Is General Motors Stock a Buy Now on OnStar's Growth Potential?

At the recent BofA Global Automotive Summit, General Motors GM made it clear that its future isn’t just about selling vehicles anymore. The company is increasingly leaning into software and digital services as a key growth driver. At the center of this shift is its OnStar platform, which management sees as a meaningful source of recurring, high-margin revenues over time.

As the company scales its digital ecosystem and expands monetization opportunities, is GM stock worth buying now? Or do concerns around EV losses and tariff-related pressures still warrant caution? Let’s take a closer look.

GM’s OnStar Momentum

OnStar, GM’s in-vehicle connectivity and subscription platform, is becoming a key growth driver. Unlike vehicle sales, which are cyclical, subscription-based services offer steadier, more predictable cash flows. OnStar serves around 12 million users globally currently, offering everything from emergency assistance to remote vehicle controls.

The company is working to layer in more advanced features like AI-powered assistants, in-car apps, enhanced security, and personalized services, aimed at keeping customers engaged long after the initial vehicle purchase.

General Motors has embedded connectivity into its core business model. Since model year 2025, all new vehicles come with 8 years of OnStar basic services, creating immediate and long-term customer relationships, even extending to second and third owners. It’s a smart way to expand the addressable market over time. Early signs are encouraging, too, with roughly half of customers opting to upgrade to paid tiers.

Subscription Model Buoys GM’s Long-Term Outlook

Super Cruise (GM’s hands-free driver assistance system) is seeing 30-40% renewal rates after the initial trial period, suggesting that customers do see value in these features. Non-renewals are typically from users with limited highway driving.

Management expects software and services revenues to increase by about $400 million in 2026. Deferred revenues from these offerings are projected to reach $7.5 billion in 2026 (up around 40% year over year), with about $3 billion in recognized revenues. This provides visibility and supports long-term profitability.

These revenues tend to carry higher margins since much of the upfront hardware cost is already absorbed. All of these point to a broader shift underway. GM is gradually building a business that blends traditional auto sales with a more stable, subscription-driven revenue stream. And it’s not alone, peers like Stellantis STLA and Ford F are also pushing deeper into software-led models.

Near-Term Headwinds Persist

While General Motors is making steady progress on its software ambitions, the near-term road is a bit bumpy. The company continues to face pressure from its EV business, where demand has come in weaker than expected. GM incurred $7.6 billion in EV-related charges in 2025. Management expects these charges to persist into 2026, although at a lower level.

Tariffs remain another key overhang. GM is guiding for $3-$4 billion in gross tariff costs in 2026, slightly higher than last year due to a full year of exposure. For the first quarter alone, the impact is expected to be $750 million to $1 billion.

Rising input costs are adding to the pressure. The company is bracing for $1-$1.5 billion in headwinds, driven by higher prices for commodities like aluminum and copper, increased DRAM costs, and unfavorable foreign exchange movements. These factors are likely to weigh on margins in the near term, even as GM works to offset some of the impact through pricing and cost controls.

Price Performance, Valuation & Estimates

Shares of General Motors have gained 25% over the past six months, outperforming the industry as well as Ford and Stellantis. While Stellantis’ shares declined 33%, Ford inched up 1% over the same timeframe.

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From a valuation standpoint, GM trades at a forward price-to-earnings ratio of 5.84, way below the industry. It carries a Value Score of A.

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See how the Zacks Consensus Estimate for GM’s earnings has been revised over the past 90 days.

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Our Take: Hold for Now

GM’s long-term story is clearly improving, with its software and subscription strategy adding a new layer of visibility and margin potential. GM’s growing digital engine could play a much bigger role in shaping its long-term investment case.

However, the near-term setup remains mixed. Cost pressures, EV-related drag and external uncertainties could keep earnings momentum uneven in the coming quarters. At current levels, the risk-reward does not look compelling enough for fresh entry. For existing investors, staying invested and watching execution on both cost control and software scaling appears to be the more prudent approach.

General Motors currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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