Please ensure Javascript is enabled for purposes of website accessibility

Will General Motors Stock Pop After Earnings?

By John Rosevear - May 4, 2021 at 12:37PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

GM reports on Wednesday morning. Here's a preview.

General Motors (GM 1.35%) will report its first-quarter 2021 earnings before the market opens tomorrow, May 5. What should auto investors expect?

What Wall Street expects

Wall Street analysts polled by Thomson Reuters expect GM to report adjusted earnings per share of $1.04 on revenue of $32.67 billion, on average. ("Adjusted" earnings exclude one-time items.) That would be an improvement over GM's result in the first quarter of 2020, when it surprised investors by posting adjusted earnings per share of $0.62 while most rivals posted losses amid the initial COVID-19 outbreak.

GM's revenue in that year-ago quarter was $32.7 billion, roughly in line with Wall Street's estimate for the first quarter of 2021. 

GM's U.S. sales were up modestly, but there's more to the story

GM's U.S. sales were up 3.9% in the first quarter, but that number doesn't come close to telling the story. Like most automakers, GM is in a squeeze: A global shortage of semiconductors has forced it to cut back production just as retail demand for new vehicles has surged in markets emerging from the pandemic. 

GM, like Ford Motor Company (F 1.71%) and other rivals, responded to that conundrum by focusing its limited inventories on higher-profit retail sales at the expense of commercial-fleet deliveries. The result: Retail sales were up 19% and fleet deliveries down 35% from the first quarter of 2020. 

A dark silver 2021 Cadillac Escalade, a large truck-based luxury SUV.

U.S. retail sales of the huge (and hugely profitable) Cadillac Escalade were up over 125% in the first quarter, a good sign for GM's profit margin. Image source: General Motors.

The takeaway for investors: While the overall sales gain was modest, the focus on retail deliveries likely helped GM's operating margin in North America.

GM's sales in China surged, but how will profits look? 

Meanwhile, in China, where the pandemic hit early in 2020, GM's sales rose 69% from a year ago. That sounds good, but we should note that the company's 2021 first-quarter total was down about 4% from the same period in pre-pandemic 2019, so it wasn't exactly an outstanding result.

Still, GM is doing reasonably well in China, where an ongoing product-line overhaul is helping to draw consumers at both the affordable and luxury ends of the market. Among the standouts are a little electric commuter car called the Hong Huang Mini EV, with a starting price under $5,000; an upscale Buick minivan called the GL8; and the newest Cadillacs, the XT6 crossover and the CT5 midsize sedan. 

A light blue Hong Huang Mini EV, a small four-seat electric commuter car.

The tiny Hong Huang Mini EV electric car, made by a joint venture between GM and two Chinese automakers, was China's best-selling electric vehicle in the first quarter. Image source: General Motors.

What will that mean for profits? GM's joint ventures with Chinese automakers generated $248 million of equity income in the fourth quarter of 2020, up from a year prior but down from the $400 million to $500 million that GM regularly generated not so long ago. The story last quarter was that competitive pricing pressures have offset increased sales to some extent, and it's likely that we'll hear the same story again when GM reports on Wednesday.

Will GM stock pop after earnings?

I won't be surprised if GM beats Wall Street's adjusted earnings-per-share estimate, giving its shares a boost. As we saw, while sales in the U.S. were only up modestly, there's reason to believe that GM's operating margin in North America will be higher than the (decent) 8.5% it managed in the first quarter of 2020. That, plus the obvious year-over-year gain in China, should have propelled GM to a good result despite competitive pressures and the ongoing chip shortage.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

General Motors Company Stock Quote
General Motors Company
$32.19 (1.35%) $0.43
Ford Motor Company Stock Quote
Ford Motor Company
$11.32 (1.71%) $0.19

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/03/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.