GM’s stock price was down about 7% on Tuesday.
While most of the reciprocal tariffs have been paused, higher, 25% tariffs remain on imported cars and trucks as well as auto parts. This has had a major impact on U.S. automakers, like General Motors (NYSE:GM) as its second quarter earnings showed.
The automaker generated $47.1 billion in the quarter, down around 2% year-over-year, but better than estimates of $46.3 billion.
Net income took a much bigger hit, dropping 35% year-over-year to $1.9 billion, while earnings were off 25% to $1.91 per share. Adjusted earnings were down 17% to $2.53 per share, but they topped estimates of $2.44 per share.
A major reason for the lower net income was the $1.1 billion in tariff-related costs in Q2. The tariffs contributed to overall costs and expenses of $45 billion, up from $44.1 billion in the same quarter a year ago.
For the full calendar year, GM is anticipating a tariff impact of $4 billion to $5 billion, and the expected net impact is anticipated to be higher in the third quarter than it was in Q2.
Keep in mind, there were no tariff impacts in Q1, so the $4 billion to $5 billion will be split across three quarters. At the midpoint of that range, $4.5 billion, tariffs would have a $1.7 billion impact in each of the next two quarters.
Efforts underway to mitigate the impact of tariffs
GM CEO Mary Barra said the car maker is working to mitigate about 30% of the impact through manufacturing adjustments, targeted cost initiatives, and consistent pricing. But some of these adjustments will take time.
“For example, in June we announced $4 billion of new investment in our U.S. assembly plants to add 300,000 units of capacity for high margin light-duty pickups, full-size SUVs and crossovers,” Barra said in the shareholder letter. “This will help us satisfy unmet customer demand, greatly reduce our tariff exposure, and capture upside opportunities as we launch new models. The capacity begins coming online in just 18 months, after which we project building more than 2 million vehicles in the U.S. each year as we scale.”
Despite the cost impacts, GM did fairly well in the quarter, boosting its market share and outperforming the industry in year-over-year U.S. sales growth.
The company maintained its fiscal 2025 guidance, which was adjusted down in the last quarter after the tariffs were announced. It anticipates adjusted EBIT of $10 billion to $12.5 billion, down from the previous range of $13.7 billion to $15.7 billion. It would also be lower than $14.9 billion in 2024. Adjusted earnings remain targeted at $8.25 per share to $10 per share, down from the previous $11 to $12 EPS.
Also, free cash flow is $7.5 billion to $10 billion, down from $11B to $13B. That accounts for some $10B to $11B in capital expenditures, including nearly $5 billion spent in U.S. manufacturing facilities.
GM stock is dirt cheap
GM stock was down some 7% on Tuesday, to around $49 per share. The stock is dirt cheap with a P/E ratio of 7 and a forward P/E of 5, but the high tariffs will likely bite into earnings even more in the next couple of quarters.
Wall Street has a median price target of $55 per share for GM, which would be an 11% increase after today’s selloff.
The stock is so cheap right now, investors might want to kick the tires on it as a long-term play. But they should know that earnings growth will be severely challenged in the near-term.
However, longer term, when new manufacturing facilities are built and it has more favorable year over year comps, it could be a decent option.
