Today, stock market commentators are busy talking about General Motors’ (GM) announcements of job cuts. However, while this is harsh news for some workers, it could be an important step forward for General Motors. I am bullish on GM stock because the company’s restructuring is probably necessary and because GM remains committed to its operations in China’s automotive market.
General Motors is a well-known Detroit-based automaker. The firm sells conventional and electric vehicles in multiple regions of the world, including the U.S. but also in China, a vast market for vehicle sales.
Even though General Motors is an icon among American vehicle manufacturers, GM stock still hasn’t revisited its 2021 peak price of around $67. Yet, as we’ll see, analysts believe that the stock has room to run into the upper $50s from its current price. With that in mind, let’s take a closer look at the announcements that have some folks worried about General Motors now.
General Motors Reduces Headcount in China
First of all, General Motors is reportedly reducing its headcount in China. Per a Bloomberg report, General Motors plans to cut some staff members, “including research and development,” though I couldn’t find a specific number of workers expected to be laid off in China.
It’s amazing to consider that in 2010, General Motors actually sold more cars in China than it sold in the U.S. A lot has changed since 2010, though. In the 2020s, General Motors has to contend with fierce competition from domestic vehicle producers, such as BYD (BYDDY). Plus, China’s automotive market has a strong emphasis on electric vehicles, and General Motors now has to adapt to this.
Consequently, General Motors’s management evidently feels that the company needs to slim down its operations in China, most likely to reduce costs there. This is part of a larger restructuring of General Motors in China, which may include producing more electric cars and/or focusing on premium vehicle models.
I believe that General Motors’ challenges in China shouldn’t deter anyone who really wants to invest in the company. These challenges haven’t stopped General Motors from having an excellent track record of quarterly EPS beats. 2024’s second quarter was certainly impressive for General Motors, as the company recorded earnings of $3.06 per share versus the consensus estimate of $2.70 per share.
Besides, General Motors CFO Paul Jacobson made it crystal clear that the automaker isn’t giving up on China’s automotive market at all. “We’re committed to maintaining cash stability there at a point where it’s self-sustaining. That means not needing any capital from outside,” Jacobson assured. Furthermore, while acknowledging the need for corporate restructuring in China, Jacobson doesn’t “necessarily accept the notion that we’re struggling to make money there.”
General Motors’ U.S. Job Cuts Aren’t Causes for Concern
As it turns out, General Motors also plans to reduce its workforce in the U.S. The company intends to lay off “more than a thousand employees globally in its software and services division,” The Wall Street Journal reported, including “roughly 600 people who are based around the company’s Detroit-area headquarters.”
Clearly, General Motors’ restructuring isn’t only happening in China. It’s a global phenomenon, and while it’s uncomfortable for the company’s workers, General Motors may need to allocate less capital toward software and services in order to focus on its core vehicle production operations, including electric vehicles.
A General Motors spokesperson explained, “As we build GM’s future, we must simplify for speed and excellence, make bold choices, and prioritize the investments that will have the greatest impact.” Going forward, investors should monitor General Motors’ financials to determine whether the company is, indeed, meaningfully and profitably re-prioritizing its capital expenditures.
In any case, these layoffs likely represent a normalization after General Motors probably over-hired technology workers in 2020. The vast hiring spree wasn’t sustainable, so now General Motors has to make “bold choices” that include headcount reductions.
Is General Motors Stock a Buy, According to Analysts?
On TipRanks, GM comes in as a Moderate Buy based on 11 Buys, two Holds, and two Sell ratings assigned by analysts in the past three months. The average General Motors stock price target is $57.50, implying 25.7% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell GM stock, the most profitable analyst covering the stock (on a one-year timeframe) is Dan Levy of Barclays (BCS), with an average return of 23.38% per rating and a 52% success rate. Click on the image below to learn more.
Conclusion: Should You Consider General Motors Stock?
As you can see, the analyst community envisions General Motors stock moving higher. I don’t blame them for being fairly optimistic, as General Motors is taking the painful but essential steps to re-focus its efforts and expenditures.
In addition, General Motors definitely isn’t giving up on China’s potentially lucrative automotive market. So, investors shouldn’t lose sleep at night just because General Motors is making temporarily uncomfortable changes. For the long haul, I agree with the analysts’ fairly confident outlook, and I would consider purchasing GM stock.
