Morgan Stanley Upgrades GM, Turns Bearish on EV Stocks

Morgan Stanley’s Bullish Bet on GM: What It Means for the Future

Investment bank Morgan Stanley lifted General Motors (GM) from “Equal Weight” to “Overweight” and upgraded its 12‑month price target to $90. The move reflects confidence in GM’s operational discipline, profit‑driving mix shift, and strategic capital allocation.

Key drivers behind the upgrade

• Inventory & incentive discipline – GM’s “industry‑leading” control of U.S. stock levels helps protect pricing power and margins.
• High‑margin trucks and SUVs – A stronger focus on trucks and sport‑utility vehicles is adding a premium tailwind to earnings.
• Capital‑return strategy – A $10 bn accelerated share‑repurchase program and four straight years of dividend hikes signal shareholder‑friendly capital discipline.
• Policy shift toward an “EV winter” – The phasing‑out of the federal EV tax credit and softer emissions rules are expected to boost ICE sales until at least 2026.
• Economic tailwinds – Anticipated rate cuts in the second half of 2026 could improve vehicle affordability and fuel demand for GM’s core lineup.

Why Rivals Like Tesla and Rivian Are Losing Favor

Morgan Stanley simultaneously downgraded pure‑play EV makers, underscoring a belief that a balanced approach—using robust ICE cash flow to fund a measured EV transition—is the most resilient path in a cyclical market.

Recent market data shows GM’s stock outpacing both traditional peers (Ford) and EV specialists (Tesla, Rivian) with a 57 % gain year‑to‑date.

Read more about sector performance on Bloomberg.

EV Slowdown: A Reality Check for GM

GM recorded a $1.6 bn special charge in Q3, mainly from a $1.2 bn non‑cash impairment of EV assets and $400 m cash supplier cancellations. The charge reflects a strategic “right‑size” of EV capacity as adoption slows.

Policy changes—expiration of key consumer tax incentives and relaxed emissions standards—have trimmed EV demand, prompting GM to recalibrate its EV rollout timeline.

Did you know? The U.S. federal EV tax credit is set to expire at the end of 2025, which could shave up to 10 % off projected EV sales in the next two years.

Doubling Down on U.S. Production and Supply‑Chain Resilience

GM is committing $4 bn to U.S. operations to realign its supply chain, onshore parts, and mitigate tariff exposure. New capex projects in Kansas, Tennessee, and Michigan will increase domestic content, reducing reliance on imports from Mexico, Canada, South Korea, and China.

Analysts estimate that each 10 % rise in domestic parts content can lower tariff‑related cost pressures by roughly $200 m annually.

Goldman Sachs Joins the Up‑Side Narrative

Goldman Sachs elevated its 12‑month target to $93, maintaining a “Buy” rating. The firm cites the same themes—solid ICE earnings, disciplined capital allocation, and a clearer EV‑loss outlook—as catalysts for upside.

For a deeper dive into analyst consensus, see our auto analyst roundup page.

Guidance Upgrade: What the Numbers Reveal

GM’s Q3 revenue of $48.6 bn beat expectations, while adjusted pre‑tax profit climbed to $3.38 bn. Despite a GAAP net‑income dip caused by the EV charge, the company raised its full‑year 2025 guidance:

• Adjusted EBIT: $12 bn – $13 bn (up from $10 bn – $12.5 bn)
• Adjusted EPS: $9.75 – $10 (up from $8.25 – $10)
• Free cash flow: $10 bn – $11 bn (up from $7.5 bn – $10 bn)

Looking ahead, CFO Paul Jacobson says 2026 earnings are expected to surpass 2025, driven by lower EV losses, stable warranty costs, and continued tariff mitigation.

Future Trends to Watch in the Auto Landscape

1. “Hybrid” growth model – ICE fuels the EV transition

Automakers that keep a profitable ICE base while incrementally scaling EV capacity can fund R&D without over‑leveraging balance sheets. GM’s “balanced” stance is emerging as a template for the next decade.

2. Policy‑driven demand cycles

Governments will swing between incentives and regulatory pressure. Investors should monitor federal tax credit extensions, state‑level subsidies, and emissions rule updates for short‑term volatility.

3. Supply‑chain localization

Tariff risk and geopolitical tension are accelerating onshoring initiatives. Companies that achieve a ≥50 % domestic parts mix could gain a cost advantage of 3‑5 % over peers.

4. Data‑driven inventory management

Advanced demand‑forecasting tools enable tighter inventory turns, reducing the need for deep discounting and protecting margin.

5. Electrification profitability

Margin pressure on EVs is expected to ease as battery costs fall below $80/kWh and as manufacturers master economies of scale. The “EV winter” may serve as a reset period that ultimately strengthens profitability.

FAQ

Will GM’s EV investments recover after the “EV winter”?

Analysts expect a gradual rebound as battery costs decline and new federal incentives replace the expired credit, likely restoring profitability by 2027.

How does higher domestic content affect GM’s earnings?

Increasing U.S. parts content reduces exposure to tariffs and foreign exchange volatility, potentially adding $200‑$300 m to annual EBIT.

Is GM’s dividend sustainable?

With four straight years of dividend growth and a strong free‑cash‑flow outlook, the dividend appears secure, though it may be adjusted if EV losses exceed expectations.

What should investors watch for in GM’s next earnings release?

Key metrics include U.S. domestic‑content ratio, EV margin trends, and progress on the $4 bn onshoring capex projects.