GM Beats Earnings Expectations, But Stock Takes a Hit

General Motors reported good fourth-quarter profits. Its first guidance for 2025 also looked promising. Things are looking well for the automaker, even though they have little to do with automobiles.

Investors, however, did not believe it was sufficient. General Motors

The -8.89% forecast assumes no changes in policy from the new Trump administration. No one thinks that's realistic: Shares fell on Tuesday as tariff jitters dominated the day.

In the fourth quarter, GM posted an operating profit of $2.5 billion on sales of $47.7 billion. Wall Street expected an operating profit of about $2.5 billion on revenues of $45 billion.

The numbers were solid. For the entire year, GM sold over 190,000 electric vehicles, falling short of its goal of 200,000. In 2025, GM intends to ship 300,000 EVs. However, this assumes no changes in critical EV policies such as purchase tax credits. President Donald Trump will likely amend the policies, but General Motors did not want to proceed with the new administration.

In 2025, GM estimates an operating profit of $13.7 billion to $15.7 billion. The midpoint of that range, $14.7 billion, is more than Wall Street's current estimate of $13.8 billion.

The midpoint of management's earnings per share expectation is $11.50, up from $10.60 in 2024 and higher than Wall Street's current estimate of $10.80.

GM is carefully managing costs and working to increase EV profitability. It helps, but the most crucial cause for EPS growth could be the "S" in EPS. GM spent almost $16 billion on stock buybacks, and the total number of outstanding shares is less than one billion. That figure was closer to 1.3 billion by the end of 2024.

While the stock rose over 4% quickly after the findings were announced, it fell. The stock closed down 8.9% at $50.04. The S&P 500 (SPX)

+0.92% The Dow Jones Industrial Average (DJIA) increased by 0.9%.

+0.31% Added 0.3%.

"There are three significant open questions about this outlook," stated Wolfe Research analyst Emmanuel Rosner in a Tuesday study. There is a paucity of information on how policy changes may affect GM. North American profit margins were 5.3% lower than predicted, casting doubt on a comeback by 2025. In addition, there was no formal update to management's capital return guidance, which is significant given that GM's stock repurchase authorizations expired in 2024.

On Tuesday, policy details were likely the most pressing problem for the stock. President Donald Trump has threatened to impose 25% tariffs on goods imported from Canada and Mexico. "GM produces 300,000 full-size pickups in Mexico, with 75% to 80% exported to the United States," says Freedom Capital Markets analyst Mike Ward. Tariffs would increase the price of those vehicles, reduce GM's profit margins, or both.

While tariffs remain an issue, strong cash flow is projected to persist. In 2025, GM intends to produce an operating cash flow of $21 billion to $24 billion from the vehicle business. GM plans to invest between $10 billion and $11 billion in the firm. Dividends will burn approximately $500 million, leaving ample for additional share repurchases.

Nonetheless, investors demand details. Share buybacks, more than any other aspect, contributed to GM's outstanding 2024 performance. Shares increased by over 50%, the second-best stock rise among major automakers in the United States, Europe, and China.

Tesla TSLA+0.24% was number one. Its shares rose more than 60%. That had little to do with cars, either. Tesla sold approximately 1.8 million EVs, fewer than it did in 2023. Investors began to focus on AI and self-driving cars. Thus, falling sales became irrelevant. Tesla intends to debut its self-driving robo-taxi service in late 2025. Tesla stock was up approximately 66% on Tuesday morning following the company's robo-taxi day on October 10.

Outside of GM and Tesla, the average decrease in an automaker's shares in 2024 was nearly 25%. Only two other stocks increased. BYD stock rose 23%. Toyota (7203, +1.40%) saw a 6% share price increase.

BYDs may be the sole conventional increase, as higher sales lift shares. BYD sold around 4.3 million passenger cars in 2024, an increase from three million in 2023.

Toyota had a good year, with a constant operating profit, but the stock appeared to trade more in line with the Japanese yen than car sales. Toyota produces a lot of automobiles in Japan. It prefers a weaker yen against the US currency and the euro. While the yen surged significantly over the summer, it dropped near the end of 2024.

The rest of the industry dealt with a wide range of difficulties. Rivian Automotive experienced supply chain challenges that hampered output. Ford Motor had quality issues. Stellantis dealer inventories grew to the point that production cuts were necessary.

In 2025, GM and the industry will face declining new car pricing, prospective tariffs from Trump, new EV policies, stubbornly high borrowing rates, and a slew of other issues ranging from competition to commodity costs. GM stock should do well if the corporation can control costs and provide shareholders with more cash.