General Motors: When Good News Isn’t Good Enough

Key Points

• General Motors reported a 17% YoY increase in first-quarter deliveries, but tariff concerns pushed the stock lower to the end of the week.
• GM says it will increase production of light-duty trucks at its Fort Wayne plant, but that’s unlikely to make an immediate impact on earnings.
• Although GM stock offers an attractive valuation, investors should wait until late April after the company’s earnings have been announced before getting involved.

General Motors Co. NYSE: GM reported a 17% year-over-year (YoY) increase in first-quarter deliveries.

But that hasn’t been enough to prevent the stock from dropping over 6% in the week that the Trump administration announced its tariff plans.

The specifics of those plans are chilling for the auto industry’s 2025 profits. As of April 3, a 25% tariff is now in effect on any vehicle not assembled in the United States. Additionally, tariffs on certain auto parts—including engines and transmissions—are scheduled to take effect on May 3, 2025.

A JPMorgan analyst estimates the tariffs could cost GM up to $14 billion, which was equal to almost its entire profit for all of 2024. That number is based on estimates of $38 billion of vehicle imports subject to tariffs, with another $4 billion for parts.

Although the news isn’t great for other automakers, analysts project Ford Motor Co. NYSE: F to only take a hit of about $6 billion.

In the past five years, investors have been conditioned to buy every dip. If that’s the case, then this would seem to be a buying opportunity. Or is it? Before you make your decision, it’s important to understand the state of play.

Consumers Front-Run Tariffs

In hindsight (which takes you all the way back to March 2025), it seems logical that consumers would have bought cars in the last quarter. President Donald Trump has talked about imposing tariffs since he was on the campaign trail. And it won’t be surprising to see consumers continue that strong buying activity in the second quarter as they try to front-run any price increases.

General Motors Extends an Olive Branch

Even before the tariff announcement, General Motors CEO Mary Barra informed investors that GM was working on multiple strategies to offset potential tariffs. 

And the company wasted no time in playing one of its cards.

General Motors has already announced that it will increase the production of light-duty trucks at its assembly plant in Fort Wayne, Indiana. However, that's unlikely to diminish the Trump administration's resolve. 

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Is GM a Buy Amid the Sell-Off?

As of the market close on April 8, GM stock is down 18.3% YTD and has now turned negative for the past 12 months.

But forecasting where the stock will go is a different matter. In its fourth quarter 2024 earnings report, delivered in January, GM’s guidance didn’t include the impact of tariffs. How much of a hit will the company’s earnings take?

Before you invest, you’ll probably want to hear what the company says when it reports earnings at the end of April. Even then, your decision to invest in General Motors amid the major sell-off happening in stocks will depend on how you view the short-term outlook for the auto industry.

On the one hand, there may not be a better valuation among automotive stocks than General Motors. As of the market close on April 8, the stock is trading at a forward price-to-earnings (P/E) ratio of 3.81.

For investors with the stomach to go long on the stock, analysts have a consensus price target of $61.00, which would be a gain of nearly 42%. And for traders, the options chain for the week ending April 11 shows bullish and bearish sentiment nearly split down the middle with call options for $47 and put options for $42 getting about the same number of trades.

On his CNBC show Mad Money on April 4, Jim Cramer noted that GM may be the best of the auto stocks, but it was also the “best house in a bad neighborhood.” However, on Squawk on the Street, Cramer also noted that if sales fall dramatically once GM inevitably raises prices, it will likely prompt the Federal Reserve to cut interest rates.

Cramer added that Fed Chair Jerome Powell "knows that once they’re through the inventory and they have to raise the price, then no one’s going to buy!... So you have to cut. It’s a natural cut.”