Analysts caution investors as General Motors stands at the threshold of declaring its third-quarter earnings. Everything, from disrupted supply chains to soaring costs-all will put big dents in the Q3 results of GM, say analysts. The report that is soon to come out will show investors how it is trying to face those challenges in a highly volatile market.
Predicting Challenges in the Car Industry
Throughout 2023, the entire automotive industry has grappled with a string of major issues, from an ongoing semiconductor shortage to rising material costs and labor disputes. These have been joined by GM by ongoing investments in electric vehicles as it tries to transform its business for demands in the future.
Analysts are predicting that GM’s earnings may be squeezed by these factors, despite solid sales growth in some segments. As Morgan Stanley analyst Adam Jonas recently explained, “We’re seeing rising earnings headwinds for GM as cost inflation remains persistent and the company faces pressure on margins in key areas.”
This forecast concurs with challenges evidenced in the broader automobile production sector, where producers are forced to contend with soaring raw material prices and supply chain constraints while consumers continue to demand automobiles in reasonably high figures.
Rising costs and the issue with the supply chain
Of all the factors that may be seen to define GM for this third quarter, certainly the most compelling one will be the supply chain problems that the whole auto industry has been struggling to come to terms with for well over a year now. Sustaining production initiatives have not fully emerged, and car manufacturers continue facing challenges of the chip shortage around the globe.
In addition, rising material costs, particularly for essential components in electric vehicles such as batteries, have created further challenges. Aluminum, copper, and lithium prices have remained high, directly impacting the cost of production.
“Cost pressures are expected to have an impact on GM’s profitability in Q3,” said Michael Roberts, an industry analyst with Cowen. “They’ve made progress on some fronts, but the rising costs of materials and the ongoing semiconductor shortages are likely to limit their earnings growth.”
EV Investments and Long-Term Strategy
General Motors has its long-term strategy to expand the EV portfolio despite such short-term hurdles. The company has invested intensely in electric vehicle production and infrastructure, including partnerships with battery manufacturers and new production facilities focused on EVs.
The big component of how GM says it will try to steal market share from Tesla-as well as other conventional automakers-is its push to electrify models. Consumer demand for electric vehicles continues to grow. However such investments also represent significant upfront costs that could weigh on the company’s earnings in the near term.
“GM’s commitment to EVs is forward-thinking, but it’s not without its challenges,” noted Roberts. “In the short term, they’re facing substantial costs, and the returns on these investments will take time to materialize. That’s something investors will have to keep in mind as they assess Q3 earnings.”
Labor Disputes Adding to the Pressure
Another potential headwind for GM is the labor environment. Like many in this industry, it has been under pressure from its unions and workers to pay higher wages and give greater benefits, adding generally to uncertainty over GM’s performance in the third quarter.
Also, recent negotiations with the United Auto Workers union have, while avoiding major strikes, been straining relationships and may result in higher labor costs.
Q3 Analyst Expectations
Analysts are generally cautious but optimistic about the long-term outlook for GM but warn that it may face short-term pain in view of such challenges. While revenues will likely increase due to healthy vehicle sales, especially in high-margin segments like trucks and SUVs, bottom-line numbers could get dragged lower by rising costs and production bottlenecks, according to a consensus viewpoint.
“GM is in a good position in terms of market share and growth in key segments, but the headwinds they’re facing in Q3 are real,” said Jonas. The Q3 earnings report will provide critical insights into how well GM is managing these short-term challenges while staying focused on its long-term vision of dominating the electric vehicle market.
