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General Motors (GM -6%) is trading lower despite the automotive giant reporting upside Q2 results this morning. GM has now posted back-to-back $0.35+ quarters. Perhaps even more important, GM raised its FY24 adjusted EPS to $9.50-10.50 from $9.00-10.00. GM also boosted FY24 adjusted EBIT guidance to $13-15 bln from $12.5-14.5 bln. GM also announced a $6 bln share buyback authorization.

• Adjusted EBIT is the most closely followed metric. It jumped 37% yr/yr and 15% sequentially to $4.44 bln in Q2, with a 9.3% adjusted EBIT margin, up sharply from 7.2% in the year ago period. Adjusted EBIT was driven by higher volume, consistent pricing, the non-recurrence of the LG agreements and decreases in EV inventory allowance. All partially offset by lower mix and China equity income.
• In 1H24, GM posted adjusted EBIT of $8.31 bln (+18% yr/yr). However, doing the math, that points to a lower 2H adjusted EBIT in 2H vs 1H given the $14 bln guidance (mid-point). GM is assuming a bigger pricing headwind in 2H and roughly $1 bln of costs are 2H-weighted, including $400 mln higher marketing spend to support more launches in the back half of the year. The remainder is related to higher commodity prices, particularly copper and aluminum, and the timing of other EV costs.
• Trucks/SUVs continue to propel GM's overall results. GM noted that its refreshed midsize SUVs are some of the fastest growing vehicles in the segment, supporting stable pricing and generating stronger margins than preceding models. Chevrolet Silverado and GMC Sierra volumes in the US were up a combined 5% yr/yr. In addition, sales of its redesigned Chevrolet Colorado and GMC Canyon midsize pickups were up 31%.
• Another strong area was EVs, which surprised us a bit given all the sky-is-falling reporting around EV demand. Total US EV deliveries rose 40% yr/yr to 22K. EV volumes are expected to build sequentially every quarter in 2024 to achieve GM's full year target of 200,000-250,000. GM is also scaling production of the Chevrolet Equinox EV, which it sees as a game changer in terms of price and range. Then over the next several months, GMC will launch the Sierra EV and the Cadillac LYRIQ will be joined by the OPTIQ, Escalade IQ and CELESTIQ. GM maintains its goal of positive variable profits in EVs by Q4.
• A clear trouble spot was China, which continues to suffer from significant excess capacity. Many startups and local competitors continue to prioritize production over profitability. GM has been reducing inventories, aligning production to demand and reducing fixed costs. While these steps have been significant, they have not been enough. GM had expected to return to profitability in China in Q2. However, it reported a loss and expects the rest of the year will remain challenging.

The stock initially popped when results were announced on the strong upside for EPS and revenue. Its core business of gasoline vehicles, especially trucks are SUVs, are propelling overall results with solid pricing. We were also surprised about the generally positive commentary on EVs given the weak industry demand. However, GM is really struggling in China as it's facing stiffer competition from local automotive brands. We also think the impact of higher costs on 2H adjusted EBIT is weighing on shares today.