The keys to GM’s Q3 success: Cheaper cars, lower rates and EV sales
General Motors was supposed to have a good third quarter. At least, that’s what Wall Street forecasters thought.
But those analysts got it wrong. The carmaker reported Tuesday morning that it had a great quarter. GM said it expects to generate $14 billion to $15 billion in pretax profit this year — up from its estimate earlier in the year.
And the company’s stock is creeping back up toward highs it hit during the pandemic, back when everybody seemed to be buying new cars.
Meanwhile, shares in GM’s rivals in the old U.S. “Big Three” — Ford and Stellantis — have seen their prices fall.
The key to GM’s success? It’s more like a set of keys. The first: GM is coming back from a terrible third quarter last year, said Sam Fiorani, vice president of global vehicle forecasting for AutoForecast Solutions.
“GM, as well as Ford and Stellantis, had a terrible quarter last year because of the [United Auto Workers] strike. So they were already at a lower point to start with,” he said.
Another key? Yes, interest rates are coming down, but they’re still pretty high. And that’s made life expensive.
“Mortgage rates are high. Rent rates are high,” Fiorani said. “When you’re trying to cut costs everywhere … people are looking for the least expensive way to get into a new vehicle.”
And he said GM is a leader in the new-car-under-$30,000 market.
Paul Jacobson, General Motors chief financial officer, said the third big key to the company’s success is electric vehicles.
“In the third quarter, we were able to become the No. 2 producer of electric vehicles in the U.S.,” he said.
Second, of course, to Tesla.
Jacobson said GM sold 50% more EVs this quarter than last. But electrics still only make up 1% to 2% of its total production.
“Generally, we’re still very, very much in the internal combustion engine vehicle business. But as we’ve been scaling up this year, we’ll produce about 200,000 electric vehicles, which will be a record for us,” he said.
Record-breaking growth, but GM is still a ways away from its original goal of having produced a million EVs by 2025.
“I’m not fully convinced that this data addresses any concerns that one might have for the longer horizon,” said David Bieri, a professor of public policy at Virginia Tech.
Bieri is not celebrating. He said GM’s quarterly earnings report doesn’t fix what he called the elephant in the EV market room: “Can they compete against the seemingly all-dominant Chinese car manufacturers?”
Despite that competition, Jacobson said he expects the company to see similar earnings next year, thanks in part to falling interest rates.