/General%20Motors%20Company%20phone%20and%20pump%20by-%20Below%20the%20Sky%20via%20Shutterstock.jpg)
2024 will go down as one of the worst years for Western automakers in an otherwise “normal” environment. The long-predicted U.S. recession remained as elusive as it was last year, and auto sales were reasonably strong in 2024. Higher interest rates, which were touted as a key negative for the auto sector, have also been coming down in the U.S. and Europe.
However, auto stocks still had a horrible year. Ford (F) stock is down over 18% on the year, while Toyota (TM) has lost 5.5% over the period. European automakers had an even worse time, with Volkswagen (VWAGY) losing 28% while European-American automaker Stellantis (STLA) has lost 43%.
One name that stands out is General Motors (GM). The Detroit giant is not only in the green and outperforming other legacy automakers – but with YTD gains of 42%, it is outperforming the S&P 500 Index ($SPX), as well.
In this article, we’ll discuss why GM outperformed other auto stocks in 2024, and whether the Mary Barra-led company can continue its winning streak in 2025.
Why did GM Stock Outperform in 2024?
Western automakers faced multiple headwinds this year. Foreign automakers are having a tough run in China, where buyers are now increasingly preferring domestic brands. Moreover, the European auto industry, particularly in the electric vehicle (EV) space, battled an onslaught of cheap imports from China.
Automakers ranging from Toyota Motors, Honda (HMC), Stellantis, Volkswagen, and Aston Martin lowered their 2024 forecasts, highlighting the troubles the sector is going through. In contrast, the U.S. automotive industry, specifically GM, seemed like an island. GM has raised its 2024 guidance for three consecutive quarters, and now expects to post adjusted pre-tax earnings between $14 billion-$15 billion this year.
While Ford has been struggling with its EV strategy, GM become the second-largest seller of electric cars in the U.S. behind market leader Tesla (TSLA). It expects to wholesale 200,000 EVs this year, maintaining the guidance during the Q3 earnings release.
GM expects its EV business to churn out a variable profit in Q4, and predicted that the segment’s operating losses will fall by between $2 billion-$4 billion next year. GM has been aggressively cutting costs, including through layoffs. The company also gave up its robotaxi ambitions, which it expects will help to save $1 billion annually. GM has also restructured its China operations, which might pave the way for an eventual exit from the mainland, given the increasingly challenging operating environment that Western automakers face in the world's biggest automotive market.
Finally, General Motors has been using its strong free cash flow to repurchase shares, and has extinguished almost a fifth of its shares since announcing the mega $10 billion buyback plan last year - which it topped up by another $6 billion authorization in June.
GM Stock 2025 Forecast
Of the 25 analysts covering GM stock, 11 rate it as a “Strong Buy” and 1 as a “Moderate Buy.” Eleven more analysts rate it as a “Hold” while the remaining 2 have given it a “Strong Sell" rating. GM’s mean target price of $60.31 is 18% higher than Dec. 17 closing prices, while the Street-high target price of $98 is almost 92% higher.
Can General Motors Stock Continue to Rise in 2025?
GM expects its 2025 profits to be “similar” to 2024, despite forecasting a fall in its EV losses. The guidance was intriguing, as it implied a massive deterioration in profits of its legacy internal combustion engine (ICE) business. Responding to an analyst question on the 2025 guidance during the Q3 earnings call, General Motors CFO Paul Jacobson said that while the company will provide the quantitative guide for 2025 during the Q4 earnings call, its current projection bakes in higher employee costs for the year.
I believe GM’s guidance might be a bit too conservative, especially if the company can come anywhere near the improvement it is forecasting for its EV business. Also, GM has announced layoffs and exited the robotaxi business since the Q3 confessional, and these should be incrementally positive for its 2025 earnings. GM should continue to be a free cash flow powerhouse, and given the company’s focus on improving shareholder returns, we can expect another buyback announcement next year.
Finally, GM’s valuations are still quite tepid, and it trades at 5.6x its expected earnings over the next 12 months. While automakers in general have been trading at single-digit multiples amid concerns over their legacy ICE (internal combustion engine) businesses getting past their prime and less-than-impressive EV pivots, I still see scope for GM stock to deliver healthy returns in 2025 on the back of its earnings growth and multiple expansion. As Wedbush analyst Dan Ives said, "This could be a triple-digit stock if they execute."
A Key Risk That GM Investors Face in 2025
One headwind could be any potential tariffs that Trump imposes on imports from Canada and Mexico - both of which are quite critical to the U.S. automotive supply chain. Any potential tariffs could lead to an increase in costs for GM, which has 5 assembly plants in Mexico and produces its pickup trucks there.
Automakers would then be forced to either absorb the tariffs or pass them to car buyers – and both options have their own pitfalls. While absorbing the tariffs could dent margins, passing them to buyers might end up dampening demand.
All of that said, I believe GM still has the scope to run higher in 2025, unless we see a sharp deterioration in macro conditions. The company has impressed with its performance this year, and if management can continue to execute well next year, GM stock should continue its upward trajectory.
