February 21, 2024

General Motors CEO Mary Barra during the South by Southwest Music Festival on March 14, 2023 in Austin, Texas.

Jordan von der Haar | Bloomberg | Getty Images

DETROIT – Doubt is running high on Wall Street for the rest of 2023 General Motors.

The company beat Wall Street’s first-quarter profit expectations on Tuesday and raised its 2023 guidance above analysts’ consensus, but investors were wary of broader economic challenges and the auto industry’s move away from expensive vehicles and The ability to perform in the face of record profits has been questioned.

That helps explain why GM’s first-quarter report through Wednesday was down nearly 6 percent on GM stock, which trades at just over $32 a share. The stock hit its lowest close since October on Wednesday, with shares down 26% from a 52-week high of $43.63 a share. The stock closed at $32.72 on Thursday, down 2.75% for the year. (edit)

“GM continues to do the right things, but we believe cycle normalization and challenges to EV growth constitute a tough investment thesis,” Barclays analyst Dan Levy said in a note to investors on Wednesday, reaffirming the view. Weight rating, but lowered the company’s price target by $3 to $42 per share.

Analysts say eroding pricing power, labor issues and the challenge of producing electric vehicles will pose major challenges for the Detroit automaker.

pricing pressure

GM Chief Financial Officer Paul Jacobson said on Tuesday that the company expects new-vehicle pricing to remain stable compared with last year. He said U.S. consumers paid an average of $50,263 per vehicle during the quarter, down 1% from a year earlier.

Higher prices are bad news for consumers but good news for automakers, as Bank of America Securities analyst John Murphy wrote Wednesday in a report titled “You Hate It, We Love It: Execution and price drivers beat and improve,” the investor note noted.

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

On Tuesday, GM raised its full-year adjusted earnings forecast to $11 billion to $13 billion from a previous forecast of $10.5 billion to $12.5 billion. But those results represent a decline of 10% to 24% compared to the estimated $14.5 billion in adjusted earnings reported in 2022.

Colin Langan, an analyst at Wells Fargo, said Wednesday that GM’s guidance increase was “a surprise given the pricing risks, especially in China, and rising steel costs.” He specifically cited the company’s pricing expectations, which he called “bullish. , which is a major problem.

GM has shown restraint this year by not overproducing, which has helped keep inventories in line with demand and supported prices. The company halted pickup truck production at a plant in Indiana around the end of the quarter to keep inventories below historical levels.

However, it may need such stocks later this year amid growing concerns over union strikes.

union threat

GM is in talks with the UAW and Canadian union Unifor, which could lead to shutdowns and increased labor costs.

Labor costs don’t typically skyrocket due to regular negotiations, but a new leadership team is in the UAW for the first time in decades and promises more contentious negotiations than in recent history. The new union leadership has a program of reforming the organization and fighting the automakers.

New UAW President Shawn Fain told members at a union convention: “Together, we are ready to go to war with the only real enemy: the billion-dollar corporations and employers who deny us Members’ fair share.” in Detroit last month. “It’s a new day for the UAW.”

Strikes can be costly and deplete vehicle inventories.40-day strike against GM during last round of talks four years ago GM’s costs in 2019 were about $3.6 billion, which included a $2.6 billion EBIT in the fourth quarter.

GM Chief Executive Mary Barra told investors on Tuesday that the automaker is working to “build a strong relationship with new leadership,” but declined to speculate on the talks and what the company expects from them.

“We’re trying to make sure we have a strong relationship with the new leadership, get to know them and make sure we identify the challenges facing the business and then work together to solve them to make it a great place,” she said.

GM stock has fallen 19.5% since Barra became CEO in January 2014, and is down 52% from a high of $67.21 reached in intraday trading on Jan. 5, 2022. During her tenure, its share price low was $14.33 per share on March 18, 2020.

—— CNBC michael bloom contributed to this report.

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