A leaner General Motors says it will use the Cadillac brand to compete with Tesla, and the firm also delivered bullish guidance for 2019, sending GM shares upwards by 7%.
GM Shares Leap 7% on Friday
GM has seen excellent sales levels in the US and expects 2019 vehicle sales to once again hit the 17 million market. Unlike other brands with operations in China, Apple being one, GM expects sales in the country to hold.
GM is cutting costs and increasing automation in China but will balance that with 20 new or redesigned vehicles for the Chinese market, its largest.
CEO Mary Barra gave a presentation to investors declaring:
Because of the actions we have been taking for several years, General Motors enters 2019 leaner, more agile and positioned to win.
The motor manufacturer drew criticism from US President Donald Trump, trade unions and state politicians when it made cuts last year:
Very disappointed with General Motors and their CEO, Mary Barra, for closing plants in Ohio, Michigan and Maryland. Nothing being closed in Mexico & China. The U.S. saved General Motors, and this is the THANKS we get! We are now looking at cutting all @GM subsidies, including….
— Donald J. Trump (@realDonaldTrump) November 27, 2018
GM has been working to exit unprofitable markets in Europe and developing economies. It has dropped the production of certain models which will result in the plant closures.
Company President Mark Reuss said:
We are no longer investing in things that don’t make money. The future is coming fast. We are doing everything we need to do as fast as we can.
Cadillac to Become GM’s Electric Hope
Reuss believes making the Cadillac brand the “tip of the corporate spear” for electric vehicles is both “profitable” and “attainable.”
GM plans to introduce a luxury electric Cadillac to challenge Tesla. It seems the cuts and sales in the North American market will fund the new push on electrification.
Other carmakers, like Ford, are making further cuts and seeing investors balk. GM seems to be adjusting to a new future of electric vehicles as gas and diesel models go out of favor.
Catching Tesla at a Low Point
The move by GM, looking to specifically targeting Tesla in the market, could be as simple as picking the prime competition. However, Tesla has its woes right now. Its shares plunged on January 2 after fourth-quarter 2018 production and delivery results fell short of Wall Street’s expectations.
Vertical Research Group analysts expect further poor results from Tesla and that demand for its electric models won’t reach high enough levels to recover its share price. Gordon Johnson said of quarter three 2018 results:
I don’t think they’re ever going to reach that level of earnings again.
GM Adjusts Earnings Per Share Ahead of Analyst Projections
GM predicts 2019 adjusted earnings per share to reach $6.50 to $7.00 compared to the $5.86 expected by analysts.
Buckingham Research Group analyst Joseph Amaturo said:
Bottom line, we believe management just reset the bar higher for earnings and cash flow despite increased macro concerns among investors.
GM’s stock price ended today over 7% up on the news.
The Dow Jones narrowly missed achieving a sixth day of gains as other companies revised earnings downwards. Wall Street also wondered today what an appointment to the House Finance Services Committee of Democratic Rep. Alexandria Ocasio-Cortez could bring.
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