GM Earnings: Cost Improvements Yield Solid First Quarter

Key Morningstar Metrics for General Motors

• Fair Value Estimate
  : $83.00
• Morningstar Rating
  : ★★★
• Morningstar Economic Moat Rating
  : None
• Morningstar Uncertainty Rating
  : High

What We Thought of General Motors’ Earnings

General Motors’ GM first-quarter adjusted diluted EPS rose 33% year over year to $3.70. Management raised 2026 adjusted EBIT guidance by $500 million to $13.5 billion-$15.5 billion and adjusted diluted EPS by $0.50 to $11.50-$13.50. Adjusted automotive free cash flow rose 56% to $1.3 billion.

Why it matters: We think GM had a good quarter despite about $200 million in incremental gross tariff costs and higher memory and commodity costs. The guidance increase shows the Iran war has yet to hurt demand for the firm’s highly profitable pickups and SUVs. Inventory is actually too low, per GM.

• GM North America’s volume fell 4.1%, so it’s good to see GMNA’s operating margin of 10.1%. This metric got about 150 basis points of help from the US Supreme Court negating tariffs under the International Emergency Economic Powers Act. The ruling also drove the increase in guidance.
• Costs and favorable foreign exchange from North America and Korea drove a combined $1 billion favorable EBIT contribution, offsetting lower wholesales. Warranty costs fell, while favorable pricing and continued lower-than-industry incentive levels contributed another $100 million.

The bottom line: We are leaving our $83 fair value estimate in place for no-moat GM. Even though GAAP automotive free cash flow was negative $967 million on higher accrued expenses, working capital, and electric vehicle restructuring, GM held $19.2 billion in automotive cash and securities as of March 31.

• This cash level exceeded GM’s $18 billion target, so it continued share repurchases in the quarter at about $800 million, or about $75 per share, which we like given that it’s below our fair value estimate. The authorization has $5.5 billion remaining, and we expect further buybacks this year.
• Warranty costs should continue to be a tailwind, but foreign-exchange tailwinds are not expected to last through the final three quarters of the year. Exchange is now guided to be neutral rather than a small headwind on a full-year basis.