Bernstein Downgrades General Motors Due to Rising Headwinds and Capital Requirements

Source: Davit Kirakosyan

General Motors (NYSE:GM) Faces Downgrade and Challenges Ahead

General Motors (GM), a leading automotive company, experienced a nearly 2% drop in its shares on Monday following a downgrade by Bernstein from Outperform to Market-Perform. The downgrade was influenced by concerns surrounding rising earnings challenges and potential capital requirements for the company. While GM’s stock has seen an impressive 85% increase since November 2023, driven by strong performance in the North American market and significant shareholder returns, recent developments have raised red flags for investors.

Factors Contributing to Downgrade

Bernstein highlighted various emerging issues that contributed to its decision to downgrade GM. These concerns led to an 8% reduction in the firm’s 2025 earnings per share (EPS) forecast for GM, which now stands at $8.23. Key factors impacting GM’s anticipated earnings challenges in 2025 include potential pricing pressures due to U.S. inventory buildup, delays in electric vehicle production, and ongoing losses from GM’s autonomous vehicle division, Cruise. International business challenges also play a role in creating strain for the company.

Caution Ahead of Capital Markets Day

The analysts at Bernstein are particularly cautious leading up to GM’s October Capital Markets Day (CMD). During this event, updates on GM’s electric vehicle and software strategies, as well as insights into the performance of the Cruise division, are expected. The firm fears that these updates may reveal the need for additional capital injections, which could negatively impact GM’s free cash flow (FCF) and overall financial health.

Implications on Financial Projections

In response to the concerns raised, Bernstein has adjusted its capital expenditure forecast for GM, positioning it at the upper end of GM’s guidance. This adjustment has resulted in a decrease in the firm’s 2025 FCF estimate for GM, now estimated at $6 billion. Consequently, Bernstein has revised its forecast for GM’s shareholder distributions between 2025 and 2027, anticipating a 17% reduction to approximately $10 billion in distributions during that period.

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In conclusion, the recent downgrade of General Motors by Bernstein and the challenges ahead underscore the complexities and uncertainties faced by the automotive industry. By staying informed about emerging issues and potential risks, investors can make more informed decisions regarding their investments in companies like GM.

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