In a year of disappointing returns for auto companies, General Motors (NYSE: GM) has excelled among them. The stock has provided investors with a total return of just around 51% this year, the highest mark among automakers traded on U.S. exchanges. In fact, it's one of only three firms in the green this year. Its “Detroit 3” competitors, Ford (NYSE: F) and Stellantis (NYSE: STLA), have returned -4% and -41%, respectively. So, why has GM had so much success this year while its rivals flounder, and can it continue that path going forward?
One area where GM has had an advantage over Ford is the EVs. Up until October, the number of EVs that GM was selling lagged behind Ford. That wasn’t necessarily all bad, as these vehicles are still very unprofitable. Ford has faced massive losses in its Ford Model e segment, which contains its EVs. In Q2, the company recorded a close to -100% operating margin in this segment. This means that it essentially had to spend $2 to make $1 in sales.
GM: Gaining Ground in EVs
A similar analysis is a bit difficult because GM doesn’t specifically break down its profitability for its electric vehicles. However, it does say it believes it will achieve “positive variable profits” in EVs in 2024. The company will be profitable on the parts and labor for each vehicle. But, it won't be when factoring in fixed costs like overhead. This is a step in the right direction for GM.
In comparison, Ford's profitability in EVs has been getting worse. In Q2 2023, the segment's operating margin was -71%. So, although it's impossible to compare the two on a one-to-one basis, it seems GM is making more progress toward EV profitability than Ford.
To make matters worse for Ford, GM has also overtaken it in terms of EV sales. GM has sold over 70,000 EVs through the first nine months of 2024, compared to nearly 68,000 at Ford. GM is also ahead of the game when it comes to the number of models released. It currently has six consumer EVs versus just two at Ford.
In its Oct. 22 earnings announcement, Cadillac also announced three more EVs it plans to release in 2025 under the Cadillac brand. The company has a diverse pricing strategy. Its Chevy Equinox EV is the “most budget-friendly" EV in the U.S., able to travel over 300 miles on a single charge. The Cadillac, Hummer, and Silverado EVs offer a higher price range for more affluent customers.
GM Takes the Cake in Large ICE Vehicles
The company is not only showing strength in EVs but also maintaining arguably the strongest position among U.S. internal combustion engine (ICE) carmakers. It has a whopping 44% share of the full-size pickup truck market and an even more impressive 64% market share in large SUVs. It ranks number one in both categories. This is particularly beneficial for the company, as these large vehicles are typically the most expensive and allow for the highest profit margins.
The company is also securing lithium resources to build EV batteries for the long term. It recently increased its investment in North America's largest lithium source mine, which now sits at nearly $1 billion. This helps secure the company’s ability to have a reliable source of minerals as the adoption of EVs picks up over time.
Another reason I like GM is that it hasn’t faced as much pressure from unions. The United Auto Workers (UAW) have threatened strikes at both Ford and Stellantis but have yet to do so at GM. However, the more relative success the company has, the more likely unions will come knocking.
GM: A Strong Company in a Difficult Industry for Investment
GM's very strong position in large ICE vehicles and continued progress in EVs make it a strong company right now and in the future. This is especially true as the expected speed at which EVs will increase their overall market share compared to ICE vehicles has slowed. This helps companies in both arenas versus those focused only on EVs.
Right now, GM’s forward price-to-earnings ratio sits in the middle of the pack when looking among some of the largest automakers worldwide. But, as a long-term investment, it is hard for me to justify an allocation to a legacy U.S. auto company compared to the overall market. Over the past five years, GM and Ford stock have returned around half that of the S&P 500.
