General Motors (GM) has surpassed Wall Street’s expectations by revealing its optimistic outlook for 2024 earnings, setting new sales goals for all-electric vehicles. What truly caught investors off guard, however, was the mention of plug-in hybrid vehicles.
In the fourth quarter, GM reported operating income of $1.8 billion, which was in line with Wall Street’s projections. However, their forecast for 2024 proved to be much more encouraging than anticipated. GM is confident that it will generate approximately $13 billion in operating profit, exceeding Wall Street’s estimate of $11 billion.
Upon hearing this news, shares of GM surged 7.8% on Tuesday and continued to rise by an additional 1.7% the following day. Conversely, the S&P 500 and Nasdaq Composite experienced slight declines of about 0.5% and 1.3%, respectively.
While the positive financial forecasts largely contributed to this market response, investors were also pleased with GM’s commitment to electric vehicles (EVs).
This focus on profitability is especially significant for EVs, as they have traditionally led to substantial losses for most automakers. Typically, car companies need to ship around 400,000 units annually to achieve profitability. GM aims to ship 250,000 battery-electric vehicles in 2024, highlighting their growing confidence in the market.
The expansion of GM’s EV lineup is a crucial factor behind their optimistic outlook. In 2024, consumers can expect all-electric versions of popular models such as the Chevrolet Equinox, Sierra Denali, and Cadillac Escalade IQ to hit the market.
Overall, GM’s strong financial performance and commitment to the EV space have generated considerable excitement among investors, demonstrating a bright future for the company in the coming years.
GM’s New Focus on Plug-In Hybrids
General Motors (GM) recently made an interesting announcement regarding their approach to plug-in hybrid vehicles (PHEVs). According to BofA Securities analyst John Murphy, GM is now aiming to introduce more PHEVs in North America as a way to bridge consumers to fully electric vehicles (EVs). This move could potentially drive shareholder value and is seen as an interim step towards EV adoption.
Previously, GM had been heavily focused on battery electric vehicles (BEVs) and considered PHEVs to be a transitional technology. The belief was that as battery technology improved and became more affordable, the need for a gas engine alongside an electric motor would diminish. However, the market dynamics in China and Europe, where two BEVs are sold for every one PHEV, differ from the U.S., where the ratio is closer to one-to-one. As a result, PHEVs might have a longer lifespan in the U.S. market.
One of the advantages of PHEVs is their ability to offer electric driving capabilities for daily use while still providing the convenience of quick refueling with gasoline during road trips. This makes them an appealing choice for consumers who want to charge at home but need the flexibility of longer drives.
The decision to pivot towards PHEVs should alleviate concerns about GM’s all-or-nothing EV strategy. Additionally, strong free cash flow is expected to enhance investor sentiment. In fact, Freedom Capital Markets analyst Mike Ward predicts that GM will generate 20% of its market capitalization in 2024 and 2025. As a result, Ward has increased his price target for GM shares from $60 to $69 and rates them as a Buy.
Overall, 67% of analysts covering GM stock rate it as a Buy. The average analyst target price stands at around $47.50, which exceeds the average Buy-rating ratio for stocks in the S&P 500 of approximately 55%.
Despite a recent rally on Tuesday, Wednesday saw another gain in GM’s stock, indicating that investors remain optimistic about the company’s future.