Wall Road fears GM is in for a more durable 2023 than it is letting on

General Motors Co. Chief Executive Officer Mary Barra during the South by Southwest Festival in Austin, Texas March 14, 2023.

Jordan Vonderhaar | Bloomberg | Getty Images

DETROIT – Doubts are creeping in on Wall Street about the rest of 2023 General Motors.

The company on Tuesday beat Wall Street earnings expectations for the first quarter and raised its 2023 guidance above analyst consensus, but investors are asking questions about the company’s ability amid broader economic challenges and an auto industry turning away from expensive ones Vehicles and record profits normalized to pass.

That helps explain why GM shares are down nearly 6% through Wednesday from GM’s first-quarter earnings report, trading just over $32 a share. Wednesday saw the stock’s lowest close since October, with the stock down 26% from its 52-week high of $43.63 a share. The stock is down 2.75% for the year after closing at $32.72 on Thursday.

“GM continues to do the right things, but we believe that the normalization of the cycle and the challenges in the EV ramp create a difficult investment thesis,” Barclays analyst Dan Levy said in an investor note on Wednesday, reiterating an equal-weight rating that was lowered however, the company’s target price for the stock by $3 to $42 per share.

Analysts say that declining pricing power, labor issues and electric vehicle manufacturing challenges will pose major challenges for the Detroit automaker.

price pressure

GM CFO Paul Jacobson said Tuesday that the company expects new vehicle prices to remain stable compared to last year. He said US consumers paid an average of $50,263 per vehicle during the quarter, down 1% year-over-year.

Higher prices are bad news for consumers but great news for automakers, BofA Securities analyst John Murphy noted in an investor note on Wednesday titled “They Hate It, We Like It: Execution and Price Drivers Beat and Raise.”

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GM’s stock price since Mary Barra became the automaker’s CEO on January 15, 2014.

GM on Tuesday raised its full-year adjusted earnings guidance to $11-13 billion from $10.5-12.5 billion. However, those results represent a decline of between 10% and 24% from the roughly $14.5 billion in adjusted revenue it reported in 2022.

Wells Fargo analyst Colin Langan called GM’s forecast upgrade on Wednesday “surprising given price risks, particularly in China, and rising steel costs.” He cited the company’s price expectations, which he described as “bullish,” as a key concern.

GM has shown caution not to overproduce this year, helping to keep inventories in line with demand and prop up prices. The company shut down pickup truck production at an Indiana plant late in the quarter to keep inventories below historical levels.

However, amid growing concerns of a union strike, such a review could take place later this year.

union threats

GM is nearing negotiations with the United Auto Workers and Canada’s Unifor union, bringing the potential for walkouts and increased labor costs.

Labor costs don’t usually skyrocket as a result of regular negotiations, but for the first time in decades a new leadership team is in place at the UAW and promises more contentious negotiations than in recent history. The new union leadership worked to reform the organization and stand up against the automakers.

“We are here to come together, to prepare for war against the only real enemy: multi-billion dollar corporations and employers who refuse to give our members their fair share,” said incoming UAW President Shawn Fainden members during a union convention in Detroit last month. “It’s a new day in the UAW.”

Labor strikes can be costly and deplete vehicle inventories. A 40-day strike against GM during the last round of negotiations four years ago cost GM about $3.6 billion in 2019, including $2.6 billion in fourth-quarter earnings before interest and taxes.

GM CEO Mary Barra told investors Tuesday the automaker is working to “build a strong relationship with new leadership,” but declined to speculate on the talks and the company’s expectations for the negotiations.

“We’re working to make sure we develop a strong relationship with the new leadership, getting to know them and making sure we identify the challenges the company is facing, and then we work together to resolve the issues that are in a good place,” she said.

GM’s shares are down 19.5% since Barra became CEO in January 2014 and 52% from a high of $67.21 set during intraday trade on Jan. 5, 2022. Her low during her tenure was $14.33 per share on March 18, 2020.

– CNBC’s Michael Bloom contributed to this report.