What Happened?
Shares of automotive manufacturer General Motors (NYSE: GM) fell 7.3% in the morning session after the company reported its second-quarter earnings, which showed a significant profit decline due to tariff-related costs.
Although General Motors surpassed Wall Street's revenue and profit expectations for the second quarter, its net income fell 35% from the previous year. The primary driver of this decline was a $1.1 billion hit from tariffs on imported vehicles and parts. The company warned that the financial impact from tariffs would likely increase in the second half of the year. Despite the profit slump, GM maintained its full-year guidance, which it had previously lowered in May to account for an anticipated $4 billion to $5 billion in total tariff costs for 2025. To counter these pressures, the automaker is investing $4 billion to increase production at its U.S. plants, aiming to reduce its exposure to import duties.
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What Is The Market Telling Us
General Motors’s shares are somewhat volatile and have had 14 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 6 months ago when the stock dropped 11.1% on the news that the company reported fourth-quarter earnings and provided guidance that assumed a stable policy environment in the US, thus failing to help investors shrug off concerns relating to the impact of regulatory measures.
A key concern is the Trump administration's potential plans to reduce incentives like tax credits, which have helped accelerate the demand for EVs. If these plans are implemented, both GM and other EV players may need to rethink their growth forecasts.
A Berstein analyst added following the earnings release "In our view, the guidance for 2025 leaves no room for errors, and also does not include impact from regulatory changes in the U.S., especially on tariffs and BEV support."
On a more positive note, General Motors beat analysts' revenue expectations this quarter, and its full-year EPS guidance came in higher than Wall Street's estimates. Overall, this was a mixed quarter, which failed to clear up uncertainties.
General Motors is down 3.3% since the beginning of the year, and at $49.64 per share, it is trading 17.5% below its 52-week high of $60.20 from November 2024. Investors who bought $1,000 worth of General Motors’s shares 5 years ago would now be looking at an investment worth $1,888.
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