Tariffs Cloud General Motors' Outlook As Annual Profits Remain At Risk

General Motors Company (NYSE:GM) is navigating a complex automotive landscape, contending with rising tariffs and significant capital expenditures, yet the company remains steadfast in its projection of $7.5 billion to $10 billion in free cash flow for 2025.

Despite a mixed second quarter, marked by a sharp drop in the company’s adjusted EBIT margins to 6.4% and a substantial $1.1 billion tariff headwind, the auto giant still surpassed revenue and earnings expectations.

However, the company anticipates a challenging second half, particularly in North America, with expected declines in wholesale volumes and increased tariff burdens, though strategic measures are in place to mitigate these impacts.

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Against this backdrop, Bank Of America Securities analyst Federico Merendi reiterated the Buy rating on General Motors, lowering the price forecast from $65 to $62.

The auto behemoth registered second-quarter adjusted earnings per share of $2.53, beating the analyst consensus estimate of $2.40. Quarterly sales of $47.12 billion outpaced the Street view of $45.57 billion. Merendi highlights that China operations have now delivered two consecutive profitable quarters.

He adds that the company kept its full‑year guidance intact but cautioned that adjusted EBIT in the back half is likely to trail first‑half results, driven by a mid‑single‑digit sequential drop in North American wholesale volumes, translating to roughly an 8% year‑over‑year decline in the second half of 2025.

Merendi also points out that, unlike earlier messaging, the third quarter will carry a heavier gross tariff burden than the second quarter, though mitigating actions should soften the impact, and that stronger free cash flow in the second half could pave the way for share buybacks.

Looking toward year‑end, the analyst sees a tougher fourth quarter, with North America deliveries down about 9% and margin pressure, while noting that favorable mix shifts and further improvements in China should help offset some of those headwinds.

The analyst notes that while higher capital expenditures aren’t ideal, General Motors’ peers face the same challenge, making the relative impact more manageable.

General Motors still expects to generate $7.5 billion to $10 billion of adjusted free cash flow in 2025, providing flexibility for both shareholder returns and reinvestment in the business.

Price Action: GM shares are trading higher by 8.79% to $53.19 at last check Wednesday.

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