Why GM fell 17% last month

what happened

shares of general motors (GM 2.60%) The automaker lost 17.1% of its value in December as headlines upended what appeared to be a budding stock rally after last year’s crash.

So what

Don’t look for the proverbial smoking gun – you won’t find it.

Wedbush analyst Dan Ives drew attention to one of these issues in early December, suggesting that GM and its partners will be doing more manufacturing in China as the country’s COVID-19 lockdown continues. Not only is it becoming more difficult, but the demand in that market is shrinking. good.

In mid-December, General Motors announced a recall of 850,000 trucks and SUVs to repair potentially malfunctioning headlights. Vehicle recalls are not particularly uncommon and are not associated with particularly serious (“expensive”) problems, but they are costly, both financially and reputationally.

We also learned last month that GM’s self-driving system is under investigation by the National Highway Traffic Safety Administration after two crashes involving vehicles using the technology resulted in injuries. An incident does not inherently mean that the system is flawed, but it is a finding that may ultimately require another recall.

Finally, General Motors is currently under scrutiny by the U.S. Senate for the possibility of using parts sourced from companies using forced labor in China’s Xinjiang Uighur Autonomous Region.

Apart from that, none of these issues pose a serious problem for GM. But the combination has created enormous problems for stocks that were already vulnerable to profit taking. The stock has started December on a bullish foot, riding his November rebound from the plunge in the first half of the year. But investors are unsure whether the economic recovery needed to revitalize the auto business in 2023 is a foregone conclusion.

So

Investors may not be convinced, but General Motors CEO Mary Barra believes so. She expects U.S. passenger car and light truck sales to hit 15 million this year, up from about 13.7 million last year. In this vein, analysts expect her GM’s 2023 top line to grow just under 4%.

However, it’s still a year of trials. With material and labor costs still rising despite the economic headwinds raging (recession remains a clear possibility), analysts are skeptical of projected earnings growth. Nevertheless, we believe GM’s earnings per share will fall from $7.19 in 2022 to $5.97 in 2023. It’s not exactly the kind of bullish inspiration.

On the other hand, if you’re a true believer in General Motors’ long-term EV-centric future, it’s worth noting that the stock is only six times its expected earnings this year. This is cheap even by modern car inventory standards.