Escalating Trade Conflict Likely to Weigh on GM’s Profitability
Perceptive believes the escalating trade conflict between the United States and its key trading partners could meaningfully reduce General Motors Company’s (NYSE:GM) earnings relative to our prior expectations. GM produces a significant volume of high margin pickup trucks and SUVs in Mexico and Canada that could be subject to increased costs or tariffs of up to 25% due to worsening trade terms. We believe GM will need to absorb a significant amount of the additional costs associated with tariffs or less favorable trade agreements, which will weigh on its profitability. Because the automotive supply chain is extremely complex and intertwined, we believe GM has limited opportunities to mitigate the impact of worsening trade terms. We are therefore lowering our expectation for GM and believe its stock will likely remain range-bound at the current level until further clarity emerges on the impact to its profitability from the ongoing trade conflict.
June 27, 2018