GM Smashes the Bear Case: Buybacks, Dividends, and a Cleaner 2026 Outlook Send Shares Soaring

General Motors shares surged nearly 10% following its fourth-quarter earnings report, a move that reflects more than just a routine beat-and-raise. While headline revenue declined year over year, the market zeroed in on a combination of better-than-feared execution, reassuring forward guidance, disciplined capital returns, and evidence that several major overhangs—from tariffs to EV losses—are becoming more manageable. For a stock that had been weighed down by policy risk, EV skepticism, and margin compression, this report marked a clear reset in sentiment.

On the numbers, General Motors delivered adjusted EPS of $2.51, comfortably ahead of consensus expectations of roughly $2.27, a $0.24 beat that immediately set a constructive tone. Revenue declined 5.1% year over year to $45.29 billion, modestly below estimates, but this shortfall was widely anticipated given portfolio changes, lower EV volumes, and trade-related headwinds. Importantly, investors largely looked past the top-line miss, viewing it as a reflection of intentional mix and capacity decisions rather than weakening end demand.

The most important driver of the stock’s sharp rally was GM’s outlook for fiscal 2026. The company guided to adjusted EPS of $11.00 to $13.00, broadly in line with consensus near $12 but notably higher than FY25 adjusted EPS of $10.60. Adjusted EBIT guidance of $13 billion to $15 billion also represented a step up from FY25’s $12.7 billion. Management framed 2026 as a year of margin recovery and earnings normalization, with a clear path back to 8%–10% adjusted margins in North America—well ahead of where margins landed in 2025. That margin narrative was critical in shifting investor psychology from defense to offense.

Capital returns added fuel to the move. GM announced a 20% increase in its quarterly dividend to $0.18 per share and authorized a new $6 billion share repurchase program. While the dividend yield remains modest, the increase signaled confidence in cash flow durability, and the buyback reinforced management’s view that the stock is undervalued. GM has already been aggressive in shrinking its share count over the past year, and investors welcomed the commitment to continue returning excess capital while maintaining balance sheet discipline.

Operationally, GM highlighted continued strength in its core North American business, particularly in full-size pickups, SUVs, and crossovers. The company led the industry in full-size trucks and SUVs and posted its best-ever year in crossovers, driven by redesigned models like the Chevrolet Equinox and Traverse. Smaller crossovers such as the Chevrolet Trax and Buick Envista have been standout performers, benefiting from attractive pricing, strong margins, and broad consumer appeal at a time when affordability remains a key purchasing factor. This mix strength helped offset EV-related volume reductions and reinforced GM’s positioning in its most profitable segments.

Tariffs, a major investor concern over the past year, turned out to be less damaging than feared. GM disclosed that fourth-quarter tariff costs totaled $700 million, bringing full-year 2025 tariff costs to $3.1 billion—below prior guidance of $3.5 billion to $4.5 billion. For 2026, GM expects gross tariff costs of $3 billion to $4 billion, slightly higher year over year due to an additional quarter of exposure but partially offset by a reduced Korea tariff rate and expanded MSRP offset programs. Management guided to a $750 million to $1 billion tariff impact in Q1, which investors viewed as manageable relative to prior peaks in 2025. The perception that tariff risk is now quantifiable—and not open-ended—was a meaningful relief.

Another key contributor to the positive reaction was progress on GM’s EV strategy reset. The company acknowledged significant charges taken in the second half of 2025 to right-size EV capacity, but emphasized that these actions will reduce fixed costs, lower future losses, and improve mix. GM expects $1 billion to $1.5 billion in benefits in 2026 from EV capacity adjustments, along with a $1 billion warranty cost benefit versus 2025. While EV profitability remains a longer-term goal, investors appeared encouraged by the company’s willingness to prioritize returns over volume and recalibrate its pace of investment.

Internationally, GM struck a more optimistic tone, particularly on China. Management said new energy vehicles now account for roughly half of GM’s China sales and are profitable across price tiers, supporting confidence that the long-running drag from the region is easing. Outside China, international operations are expected to remain profitable and broadly consistent with 2025 results. GM Financial also provided stability, with 2026 adjusted EBT expected in the $2.5 billion to $3 billion range, assuming a steady credit environment.

Looking ahead, there are several key issues investors will be watching. First, execution on margin recovery in North America will be critical, especially as GM navigates new truck launches and portfolio transitions. Second, tariff developments—particularly around South Korea and broader trade policy—remain a swing factor, even if visibility has improved. Third, the trajectory of software and services revenue, including OnStar and Super Cruise, will be closely monitored as GM works toward a higher-margin, more recurring revenue mix. Finally, EV cost reductions and the pace of losses will remain under scrutiny as the company balances long-term technology investments with near-term profitability.

In sum, GM’s earnings report checked several boxes that the market had been waiting for: solid core execution, credible guidance, tangible capital returns, and evidence that the biggest risks are no longer deteriorating. The nearly 10% rally reflects a re-rating in confidence rather than just a reaction to a single quarter—and sets a higher bar for GM to deliver on its improving outlook in 2026.