Tariffs Take Their Toll as Opportunity Beckons for General Motors Stock (GM)

Globe and Mail

14-04-2025

President Trump's tariffs have sent shockwaves through the auto industry, and General Motors Co. (GM) is feeling the heat. The added levies on imported vehicles and parts threaten short-term pain, with higher costs and squeezed margins looming large. Yet, it's interesting that the same policies could spark long-term gains by nudging GM to bolster its U.S. manufacturing footprint. This could potentially strengthen its competitive edge. In the meantime, after a sharp selloff, GM's stock now trades at a somewhat depressed valuation multiple. Thus, I'm bullish on GM stock.
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Tariff-Induced Turbulence Takes its Toll
Despite Trump's 90-day tariff pause, which scaled back the initial 25% auto tariffs to a baseline 10%, GM faces a bumpy road. The company imports roughly 40% of its U.S.-sold vehicles from Mexico and Canada, including heavy-hitters like the Chevrolet Silverado and Equinox. Even at 10%, these tariffs could add thousands to each vehicle's cost, with estimates pegging an extra $3,000 to $7,000 per truck.
Meanwhile, to further complicate matters, GM's supply chain is tightly woven across North America, so it depends on imported parts, from Mexican engines to Canadian transmissions, which face similar duties. You can see why this cost creep threatens to erode margins, with analysts forecasting a potential $5 billion hit to GM's 2025 earnings if tariffs persist.
The ripple effects are already visible. Dealerships are bracing for price hikes, and consumers, mindful of inflation, may delay purchases, especially for GM's pricier SUVs and trucks. One could argue against this by saying that GM reported a 16.7% jump in Q1 U.S. sales last month. However, much of that was driven by buyers rushing to beat anticipated tariff-driven price increases. Considering the extreme levels of uncertainty on the horizon, I expect demand to nosedive, especially from budget-conscious buyers.
Compounding the issue, GM's EV ambitions face further headwinds. I believe that models like the Equinox EV, built in Mexico, could become less competitive if tariffs pile on and Trump's plan to axe the $7,500 EV tax credit comes to pass. This is a bitter pill for a company like GM, which is banking on EVs to drive future growth. While GM's CEO, Mary Barra, insists the company can mitigate up to 50% of tariff costs through inventory tweaks and pricing, I think it's safe to say that the near-term outlook remains cloudy.
Trump Tariff Tailwinds En Route
Conversely, GM could emerge stronger if Trump's tariffs achieve their stated aim (i.e., to spur U.S. manufacturing). The Trump administration dreams of a booming domestic auto industry, with factories pushing out cars non-stop and jobs flooding back. In the best scenario for GM, this means a pivot to domestic production that will, in turn, reduce reliance on foreign plants. The company's already taken steps in this direction, announcing plans to ramp up truck production at its Fort Wayne, Indiana, plant, adding overtime and hundreds of temporary workers to push out more Silverados and GMC Sierras. GM might double down if tariffs are here to stay, investing billions to build new U.S. facilities or repurpose existing ones.
If GM becomes less tethered to cross-border supply chains, churning out vehicles stamped 'Made in the USA' may resonate with consumers waving the stars and stripes, boosting brand loyalty in today's polarized market. The ongoing Tesla (TSLA) boycott is a prime example of how political perception can affect the bottom line.
Over time, localizing production might shield GM from a prolonged trade war, unlike rivals like Stellantis (STLA), which, for context, lean quite heavily on European and Mexican output. In other words, if GM pulls it off, it could steal market share from import-dependent competitors, cementing its dominance in trucks and SUVs.
Of course, this rosy scenario assumes smooth execution. Building factories takes many years and billions of dollars, as GM's CFO Paul Jacobson admitted, noting that relocating Silverado production from Mexico could cost a fortune and disrupt output for years. Still, GM should have the muscle to play the long game. If tariffs force a broader industry shift toward U.S. production, management's early moves could position it as a leader in a reshaped auto landscape. That would undoubtedly turn today's pain into tomorrow's gain.
A Bargain from the Rubble
Beyond tariff-driven market sentiment, GM's stock looks dirt cheap after the tariff-induced selloff, trading under 4x forward earnings despite projections of $9.63 billion in free cash flow this year. So, even with its weighty debt, GM stock trades at just 4.5x this year's expected free cash flow.
This multiple screams value compared to Ford's 6 or Tesla's sky-high premiums. From another point of view, GM is trading at just 0.2x its forward sales, which is one of the lowest multiples the stock has ever traded in its history.
Is GM a Good Stock to Buy Now?
On Wall Street, analysts are relatively bullish on GM stock. The stock has a Moderate Buy consensus rating based on nine Buy, four Hold, and two Sell ratings over the past three months. GM's average price target of $58.10 implies a ~33% upside potential over the next twelve months, supporting my view of a steep discount at today's prices.
GM Drives Forth in the Trump Era
General Motors is in a tricky spot. On the one hand, it's being battered by Trump's tariffs. And yet, it is brimming with commercial performance and investor reliability. The stock has been one of America's most reliable stocks, with a decent dividend record over the past thirty years. It was America's largest company by market capitalization for several years before the Big Tech firms arrived in the early 2000s.
Short-term pain, including higher costs and softer demand, may sting, yet the push for U.S. manufacturing could reshape GM into a domestic powerhouse, stealing a march on rivals. In my view, at under 4x earnings and 4.5x free cash flow, the stock's depressed valuation screams opportunity. Thus, for investors who can stomach the volatility, GM may offer a rare chance to buy a blue-chip name poised for a comeback.