General Motors (GM 0.12%) will report its third-quarter earnings before the U.S. markets open on Wednesday, Oct. 27. What should we expect?

What Wall Street expects

Wall Street analysts polled by Thomson Reuters expect GM to report adjusted income of $0.82 per share, on automotive revenue of $26.65 billion. That would be a decline from the third quarter of 2020, when strong truck sales (and some pent-up demand amid the COVID-19 pandemic) helped GM to adjusted income of $2.83 per share on automotive revenue of $35.5 billion.

For investors new to auto stocks, here's the jargon decoder: "Adjusted" figures exclude one-time charges and credits, which helps us compare results with GM's past results; "automotive revenue" excludes revenue from GM's financing subsidiary, which helps us compare with other automakers' results.

A 2022 GMC Sierra Denali, a full-size luxury pickup truck, on a mountain road.

In the second quarter, GM prioritized truck production and posted a nice profit. Will that be the story of the third quarter? Image source: General Motors.

How GM's sales fared in the third quarter

GM's two biggest markets, by far, are China and the United States. (GM essentially exited Europe when it sold its Opel subsidiary several years ago.) Sales in both were hit hard by tight inventories, a result of the ongoing global shortage of automotive-grade semiconductors.

  • GM's U.S. sales fell almost 33% in the third quarter from a year ago, with sales of nearly all of its products down by double-digit percentages year-over-year. But in relative terms, GM did fairly well: The General gained over 2 percentage points of retail market share in the all-important (and hugely profitable) full-size pickup segment — though arch-rival Ford Motor Company (F -0.64%) out-sold GM handily in September. 
  • GM's China sales fell 19.2% from a year ago, with all brands except the low-cost Wuling brand down significantly from the third quarter of 2020. Wuling is having great success with an inexpensive electric commuter car called the Hong Guang Mini, which was the best-selling electric vehicle in China in the quarter. GM's Cadillac luxury brand also did relatively well in the quarter, on strong demand for its big XT6 crossover and new CT5 sedan.
A light blue Hong Guang Mini, a small two-door electric commuter car.

The tiny Hong Guang Mini, made by a GM joint venture with Chinese automakers, was China's best-selling electric vehicle in the third quarter. Image source: General Motors.

Special items: GM will get a lot of its Bolt recall money back

GM said on Oct. 12 that a corporate sibling of battery supplier LG Chem has agreed to cover the costs of the ongoing recall of Chevrolet Bolt EVs, roughly $1.9 billion, and that it would recognize that reimbursement in its third-quarter results.

GM has recalled every Bolt ever made on concerns about the potential for battery fires caused by flawed battery cells manufactured by LG; as of early October, there had been 13 confirmed fires. 

What to expect when GM reports earnings

During its second-quarter earnings report in August, GM said that it expected to lose about 200,000 units of production due to the chip shortage, with much of that happening in the third quarter. At the same time, GM boosted its full-year guidance for adjusted operating income, saying that despite the production shortfalls, strong pricing and cost controls elsewhere would help it deliver a good result. 

What does that mean for its third quarter financial results? I think the Wall Street forecast of a lower result year-over-year is probably directionally accurate, though I expect GM to beat the analysts' EPS estimate by at least a little bit. But I also think that — assuming that GM's chip supplies are improving as expected — GM will guide to a strong fourth quarter. That could give the stock a nice boost on Wednesday.