General Motors

Moat: 2/5

Understandability: 2/5

Balance Sheet Health: 3/5

GM is a global automotive company, designing, manufacturing, marketing, and distributing vehicles, parts, and accessories through an extensive network of dealers, and also offers financial services through GM Financial.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

General Motors is undergoing a transformation as it navigates the shift to electric vehicles (EVs), addresses production and supply chain issues, and aims to achieve a sustainable and profitable growth trajectory. While they have a strong brand and substantial resources, they are operating in a highly competitive industry.

Business Overview

  • Revenue Distribution: GM operates across multiple regions and business segments.

    • GMNA (General Motors North America): Represents their biggest source of revenue and consists of sales in the United States, Canada and Mexico.

    • GM International (GMI): Consists of automotive operations outside of the North America region. Their largest operations are in China and South America.

    • GM Financial: Provides financial services to customers and dealers, including financing for vehicle purchases, leases, and loans.

  • Industry Trends:

The automotive industry is undergoing a significant shift towards electrification and autonomous driving. Automakers are also grappling with supply chain issues and fluctuating demand. * Electrification: Electric vehicles are becoming increasingly popular, and automakers are investing heavily in R&D and manufacturing capacities. This also includes more research into battery production to reduce reliance on raw material supply chains. * This trend favors low-cost producers, but also innovation from R&D to make better batteries that will lead to high adoption rates.

*   **Autonomous Driving:** Self-driving technologies are developing rapidly, and automakers are facing the possibility of using new technologies in the future. This will add complexity to production and may change the cost structure of the industry.

*   **Supply Chain Issues:** Global supply chains have been strained by a number of factors including geopolitical tensions and unforeseen events, creating volatility in production volumes. This also increases input costs and lead times.

*   **Changing Consumer Preferences:** Consumers are becoming increasingly sophisticated and are looking for more features, sustainability, and better performance. To keep up, companies must invest heavily in R&D.
  • Competitive Landscape:

The automotive industry is fiercely competitive, with numerous global players vying for market share, both in internal and external markets. They will need a long-term focus on new technologies and a focus on cost-cutting to stay competitive and profitable in the future.

  • Established automakers: Including Ford, Toyota, Volkswagen, Stellantis, and Honda. They have large production facilities, large customer base, and well-known brands. They also have experience dealing with the volatility of the automotive industry.
  • Emerging EV players: Companies such as Tesla, Rivian, and Lucid, who have created excitement in the marketplace for their pure electric offerings. These companies are highly valued and have large cash reserves.
  • China’s EV companies: Many companies have been gaining market share in China, where government policies are favoring EVs. A few of the top names to watch are BYD, Nio, XPeng, Li Auto.

  • New Entrants: With the rise in autonomous driving and new electric technologies, new entrants are trying to take advantage of the shift in the industry. It remains to be seen if they will be able to disrupt the traditional automaker.

  • What Makes GM Different:

GM is trying to transform itself with new EV lineups and a focus on cutting costs, but they have struggled with a high valuation. * Legacy and Scale: GM has an enormous global manufacturing capacity, a wide dealer network, and a well known brand. * EV transition strategy: GM has committed billions of dollars to EV development and manufacturing, with plans to offer all-electric models across their brands. * GM Financial: GM has integrated financing operations that provide services to customers and dealer financing solutions that are part of the strategy. * Autonomous Vehicles: GM is investing heavily in Cruise, its autonomous vehicles and transportation-as-a-service division.

Financials Deep Dive

  • Recent Financial Performance (2022-2024):
    • Revenue and Margins: GM reported a 1.4% increase in revenue to $44.1 billion in 2024, but experienced challenges in its GMI region. Automotive gross margins improved 1.2 percentage points to 19.6%, partially offset by rising commodity and logistics costs. In general, their margins remain under pressure and need attention.
      • Revenues have shown good growth, with GMNA’s revenue being consistently high, but GMI has been less consistent because of factors relating to the Chinese market.
      • GM Financial has continued its strong performance, contributing substantially to revenues.

    • Profitability: Although a bit inconsistent, GM has managed to stay in the green, even in highly volatile environments and a tough automotive industry.

    • Cash Flows: GM generates substantial cash flows from its auto business, which are typically used to support both investments and acquisitions.

    • Challenges in the market: GM struggled with sales in Europe due to the war in Ukraine as well as some internal production issues that caused lower revenue during some periods.

    • Debt levels: GM’s debt levels are under control.
      • They’re actively trying to manage debt maturities, but are still exposed to interest rates.
  • Key Financial Metrics (2023 Full Year):
    • Net revenue: $171.8B
    • Operating income: $14.5B
    • Adjusted EBIT: $14.7B
    • Net income attributable to stockholders: $9.9B

In the short-term, GM must navigate through supply chain issues, competition from other automakers, and manage the transition to Electric vehicles. However, in the long-run, GM’s main struggle is to position itself for a future where there is heavy adoption of self-driving electric vehicles.

  • Moat Rating: 2 / 5

    • Brand Recognition: While GM brands are well known and have significant sales, consumer preference can be very fickle and it’s tough to argue they have pricing power over smaller and cheaper competitors.

    • Scale and Manufacturing Capacity: These create a barrier for entry, but it has not given a particular advantage. GM is still struggling with profitability and margins.

    • Distribution Network: GM has a vast dealer network, but this is easy to replicate for any new player.

    • Technological Advantage: GM is trying to improve its technology, especially in EV and self-driving, but they are not the leaders in these fields.

    • Conclusion: GM is a decent company, but does not demonstrate the ability to generate long-term outperformance. Hence they get a moat rating of 2.

  • Legitimate Risks to the Moat and Business Resilience:

*   **Technological Disruption:** Rapid technological changes, such as the development of better electric batteries, could severely reduce GM's economic moat.
*   **Increased Competition:** Increasing competition from existing automakers, electric-only players, and new entrants.

*   **Supply Chain Issues and Geopolitical Risk:** Ongoing disruptions to supply chains and fluctuating input costs for manufacturing will continue to erode margins.

*   **Brand Erosion:** Negative consumer perception, or changing trends, can cause erosion in GM's brands and reduce profitability and sales.

*   **High Debt Levels:** They need to focus on managing debt loads and interest payments in a rising interest rate environment.

  • Business Resilience: Even though the business is under pressure now, GM still has a large revenue stream and generates substantial cash flows, which can help support it through difficult times. They have enough access to capital to invest into the changes needed for the future.

  • Understandability: 2 / 5
    • While the core business of manufacturing and selling vehicles is fairly simple, understanding the company’s long-term strategies for electric vehicles, the impact of government regulations and tariffs, and their relationship with GM Financial makes it complicated for most investors to grasp. In addition, accounting rules related to depreciation and goodwill make some of the calculations far from simple.
    • Given the sheer scale of the company, its global footprint and various segments, it can be difficult for an average person to comprehend it all in its totality.
    • They also utilize complicated financial instruments for managing and mitigating risk, which can be very tough to understand without significant experience.
  • Balance Sheet Health: 3 / 5
    • While GM has a decent liquidity and manageable debt, it is still too early to see if they will be profitable in the future.
    • They have a significant presence in China, which is facing a downturn that could harm GM financially.
    • The overall equity position of the company is ok, but they are still struggling to create value from their assets, which may require an equity injection in the future.