Why This Top Stock Rocketed 15% Higher Tuesday

It hasn't been a smooth year for most automakers. Companies such as General Motors (NYSE: GM) have had to adjust global strategies to offset U.S. tariffs on imported vehicles and automotive parts, and have had to prepare for a slowdown in electric vehicle (EV) sales in the fourth quarter after the $7,500 federal tax credit was removed at the end of September. Don't tell General Motors to be gloomy, though -- despite the headwinds the company just posted strong third-quarter results that drove its stock 15% higher Tuesday.

By the numbers

Thanks to a strong sales mix heavy on full-size trucks and SUVs, along with rising sales, General Motors delivered a strong third quarter of earnings and cash flow. GM recorded its highest third-quarter market share since 2017 in the U.S. market and its restructured China business once again reached profitability.

Image source: General Motors.

Focusing on the numbers, GM reported third-quarter operating profit of $3.1 billion from revenue of $48.6 billion. Those figures easily topped analysts' estimates that were looking for operating profit of $2.7 billion on revenue of $45 billion.

GM also raised its full-year operating profit guidance, with a bigger movement on the lower end of the range. GM now expects operating profit to check in between $12 billion to $13 billion, up from the prior $10 billion to $12.5 billion. While the raised forecast is positive news for investors, keep in mind that it's still a decline from the prior year's nearly $15 billion operating profit result.

One reason for the lower profits was the implementation of tariffs, but there's a little good news on that front as well. GM's estimated tariff impact in 2025 is now expected to be between $3.5 billion to $4.5 billion -- this is where the profit decline came from -- which is at least $500 million better than previously expected.

The road ahead

The road ahead is likely to remain bumpy, especially as automakers grapple with the loss of the $7,500 EV purchase tax credit. Not only did the loss of the credit pull forward demand from the fourth quarter into the third quarter, leaving a lull going forward, but it will also pressure EV profitability. That's a problem for investors that recently became more painfully obvious. GM took $1.6 billion in write-downs related to EV assets -- essentially admitting the investments in EVs won't be churning the level of profitability once anticipated.

Despite all of the noise surrounding the slowing EV market in the U.S., new car sales remained 4% higher through August, compared to the prior year. That's with the average transaction price on a new vehicle (overall) rising to a staggering $50,000 in September.

What it all means

General Motors has proven to investors that the company is incredibly capable of navigating complex problems facing the automotive industry. While tariffs, changing global strategies, the rise of Chinese EV manufacturers, and other headwinds remain, GM is still driving forward due to strong demand for its entire fleet. General Motors remains a top automotive stock trading at a cheap 10 times price to earnings and savvy investors would be wise to keep an eye on its stock going forward.

Daniel Miller has positions in General Motors. The Motley Fool recommends General Motors. The Motley Fool has a disclosure policy.