Is This Increasingly Electric Auto Giant A Buy Or Sell?

Key Takeaways

• GM was able to top earnings estimates for the third quarter.
• GM continues to focus on electric vehicles and energy storage as the company looks to compete directly with Tesla.
• GM reported a net income of $3.3 billion for the quarter and forecasts a full-year income between $9.6 billion and $11.2 billion, which would be surprisingly positive news in a climate of widespread economic uncertainty.

General Motors recently released its third-quarter financial results, and analysts were surprised that the company beat earnings estimates. Investors were excited to see that the Detroit-based automaker was able to report strong vehicle sales even when many of us were concerned about the economic slowdown due to soaring inflation and rate hikes threatening to tip us into a recession.

The optimism from GM was a contrast to Ford’s warnings a month ago that inflation was impacting supplier costs. We’re going to look at the earnings for GM to see if this auto giant stock is a buy or sell right now…

GM earnings results

General Motors reported its earnings for the third quarter of 2022 on October 25. Here are some of the highlights from the recent earnings report from GM:

• Revenue was $41.89 billion, which was up from $26.78 billion the same quarter last year.
• Net income for the quarter was $3.3 billion, up from $2.4 billion year-over-year.
• Earnings per share (EPS) were at $2.25, up from $1.62 per share a year ago.
• The company still expects a full-year net income between $9.6 billion and $11.2 billion.
• The increase in revenue was mainly due to a 24% sales increase in the US as supply chain issues begin to stabilize.
• GM expanded its market share to the point that 7.7% of all cars, trucks, and crossovers sold globally were GM-made.
• Due to record sales, GM has decided to increase production of the Chevrolet Bolt EV and Bolt EUV to 70,000 units in 2023.
• GM plans on expanding electric vehicle sales. The goal is to build a total of 400,000 EVs in North America by early 2024.

CEO Mary Barra spoke on the earnings call about how the current operating environment was challenging and the company was seeing gradual improvement in supply chains. The positive outlook from GM stands in contrast with the warnings Ford brought up in mid-September when they acknowledged supply chain challenges leading to extra costs.

What’s next for GM stock?

Before you make a decision about investing in GM, it’s important that you consider all of the relevant factors connected to both GM and the auto industry as a whole.

The expansion of EV sales.

GM is competing with Tesla most directly when expanding sales of electric vehicles. GM’s market share in the US for EVs rose to more than 8% for the third quarter, up from 4%. As governments continue to invest money into greener energy sources, it’s going to be worth paying more attention to this sector.

GM plans on increasing production of its Chevrolet Bolt EV and Bolt EUV to 70,000 vehicles next year, which would be up from 44,000 this year. GM will make further announcements about the scaling of its electric vehicles during the Investor Day on November 17. The company will also launch three new EVs in 2023: the first fully-electric Silverado pickup truck, Chevrolet Blazer EV, and Chevrolet Equinox EV crossover models.

GM has gone on record saying their plan is to stop selling gas-fueled vehicles altogether by 2035. So we’ll have to watch closely to see what happens with the adoption of electric vehicles in society.

The transition towards renewable energy

As the world transitions towards renewable energy sources, we’re going to see how this impacts GM and how quickly they respond to the opportunity. The company recently announced that all of its facilities would be powered by renewable energy sources by 2025. As companies and governments worldwide focus on implementing greener energy sources, this space can’t be ignored.

GM Energy Division is launching soon

GM announced on October 11 that they would launch a new division known as GM Energy. This division will focus on offering “cohesive energy management” services for commercial and residential consumers. Connected product and service offerings include stationary storage batteries, solar panels, and hydrogen fuel cells. GM will also offer the current Ultium Charge 360 public charging service with two additions, Ultium Home and Ultium Commercial, designed to help users manage their power and increase energy self-reliance.

As we’ve looked at in the past, Tesla currently generates substantial revenue from the energy storage industry. So by getting into the business of energy management, it shows that GM is ready to compete with Tesla.

Addressing supply chain issues

We can’t ignore the supply chain issues that have plagued many industries this year as the war between Russian and Ukraine persists. The automobile industry isn’t exempt from these supply chain issues, as Ford announced that it had to restructure its logistics after spending an unexpected $1 billion in additional costs on parts and raw material costs. GM mentioned in their earnings report that they were continuing to negotiate supply agreements and investments in raw materials to help EV growth.

Current economic situation

While the company was able to beat earnings expectations, we can’t ignore the reality of what’s happening in the economy right now. As the Fed continues the most aggressive rate hike campaign in decades to fight soaring inflation, there’s plenty of uncertainty in the economy. Many analysts are worried about what will happen to consumer spending if the rate hikes bring us into a full-blown recession. The current macroeconomic situation is something that must be observed closely in every industry.

Should you buy or sell GM stock?

Many analysts have deemed the GM stock a buy after this recent earnings report. Considering the stock is down over 35% for the year, it’s fair to say that this wasn’t always the case. However, the company looks to be turning things around in spite of the current economic climate. Many stocks have plummeted in 2022 due to the market sell-offs caused by soaring inflation and persistent rate hikes.

GM stock closed yesterday, November 7, at $39.39, and the stock currently has a one-year target price of $48.44. This blue chip stock could be worth adding to your portfolio if you’re looking to add some exposure to the auto industry.

Here are the main reasons why the GM stock could be a buy right now…

New revenue streams

We can’t ignore the importance of adding new revenue streams as inflation soars and automakers are stuck with rising costs for raw materials.

A new service for GM is Ultifi, a software platform for improving vehicle experiences and meeting consumers’ digital demands. Ultifi will be rolling out new products starting in 2023, with experts predicting sales to reach up to $25 billion by 2030. This goes along with the other revenue streams that we mentioned earlier as GM looks to get into energy storage.

Massive growth

You rarely hear about massive companies like GM doubling top-line revenue, as we often associate this type of growth with smaller and less established businesses. The company is planning on doubling its revenue to between $275 billion and $315 billion by 2030 through various new revenue streams and vehicle sales growth.

While making decisions based on expectations is difficult, it’s worth looking at future plans for a company when deciding how to invest your money. We will also have to see how the mass adaption of electric vehicles plays out.

How Should You Be Investing?

Will vehicle sales stabilize? As the world continues to normalize, automobile sales are also increasing. This may make it tempting to invest in the auto industry, but we can’t ignore the potential of a possible recession and its impact on this industry. While people will still need to get around during a recession, chances are that folks would be less inclined to purchase a new vehicle.

With an increased focus on electric vehicles, GM is attempting to capitalize on the push toward greener energy sources. You can start investing in a greener future right now with Q.ai’s Clean Tech Kit. This kit makes investing in the electric vehicle industry simpler because you won’t have to predict which company will perform best in this field. You’ll invest in an industry you believe in without the need to constantly track the prices and news as stock prices fluctuate.