brand new management by attending to know them and ensuring we discover the challenges facing the business after which work together to work things out to realize a good place,” she said.
GM shares are down 19.5% since Barra became CEO in January 2014 and down 52% from a high of $67.21 in intraday trading on Jan. 5, 2022. Their lowest during her tenure was $14.33 per share on March 18, 2020.
— CNBC Michael Bloom contributed to this report.