The last decade has been frustrating for investors in General Motors (NYSE: GM). But the company is making smart investments for the future that set it up for significant gains for patient shareholders who are willing to hold the stock until 2030, despite recent rallies that never lasted.
General Motors has streamlined its business by exiting several markets to increase profitability. The company now generates most of its revenue from North America and China, with North America being its main profit driver. GM’s North America segment has achieved an adjusted operating margin of 10%. For 2023, the company anticipates logging an 8%-10% adjusted operating margin in North America, despite macroeconomic headwinds and possible one-time costs tied to renewing the collective bargaining agreement with its U.S. factory workers later this year.
In Q1 2023, GM reported $40 billion of revenue, up 11% YoY, and adjusted EPS of $2.21, 28% above the Wall Street consensus of $1.73. The company raised its full-year forecast for operating profit, EPS, and free cash flow.
Even with the investments for future growth that GM is making, it continues to generate strong profitability and cash flow. Cruise, its subsidiary, may accrue an operating loss of over $2 billion in 2023 as it speeds up the rollout of its robotaxi service. But management projects that Cruise could generate $50 billion of high-margin annual revenue by 2030, with further exceptional growth potential.
GM’s efforts to become an EV leader are impacting profitability. Nevertheless, the company is moving aggressively into that market segment, particularly with the upcoming Chevy Equinox EV. It is willing to lose money now, until battery costs come down, to build its EV market and mind share. CEO Mary Barra claimed that battery costs remain too high to profitably manufacture mass-market EVs priced between $30,000 and $40,000.
GM estimates that by 2030, it will grow revenue to between $275 billion and $315 billion. This figure is almost double its pre-pandemic baseline revenue. The company aims to expand its operating margin to 12%-14%, mostly thanks to the growth of new high-margin businesses led by Cruise. At the midpoint of the projected range, operating profit would surpass $38 billion by 2030, up from $14.5 billion in 2022.
Despite the potential for rapid revenue and earnings growth over the next 7 years, GM stock currently trades at a P/E ratio of just five times earnings. At this valuation, it does not seem that many investors believe General Motors can even maintain earnings at current levels. If GM meets its 2030 revenue and earnings targets, GM stock could rise above $200 by 2030. This makes GM stock an attractive opportunity for long-term investors.
