GM Earnings: UAW Strike Not a Huge Hit to Q3, but Q4 Damage May Be Billions
Though we’re reducing our earnings estimates, we still believe GM stock is undervalued.
Key Morningstar Metrics for General Motors
- Fair Value Estimate: $78.00
- Morningstar Rating: 5 stars
- Morningstar Economic Moat Rating: None
- Morningstar Uncertainty Rating: High
What We Thought of General Motors’ Earnings
General Motors GM had a good third quarter, despite about a $200 million adjusted EBIT loss from the United Auto Workers strike. Adjusted diluted earnings per share of $2.28 beat the $1.88 Refinitiv consensus. We are leaving our fair value estimate unchanged, but reducing our 2023 adjusted EBIT estimate by $4.77 billion to account for the impact of the UAW strike lasting the rest of the year and increasing in magnitude during the fourth quarter. This change reduces our 2023 EPS estimate by about 35%.
We are not surprised that management withdrew 2023 guidance, as estimating the duration and magnitude of the strike when not all plants are on strike makes giving guidance practically impossible. GM said the strike is costing the company $200 million a week in EBIT. However, immediately after GM’s earnings call, the UAW called a strike at GM’s sole full-size SUV plant in Arlington, Texas. We estimate Arlington contributes slightly over $5 billion in annual EBIT, so the impact of this plant for the rest of 2023, plus $2.4 billion for fourth-quarter impact excluding Arlington, and $200 million for third-quarter strike loss is the basis for our $4.77 billion estimate. We expect more strikes before a deal is reached, and we expect the union to next hit GM’s heavy-duty pickup truck plant in Flint, Michigan, or its light-duty full-size pickup production in Roanoke, Indiana.
GM is also slowing its electric vehicle scaling efforts (notably by delaying $1.5 billion in capital spending at Lake Orion in Michigan) to better integrate learnings in engineering and software into EV production. Management has therefore withdrawn its target of making 400,000 EVs for 2022 through June 2024, but they remain committed to exiting 2025 with 1 million units of North American EV capacity. However, CEO Mary Barra stressed that if the demand is not there for 1 million, GM will not make them. We are not bothered by this slowing because GM still makes ample profit on its combustion portfolio and more charging infrastructure is coming next year.
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