Bernstein Downgrades GM Stock Amid 30% Target Price Cut, 50% Earnings Drop by 2026

General Motors (GM.US) has faced a significant setback as investment bank Bernstein downgraded its stock rating to "underperform" and reduced its target price by 30% to $35 per share. This decision comes amid growing concerns over the impact of tariffs on GM's most popular vehicle models, which are expected to reduce the company's free cash flow by 20% and decrease earnings per share by 50% by the fiscal year 2026.

Analyst Daniel Roska noted that the past six months have seen increasing policy uncertainty in the United States, which has led to a more pessimistic outlook for GM. The revised data reflects the impact of tariffs, weakening consumer confidence, and the realization that the current economic cycle may have peaked. Roska anticipates that GM's earnings will continue to decline until the second quarter of 2026, at which point relief measures and improved consumer confidence could help the company and the broader industry begin to recover.

While tariffs only apply to non-USMCA imported products, the situation poses a significant challenge for GM. The company's total U.S. sales volume includes 12% from imports, with 27.5% and 47.5% tariffs on products from Korea and China, respectively. This effectively erases much of the gross profit margin for each vehicle. Given that some of GM's most popular SUV models, particularly those from Chevrolet and Buick, fall into this category, Roska predicts that GM may halt the sale of these models in the U.S., resulting in a $1 billion hit to its pre-tax profit.

Considering the impact of price increases, which could lead to a 6.6% decline in sales, the adjustment of the product portfolio to stop producing affected models, and a mild sales decline due to economic recession, the overall impact on GM's North American operations is expected to reduce pre-tax profit by approximately 32% for the fiscal year 2026.

Among the Big Three automakers in Detroit, GM's vulnerability to tariffs places it between Ford and Stellantis. Although there are provisions for using USMCA-compliant components, the high tariffs on imports from Korea and China significantly affect GM's profitability. The company will need to navigate these challenges while continuing to innovate and adapt to changing market conditions to maintain its competitive edge.