Citigroup has expressed optimism regarding General Motors’ (GM) strategy to realign electric vehicle costs for the fourth quarter, expecting this move to bolster profit margins and promote earnings growth in the future. The investment bank has reaffirmed its buy rating for the automobile manufacturer and elevated its 12-month price target by 12%, increasing it from $86 to $98, which positions it approximately 18% higher than GM’s closing stock price on Friday.
This positive outlook comes in light of a remarkable 66% increase in GM’s shares over the past year. Analyst Michael Ward highlighted that the company’s decision to incur a $6 billion charge in the fourth quarter for realigning costs and capacities for battery electric vehicles aligns with current demand expectations. He characterized this charge as a one-time expense that could yield lasting benefits for the company’s stock performance.
Significantly, the bulk of this charge will be allocated toward settling contract cancellation fees and commercial settlements with suppliers. Ward noted that this strategic move will lead to lower operating costs, curtailment of supplier reimbursements due to lower-than-anticipated production volumes, and the discontinuation of its Brightdrop services. He believes that these changes will ultimately drive GM’s North American margin performance back to the targeted range of 8-10% by 2026.
Ward also increased his earnings forecasts, raising his estimate for 2026 to $12.25 from $11.50 and for 2027 to $13.15 from $12.50, reflecting the anticipated benefits stemming from the charge’s accounting treatment. Furthermore, GM’s current quarter has shown better-than-expected production capabilities and market pricing, contributing positively to Citigroup’s outlook.
Citi’s price target reflects an expectation that GM will deliver improved results in the upcoming years, as the company capitalizes on market share gains, favorable product alignment, strategic pricing, reduced costs, and a more decisive corporate culture. This approach, in Ward’s view, justifies a premium stock valuation compared to pre-Covid levels, suggesting a brighter future for GM in the electric vehicle market.