In case you hadn't heard, General Motors (GM +0.45%) had a fabulous third quarter.
Non-GAAP (adjusted) earnings came in well above expectations, and sales, while down 0.3% year over year, also topped forecasts from Wall Street analysts. GM scored $48.6 billion in total sales for the quarter, and then raised guidance for the rest of this year.
GM sold 710,000 vehicles in the U.S. in Q3 -- the best result of any automaker. Year to date, sales are up 20% year over year at 2.2 million vehicles. All things considered, "no one is in a stronger position for a changing U.S. market than GM," according to GM North American President Duncan Aldred.
And part of the reason for that is the Chevrolet Equinox electric SUV.
Introducing GM's most successful EV
Excluding only models from Tesla, GM's Chevy Equinox has become "the best-selling EV in the U.S.," says electric cars news site Electrek. The Equinox EV has real sales momentum, scoring more than 25,000 sales in Q3 alone -- nearly as many as it sold in Q1 and Q2 combined.
Partly, this was a function of EV shoppers rushing to place their orders before the federal government shut down its EV income tax credit at the end of the quarter. But it's also a function of the vehicle's quality. As Electrek points out, the Equinox EV boasts a 319-mile range fully charged (that's roughly equivalent to the range of Tesla's Model Y electric SUV), but has a starting MSRP under $35,000 -- $5,000 less than the cheapest Model Y available.
Even without much help from "incentives," says Electrek, the Equinox EV "has been GM's biggest hit," moving 25,085 units in Q3 alone, thanks largely to its average sales price beating those of most other top-selling EVs.
But for GM, this good news is about to turn into some bad news.
Taxes and credits and recalls (oh my!)
GM's most obvious problem with the Equinox is also one of the biggest reasons the SUV sold so well in Q3. The $7,500 government tax credit that encouraged car shoppers to bite the bullet and buy a new Equinox EV before the credit expired at the end of Q3... has now expired. Removing this government incentive is almost certain to diminish demand for the Equinox EV -- indeed, for all EVs -- in Q4 and beyond.
But it turns out Chevrolet has a second problem with the Equinox EV, above and beyond rebate quirks and U.S. tax law: Just last week, the U.S. National Highway Transport Safety Administration announced a recall on the Equinox EV.
In a notice dated Oct. 16, NHTSA announced the recall of 22,914 Cadillac Optic and Chevrolet Equinox EV vehicles from the 2025-2026 model years. (Also built by GM, but at the luxury Cadillac division, the electric Optic SUV is essentially an upgraded, premium version of the Equinox EV, sharing the same platform and the same battery technology.)
GM sold 4,886 Optiqs in Q3, by the way. Add these to the 25,085 Equinoxes sold in the quarter, then divide the total into the 22,914 Optiqs and Equinox EVs recalled... and effectively 76% of GM's Q3 sales of these two models just got recalled.
NYSE: GM
Key Data Points
What it means for General Motors stock
Now the good news is that this isn't necessarily GM's fault. According to NHTSA, it's recalling only Optiq and Equinox EVs "equipped with 21-inch Continental all-season tires," because "one or more of these tires may experience partial or full tread detachment." That makes it sound like this is a problem caused by the tires' manufacturer, Germany's Continental AG, and not by GM.
It also doesn't sound like a particularly difficult problem to fix, as NHTSA says all a car owner needs to do is bring the affected EV into a GM dealership to have the tires examined and replaced if necessary -- free of charge. So not much more complicated or time consuming than a tire rotation.
Still, getting tagged with a recall notice may take some wind out of GM's sales and depress sales of the Equinox temporarily -- at a time, right after the expiration of the government tax credits, when sales were already bound to be slow.
So what does this mean for GM, and for GM stock investors? Up until the recall announcement, analysts polled by S&P Global Market Intelligence were expecting GM to book $185.8 billion in sales this year, and earn $8.77 per share on those sales. A sharper-than-expected slowdown in EV sales on GM's most popular EV could blunt those numbers a bit.
All this said, with GM stock selling for less than 8 times earnings, expected to grow earnings 8.5% annually over the next five years, and paying a modest 0.9% dividend yield, the stock looks cheap to me. Even in the face of this recall announcement, I think it's probably safe to continue to own GM stock.
