By Michael Elkins
Citi reiterated a Buy rating and $82.00 price target on General Motors Company (NYSE:GM) after examining the American automaker’s 2023 pricing bridge. The company remains a “Top Pick” at Citi.
Analysts wrote in a note, “We believe GM offers very unique exposures both to highly attractive growth end-markets (Truck Franchise) as well as secular EV/AV/connected themes, which support a turnaround of GM’s Non-Truck Franchise and LT growth opportunities. In addition, we view Cruise as being among the leaders in the emerging urban RoboTaxi network business. We do not believe GM shares reflect these favorable attributes.”
Pricing remains the biggest area of near-term debate among automakers. Citi is modeling about a $1 billion YoY headwind and believes that GM’s guidance assumes a $2B headwind. Analysts believe that there are four drivers of the YoY pricing bridge; Exit/Entry rates, pricing erosion felt at dealer level, pricing erosion felt at automaker level and product cycles.
According to analysts, GM’s 4Q exit and 2023 entry rates for their Truck franchise are very positive. The company has a strong exit rate for Large SUVs and fairly strong for Large Pickups too. However, exit rates are softer for Mid-Size Trucks ahead of the company’s product refresh. Exit/Entry rates for Non-Truck franchise are mixed, but generally positive. January 2023 data was more encouraging than the Q4 exit.
Price erosion felt at the dealer level for Trucks was also very positive. The sentiment was measured by data informing on the spread between automaker revenue and vehicle pricing. Citi sees a healthy spread vs. 2019. Price erosion for Non-Trucks at the dealer level was mixed. Analysts believe that there is some room for pricing compression here, though several vehicles have a smaller spread vs. the industry average.
Price erosion at GM’s level was somewhat mixed for both the Truck and non-truck franchise. Strong exit/entry rates are encouraging, and Citi continues to see structural demand gains for Pickup Trucks. However, analysts worry about affordability constraints amid a softer macro, more so for Pickups than for Large SUVs given the relative volume. As for Non-Trucks in the portfolio, an aging product lineup in 2023 yields greater vulnerability, but Non-Truck pricing is also in many cases below segment averages, which aids in the affordability equation.
Citi believes that the company’s product cycle is good. GM expects to launch refreshes for its Mid-Size Pickups and HD Pickups. These aren’t a huge proportion of the overall Truck Franchise volume, but analysts expect that it’s enough to “move the needle”. However, the company’s Non-Truck product cycle is seen as poor. The new Trax and a refreshed Trailblazer should help, but otherwise analysts expect the bulk of Non-Truck product portfolio to be refreshed starting in the second half of 2023 into 2024.
Shares of GM are up 0.17% in pre-market trading on Monday.