General Motors' Improving Capital Efficiency: A Case for Long-Term Investors

General Motors (GM) has emerged as a standout performer in the automotive sector, driven by its improving capital efficiency and disciplined capital allocation. While the company’s ROIC (Return on Invested Capital) and ROCE (Return on Capital Employed) have faced short-term headwinds, the long-term trajectory reveals a compelling story for patient investors.

ROIC and ROCE: A Tale of Resilience

GM’s ROIC has fluctuated between 4.9% and 8.31% over the past five years, with a peak of 8.31% in 2021 driven by strong operating margins and asset utilization [4]. Despite a decline to 5.42% in 2024, the company’s ROCE has remained consistently above 6.5% since 2022, outperforming its 5-year average of 6.5% [1]. This divergence suggests that GM is optimizing its capital structure, particularly in high-margin segments like full-size trucks and SUVs [4].

In contrast, Ford’s ROIC has been far less consistent. While Ford reported an ROIC of 8.6% in 2024, its 5-year average of 7% pales against GM’s 14.5% [1]. This gap underscores GM’s superior ability to generate returns from its investments, even amid macroeconomic challenges such as tariffs and EV inventory costs [3].

Earnings Yield: A Valuation Edge

GM’s 5-year average earnings yield of 16.65% [2] dwarfs Ford’s 2.5% [1], making it a more attractive proposition for long-term investors. This premium is further amplified by GM’s robust operating cash flow of $20.13 billion in 2024 and a liquidity buffer of $19.87 billion in cash and equivalents [1]. The company’s projected 2025 adjusted EBIT of $13.7–15.7 billion and net income of $11.2–12.5 billion [4] reinforce its valuation appeal.

Strategic Investments and Risks

GM’s $26.11 billion in 2024 capital expenditures—focused on electrification and high-margin vehicle production—highlight its commitment to future growth [1]. However, the company faces near-term risks, including a 35% year-over-year decline in Q2 2025 net income due to $1.1 billion in tariffs and $600 million in EV inventory costs [3]. These pressures are compounded by Trump-era trade policies, which could exacerbate cost volatility in 2025.

Catalysts for the Second Half of 2025

Upcoming catalysts include GM’s Q3 2025 earnings report, which will provide clarity on the impact of its $4 billion U.S. manufacturing investment and the performance of EV models like the Chevrolet Equinox EV [4]. Additionally, the company’s automotive free cash flow target of $8.75 billion for 2025 [3] offers a buffer against macroeconomic shocks.

Conclusion

While GM’s ROIC dipped below its cost of capital in 2024 [2], its outperformance in ROCE, earnings yield, and capital allocation metrics positions it as a long-term winner. For investors, the key is to balance near-term risks with the company’s strategic momentum in electrification and its disciplined approach to capital efficiency.

Source:
[1] General Motors ROI - Return on Investment 2010-2025 | GM [https://www.macrotrends.net/stocks/charts/GM/general-motors/roi]
[2] General Motors (GM) Earnings Yield [https://www.financecharts.com/stocks/GM/value/earnings-yield]
[3] General Motors (GM) Q2 2025 Earnings: Detailed Analysis [https://www.linkedin.com/pulse/general-motors-gm-q2-2025-earnings-detailed-analysis-focus-amjad-rquof]
[4] Q2 2025 Letter to Shareholders | General Motors Company [https://investor.gm.com/news-releases/news-release-details/q2-2025-letter-shareholders]