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General Motors (GM +8%) is trading sharply higher after the automotive giant reported strong upside Q3 results this morning. GM has now posted $0.35+ EPS beats in three consecutive quarters. Revenue rose 10.5% yr/yr to $48.76 bln, which was much better than expected and its first double-digit growth since 2Q23. GM raised its FY24 adjusted EPS to $10.00-10.50 from $9.50-10.50, but it was roughly by the same amount as the Q3 beat.

• Adjusted EBIT is the most closely followed metric. It jumped 15.5% yr/yr but fell 7% sequentially to $4.12 bln in Q3, with a 8.4% adjusted EBIT margin vs 8.1% in the year ago period. GM also boosted the low end of FY24 adjusted EBIT guidance to $14-15 bln from $13-15 bln. What really stood out was GM substantially boosting its FY24 adjusted automotive free cash flow guidance to $12.5-13.5 bln from $9.5-11.5 bln.
• EBIT margin was driven by higher wholesale volumes, strong pricing, ongoing cost containment and the EV valuation allowance benefit was up $900 mln yr/yr and better than what GM assumed in its guidance. About half of the pricing benefit was from really strong performance from its mid-size SUVs, especially the Chevrolet Traverse.
• There was a lot of good information on the call. For one thing, revenue growth was driven by volume growth in both ICE (internal combustion engines) and EVs. Also, GM mentioned it benefitted from some pull forward from Q4 into Q3, which likely explains some of the big upside. Q3 benefitted from a pull forward of some full size SUV production to support the ramp of the refresh model during Q4. Also, GM prioritized full size pickup availability. GM estimates these factors boosted sales by around $400 mln.
• During Q&A, GM was asked about the competition. GM said it sees a lot of behavior from competitors , including higher incentive levels. GM will continue to manage its portfolio to its own demand. Dealer inventory levels ended the quarter at 68 days for ICE vehicles, along with 10-12 EVs per dealer to help increase customer awareness. The seasonally strong Q4 sales period, launch timing and lower wholesales puts GM on track to end the year with total ICE inventory in its targeted range of 50-60 days.
• China was a problem area in Q2, but it sounds like some progress has been made. GM says its growing portfolio of EVs and plug in hybrids played a key role. In fact, its new EVs outsold ICE models for the first time. GM says it has made progress aligning production to demand in Q3. Importantly, GM's dealer inventory has been reduced by more than 50% since the start of the year, which will allow GM to better manage pricing and costs.

Overall, investors clearly like what they see in GM's Q3 report. Even if some of the big upside was caused by a pull forward from Q4, the results were still nicely ahead of expectations, fueled by strong volume and pricing. Also, GM was somewhat more positive on China. While it remains a competitive market, GM made progress aligning production to demand and EV sales seem to have done better. We think this report bodes well for GM's suppliers and Ford (F) as we move through earnings season.