The Good, the Bad, and the Ugly in GM's Q2: Is the Stock a Buy?

Like most full-line automakers, General Motors (NYSE: GM) has been busy pumping the brakes on its electric vehicle (EV) ambitions and refocusing on its gasoline powered vehicles to power profits during the slower-than-anticipated transition. That refocus led to record revenue during the second quarter and first half of 2024, with raised guidance as the cherry on top. Let's dive into the major takeaways, both good and bad, from the second quarter.

The good

Let's make one thing clear from the start, there was far more good to take away from General Motors' second quarter than bad. The second quarter recorded the company's best quarterly U.S. sales result since the fourth quarter of 2020, with strong pricing and incentives below industry average, helping margins and profitability.

GM has recorded eight consecutive quarters of year-over-year U.S. retail sales growth, which drove company revenue compound annual growth rate (CAGR) to roughly 16% over the past 24 months. Second-quarter revenue increased 7.2% to a record $47.94 billion, with adjusted earnings before interest and taxes ( EBIT ) surging 37% to $4.4 billion. GM raised full-year adjusted EBIT guidance by $500 million to a range of $13 billion to $15 billion, and raised its adjusted automotive free-cash-flow guidance by $1 billion to a range of $9.5 billion to $11.5 billion.

General Motors has also returned significant value to shareholders through a small dividend but also significant share repurchases. GM ended the second quarter reducing its diluted share count by 18% compared to the prior year, and previously announced a new $6 billion share repurchase authorization that puts it firmly on pace to achieve its target of less than 1 billion shares. In the graph below you can see the progress made.

GM data by YCharts

While there were plenty more positive aspects of GM's second quarter, investors might be wondering why the stock was trading roughly 6% lower as of 3 p.m. ET Tuesday. There are two major culprits: China and Cruise.

The bad

General Motors posted an unexpected loss in China after CEO Mary Barra told analysts the automaker had expected to return to profitability in the country during the second quarter -- and now headwinds in China are expected for the remainder of 2024.

More specifically, General Motors posted a $104 million loss in China compared to a $78 million profit during the prior year's second quarter. Like many foreign automakers in China, GM has faced significant market share erosion and intense price competition. The automaker reduced inventories, matched production to demand, and reduced fixed costs, but it wasn't enough to offset market headwinds.

The ugly

What was once hyped as GM's hidden gem, its Cruise autonomous vehicle unit, has turned into a temporary -- hopefully temporary, for investors -- headache. During the second quarter GM lost $458 million on its Cruise self-driving division, which was at least slightly better than the $611 million it lost one year ago.

The narrowed loss is primarily driven by scaled-back spending after a Cruise vehicle was involved in a crash with a pedestrian in San Francisco, which caused a nationwide shutdown for Cruise operations. The debacle also caused a flurry of leadership and executive changes.

Further, GM noted that it is "indefinitely suspending" production of the Origin, the vehicle that was hyped as its first robotaxi. The automaker will now pivot to using the Chevrolet Bolt as its next autonomous driving vehicle. To top it off, GM recorded a nearly $600 million charge during the second quarter related to the suspension of Origin production.

Is GM a Buy?

General Motors' results in China and with its Cruise division brought a lot of negative attention to the company's second-quarter results, but savvy investors would be wise to look at the overall picture, which remains very strong. GM's gasoline-powered lineup is powering bottom-line profits and free cash flow, while the company continues to make improvements on its EV lineup that is expected to post positive variable profits later this year -- excluding fixed costs, so take it with a grain of salt. General Motors remains one of the safest buys in the automotive industry at a modest price-to-earnings ratio of 5.21 times.

Daniel Miller has positions in General Motors. The Motley Fool recommends General Motors and recommends the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy .