GM Earnings: Favorable Auto Tariff Policy Change Should Reduce 2025 Tariff Damage

On April 29, GM GM reported first-quarter adjusted diluted EPS of $2.78, up 6.1% year over year and ahead of the $2.74 LSEG consensus. However, a looming US auto tariff policy change caused GM to delay its earnings call until May 1. It also withdrew 2025 guidance. GM China returned to profitability.

Why it matters: We expected GM to withdraw its guidance due to large and multiple tariffs affecting the US auto industry. GM said it’s updating 2025 guidance on May 1, but it’s unclear if at that time no 2025 guidance will be issued or if GM will instead lower guidance given on Jan. 28.

• The Wall Street Journal reported the evening of April 28 that the US on April 29 will amend auto tariffs to just be the 25% foreign auto tariff instead of stacking tariffs on top of other ones, such as 25% on steel and aluminum, so we don’t fault GM for needing more time.
• GM China posted negative equity income for all four quarters of 2024 as Chinese automaker competition is greater than ever before. We’ve been skeptical of GM China’s turnaround efforts working, but $45 million of first-quarter equity income is a nice start to the turnaround effort.

The bottom line: We will review our GM fair value estimate after the April 29 tariff executive order and May 1 earnings call. Given that on March 30 we made an over 50% EPS reduction to estimate the 2025 tariff impact, a modest fair value increase is possible given fewer tariffs.

• The 25% foreign auto tariff in effect since April 3 should remain. A 25% parts tariff starts May 3, but the policy change is likely to permit automakers a 3.75% reimbursement on a US-made vehicle’s value in the first tariff year and 2.5% in the second year to let the automotive supply chain adjust.
• We think limiting tariffs to 25% may help German automakers more than GM and Ford, as GM and Ford were already immune from the 25% tariff on Mexican products for fentanyl and illegal immigration due to USMCA compliance.