GM Stock Rises After Company Announces $6 Billion Buyback

While shares of electric vehicle (EV) companies have sagged over the last year and almost all the companies barring Tesla are struggling with losses, investors in legacy automakers like Ford and General Motors (NYSE: GM) are in for a payout bonanza.

General Motors, which announced a $10 billion accelerated share buyback plan last year has authorized yet another $6 billion repurchase plan today. Investors have also given a thumbs up to the announcement and GM stock is trading higher in early US price action today.

GM Announces a $6 Billion Share Buyback Program

In his prepared remarks, GM’s CFO Paul Jacobson said, “The investments GM made in its brands and product portfolio over the last several years, and the company’s operating discipline, are delivering consistently strong revenue growth, margins and free cash flow.”

He added, “We are very focused on the profitability of our ICE business, we’re growing and improving the profitability of our EV business and deploying our capital efficiently. This allows us to continue returning cash to shareholders.”

GM expects to exhaust the remaining portion of its $10 billion share buyback by the end of this month and would then embark on the new $6 billion repurchase plan. In its release, the Detroit automaker said, “The new authorization will allow the company to opportunistically repurchase shares after the completion of the existing reauthorization.”

Legacy Automakers Are Posting Near Record Profits

Legacy automakers are making near-record profits despite losses in their EV business. GM, for instance, expects to post adjusted pre-tax profits between $12.5 billion-$14.5 billion in 2024. It also forecasted adjusted automotive free cash flows between $8.5 billion to $10.5 billion.

Ford said that it is committed to returning between 40%-50% of its free cash flows to shareholders, and along with the usual quarterly dividend it announced a special dividend of 18 cents per share during its Q4 earnings call earlier this year. The company announced a special dividend last year also after it sold its stake in EV startup Rivian. Ford has a dividend yield of almost 5% while GM’s yield is closer to 1%.

GM Has Preferred Share Buybacks While Ford has Paid Special Dividends

GM seems to prefer share buybacks while Ford has instead paid special dividends as both the companies have a problem of plenty when it comes to free cash flows.

While both Ford and GM are posting healthy profits and cash flows, they have scaled back on their EV capex as the demand hasn’t been as strong as previously expected. Also, they are very cautious while spending on their ICE portfolio which has meant they have plenty of free cash flows to play around with.

EV Price War

There has been a price war in the EV industry as Tesla has cut prices multiple times to spur deliveries. The Elon Musk-run company’s deliveries fell YoY in Q1 for the first time since 2020 and while it is confident of delivering more cars in 2024 as compared to the previous year it is nowhere close to the 50% CAGR growth that it once touted.

Automotive companies are also battling competition from Chinese competitors that are offering compelling models at attractive prices.

During Tesla’s Q4 2023 earnings call, Musk said, “Frankly, I think, if there are not trade barriers established, they will pretty much demolish most other companies in the world.”

Musk on Chinese EV companies

The billionaire added, “The Chinese car companies are the most competitive car companies in the world. So, I think they will have significant success outside of China depending on what kind of tariffs or trade barriers are established.”

To be sure, this is not the first time that Musk has praised Chinese EV companies and the world’s richest person had made similar comments a year back during Tesla’s Q4 2022 earnings call.

Last year, BYD became the world’s largest seller of new energy vehicles – which includes both battery electric cars and hybrids. The Chinese EV giant delivered over 3 million cars in 2023 which was in line with its guidance. Importantly, it delivered 525,409 electric cars in Q4 which was ahead of Tesla.

While Tesla took the crown of the largest EV seller in Q1, BYD remains a worthy competitor to the company.

GM China Operations Haven’t Performed Well

While GM’s China business once used to be a money spinner its performance has sagged and it has posted losses in the last few quarters, including in Q1. To be sure, it is not only GM whose China operations haven’t performed well and the story is pretty much the same for all Western automakers.

When it comes to EVs, partnering with domestic Chinese companies might be a better alternative for foreign automakers and Volkswagen took the lead by investing in Xpeng Motors. The two companies are exploring joint sourcing as well as potential partnerships in other markets.