On Wednesday, Deutsche Bank (ETR: DBKGn) maintained a Hold rating on General Motors (NYSE: GM) with a steady price target of $50.00. The firm’s analysis acknowledges GM’s stock price increase on Tuesday, attributing it to a favorable response to the company’s first-quarter performance and revised upward guidance.
General Motors management highlighted an anticipated improvement in second-quarter EBIT, driven by increased volume and recovery in its international markets, including China. However, some potential pricing weakness was noted, which has not been evident in April so far.
General Motors’ updated guidance suggests an approximate 25% decrease in EBIT for the second half of the year, primarily due to pricing challenges, despite planning around a 2-2.5% decline for the remainder of the year. The company’s pricing has remained stable in April, and if this trend continues, it may positively impact the full-year outlook.
At the same time, the transition to electric vehicles (EVs) is expected to affect the product mix, as EV volumes are projected to increase in the second half with lower margins compared to internal combustion engine vehicles. The automaker has reiterated its near-term EV targets, which include producing 200-300k EV units and achieving a positive variable profit in the second half of 2024. Additionally, GM aims for a 60-point EBIT margin improvement in 2024 and a mid-single-digit EV EBIT margin in 2025.
The company reported a 300% increase in battery module production over the past six months and plans to double the current capacity over the summer. Nevertheless, these goals present execution risks and require significant acceleration.
General Motors has indicated that it will hold its previously postponed Investor Day in the fall of 2024, although the exact date has not been set. This event is expected to provide investors with more information on EV progress and other company updates.
In light of the latest guidance, Deutsche Bank has increased its 2024 EBIT estimate for GM to $13.6 billion, slightly above the guided range of $12.5 billion to $14.5 billion, and raised its EPS forecast to $9.50 from $9.35. Despite the upgraded forecasts, the firm maintains its price target of $50, which is based on a valuation of 2.5 times the estimated 2024 auto EBITDA plus 5 times the equity income from China. The Hold rating is sustained as the firm awaits further evidence of successful EV execution.
