Story Stocks^®

General Motors (GM -7%) is lower despite reporting upside Q2 results this morning. GM posted upside for EPS. Revenue fell 1.8% yr/yr to $47.12 bln, but that was better than expected. Notably, this was GM's first yr/yr revenue decline since 4Q23. Importantly, GM reaffirmed FY25 guidance for adjusted EPS at $8.25-10.00 and adjusted EBIT of $10.0-12.5 bln. The guidance was lowered post-tariffs on May 1 and that was reaffirmed today, which was good to see.

• GM noted that its industry saw a spike in demand during Q2 due to tariff-related sales pull ahead, especially in April and May. Then in June and July, demand returned to levels that are in-line with its full year outlook of 16 mln units. Throughout 1H25, GM outperformed the market in total fleet and retail market share yr/yr and that is despite increased incentives from competitors. And it did this while still being able to lower dealer inventories almost 10% yr/yr at the end of Q2.
• Speaking of tariffs, they took a $1.1 bln bite out of GM's adjusted EBIT in Q2, which fell 31.6% yr/yr to $3.04 bln. In fairness, the tariffs are recent, so it will take time for GM to reconfigure its supply chain. As such, there were minimal mitigation offsets in Q2. GM said that mitigation efforts will take time to yield results, but it's still tracking to offset at least 30% of the $4-5 bln FY25 expected tariff impact. A clear priority is to grow its US manufacturing footprint and domestic supply chain.
• Tariffs were not the only issue. Warranty expenses have also been obscuring GM's otherwise strong performance, including a $300 mln yr/yr increase in Q2. The higher warranty expenses relate mostly to L87 (EcoTec3) engine issues used in various trucks and SUVs. There have been recent recalls and lawsuits due to potential engine failures. GM is pursuing multiple paths, including improving supplier quality and GM is engaging more on their critical component operations.
• The company noted that its incentives remained well below industry average for both ICE (internal combustion engines) and EVs, and its pricing has been relatively consistent. GM was particularly pleased that the performance of its crossovers. GM had 10 new or redesigned crossovers take huge leaps forward in design and technology, resulting in strong demand and revenue growth. Chevrolet Equinox alone gained nearly six points of retail market share.
• EV sales are growing. Five years ago, the EV market essentially had one player. Today there are 30 and Chevrolet is now the number two EV brand thanks to the success of the Blazer EV and the Equinox EV. And in Q2, Cadillac became the number five EV brand. Cadillac has also become the luxury EV leader, fueled by the launch of the Escalade IQ, Lyriq and Optiq. At the same time, electric road trips are getting easier thanks to fast charging collaborations.

Overall, this was not a bad quarter given the upside results, guidance reaffirm (we were fearful another guide down was possible) and China seems like it was a bit better than expected. However, we think investors are focusing on the $1.1 bln adjusted EBIT tariff impact is spooking investors. GM is taking steps to mitigate this, but it will take time. Also, the higher warranty expense was a disappointment as well. The stock has been in a narrow $43-54 trading range the past few months as investors await the tariff impacts. The Q2 report was GM's first since the reciprocal tariffs were announced, it was a bit of a letdown.