Bernstein Downgrades GM Amid Tariff Storm

The automotive sector is in turmoil, and General Motors (NYSE: GM) is at the epicenter of the storm. Bernstein’s recent downgrade from “Market Perform” to “Underperform” has sent shockwaves through the market, reflecting the firm’s deep concerns over the impact of newly implemented tariffs on GM’s financial outlook. The price target has been slashed from $50 to $35, signaling a cautious approach towards the company’s future valuation. The forecast suggests a decline of over 20% in GM’s free cash flow and a projected drop of more than 50% in adjusted earnings per share by 2026. This is a stark warning for investors who have been holding onto GM stock in the hopes of a quick recovery.

The tariffs, which took effect on April 3, 2025, are expected to have a significant impact on GM’s financial performance. The company sources about 40% of its vehicles sold in the U.S. from Mexico and Canada, making it particularly vulnerable to the 25% tariffs. This has forced GM to accelerate inventory transfers across borders to mitigate immediate cost shocks. The company’s CFO, Paul Jacobson, has warned that if the tariffs become permanent, GM may have to consider moving plants, which could disrupt operations and require billions in investments.

Despite the challenges posed by tariffs, GM reported a robust performance in the first quarter of 2025, with a notable 16.7% increase in U.S. deliveries. In response to the evolving market conditions, GM is ramping up production of light-duty trucks in Indiana, a move that is expected to add between 225 and 250 jobs. Additionally, the company is leveraging its joint venture with LG Energy Solution to strengthen its U.S. operations by selling $2 billion in assets to its American unit. GM is also actively lobbying for tariff exclusions on certain vehicle parts to mitigate the financial impact of the new tariffs.

The stock has experienced fluctuations in recent weeks, reflecting the market’s reaction to Bernstein’s downgrade and the broader economic conditions. The stock closed at $44.18 on April 4, 2025, after opening at $44.46 and reaching a low of $42.73 during the day. The latest premarket price was recorded at $42.76. Over the past month, GM’s stock has seen a decline from a high of $52.59 on March 25 to its current levels, indicating investor caution. Despite these fluctuations, analysts maintain a “Buy” recommendation with a target mean price of $61.10, suggesting potential for recovery as the company navigates the challenging landscape.

The broader market’s reaction to the tariffs has been equally dramatic. Shares of major automakers slumped following President Donald Trump’s announcement that he will place 25% tariffs on auto imports. Automakers have spread out their supply chains and production facilities throughout North America, making it more expensive to build their cars and trucks. The tariffs will take effect April 3, and analysts like Joseph Spak of UBS have warned that vehicle prices will go higher to help offset the cost.

GM is not alone in facing these challenges. Ford, which slipped 3.9%, is less exposed with under 10% of vehicles sourced outside of the U.S., according to JPMorgan. Stellantis, which is based in the Netherlands but has significant manufacturing operations in North America, fell 1.3%. Honda shares traded in the U.S. fell 2.2% and Toyota shares traded in the U.S. fell 2.5%. One exception was Tesla. The cars it sells in the U.S. are produced domestically, although CEO Elon Musk noted in a post on X that some car parts used in Teslas come from other countries. Its shares edged up 0.4%. The stock is still down more than 30% this year due to lagging sales in its major markets.

In conclusion, the tariffs pose immediate margin pressures and long-term structural challenges for GM. The company’s production shifts, lobbying efforts, and asset sales provide a framework to mitigate risks. Success hinges on whether these strategies can offset the 25% tariff burden and prevent permanent operational relocations. Investors should keep a close eye on GM’s next moves and the broader market’s reaction to the tariffs. The road ahead is uncertain, but GM’s resilience and strategic maneuvers may yet steer the company through these turbulent waters.