Wall Street worries GM will face a tougher 2023 than the automaker is letting on

GM's profitability is at risk due to eroding pricing power, labor concerns, and challenges in producing EVs.

Wall Street worries GM will face a tougher 2023 than the automaker is letting on

Mary Barra, CEO of General Motors Co. at the South by Southwest Festival in Austin, Texas on March 14, 2023.

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Wall Street is beginning to doubt the future of General Motors in 2023.

The company beat Wall Street's expectations for first-quarter earnings and raised its guidance for 2023 above the analyst consensus. However, investors are questioning the company's performance amid economic challenges as well as an industry moving away from high-priced vehicles and record profits.

This helps explain why GM shares were trading at just over $32 per share on Wednesday, down almost 6% since GM's report for the first quarter. Wednesday marked the lowest closing price for GM since October. Shares are 26% below their 52-week peak of $43.63 per share. Stock is down 2.7% for the year, after closing at $32.72 on Thursday.

In an investor note published on Wednesday, Barclays analyst Dan Levy stated that "GM continues to make the right decisions, but we think cycle normalization, and the challenges of EV ramp, make for a difficult investment thesis." The firm reaffirmed an equal-weight ranking, but lowered its price target by $3, to $42 a piece.

Analysts believe that eroding pricing, labor issues and the challenges of producing electric vehicles are major challenges facing Detroit's automaker.

GM CFO Paul Jacobson stated Tuesday that GM expects the new vehicle prices to remain stable compared to last year. He said that consumers in the U.S. paid on average $50,263 for a vehicle during the third quarter. This is down 1% from the year before.

According to BofA Securities analyst John Murphy, higher prices are bad for consumers, but good for automakers. The note was titled, "You hated it, we liked it: execution, price drive, beat and raise."

General Motors Co



GM's share price since Mary Barra was appointed CEO on January 15, 2014.

GM raised its expectations for full-year adjusted profits to a range between $11 billion and $13 billion, up from a previously stated range of $10 billion to $12 billion. These results are a drop of between 10% and 24 % from the $14.5 billion adjusted earnings that GM reported in 2022.

Wells Fargo's Colin Langan called GM's Wednesday guidance "surprising" given the pricing risks, especially in China, as well as rising steel prices. He cited pricing expectations that he deemed "bullish" as his main concern.

GM showed restraint by not overproducing in this year. This helped to keep inventories in sync with demand, and prop up the prices. Around the end of the third quarter, the company halted production of pickup trucks at a plant located in Indiana to maintain inventories below historical levels.

It may still need to make such an inventory in the future, as there are growing concerns about a possible strike by unions.

GM is preparing to negotiate with the United Auto Workers (UAW) and the Canadian union Unifor. This could lead to a work stoppage or increased labor costs.

The UAW's periodic negotiations don't usually result in a dramatic increase in labor costs, but the UAW has a new leadership for the first decade and this promises to be a more heated negotiation than ever before. The new leadership of the union ran on platforms that included reforming the organization, and standing up against automakers.

Shawn Fain, the new UAW president, told union members at a convention in Detroit last month: "We are here to prepare ourselves for war against our one and only enemy: Multi-billion dollar corporations and employers that refuse to give their members their fair share." "It's the dawn of a new era in the UAW."

Strikes can be expensive and reduce vehicle inventories. A 40-day GM strike during the last round four years ago cost GM $3.6 billion, including $2.6 billion of earnings before interest and tax during the fourth quarter.

GM CEO Mary Barra said Tuesday that the automaker was working to "build a relationship with the new management" but refused to speculate about the talks or the company's expectation for the negotiations.

She said, "We are working to ensure we build a strong relationship, get to know the new leadership and identify the challenges facing the business. Then, it's about working together to resolve the issues and reach a positive place."

GM shares are down by 19.5% since Barra was appointed CEO in January 2014. They're also off by 52% from a peak of $67.21 reached during intraday trading Jan. 5, 2020. The lowest price they reached during her tenure was $14.33 per share on March 18th, 2020.

Michael Bloom, CNBC's Michael Bloom, contributed to this report.