General Motors expects $5 billion hit from China restructuring

General Motors Company (NYSE: GM) expects a more than $5 billion hit as it proceeds with restructuring the joint venture it has with China-based SAIC Motor Corp.

The legacy automaker estimates about $2.7 billion of mostly non-cash charges that could weigh on its net income but are unlikely to have any influence on its adjusted pre-tax earnings.

The rest of the expected impact will materialise as GM writes down its equity stake in the joint venture operations, as per a federal filing on Wednesday.  

General Motors shares are inching down in premarket today.

Why is General Motors restructuring its China business?

General Motors will close some plants and optimise its portfolio as part of restructuring its business in China.

The automotive giant expects the move to bring more religion to its cost structure and help it become “sustainable and profitable in that market.”

GM is fully committed to recording year-on-year improvement in its China business in 2025.  

General Motors is convinced it can restructure the joint venture “without new cash investments.” Additional details related to expected closures are yet to be revealed.

GM stock is currently up some 50% versus the start of 2024.

China remained in loss for General Motors in Q3

General Motors came in well ahead of Street estimates in its latest reported quarter.

But China continued to be a point of weakness for the Detroit automaker.

The world’s largest automobile market brought it $137 million loss in Q3.

Still, the company’s chief of finance, Paul Jacobson said “we think we can turn it around” in an interview following the earnings release.

He also raised the guidance for full-year adjusted EBITDA and automotive free cash flow at the time.

GM now expects up to $15 billion in earnings before interest and taxes – and $12.5 billion to $13.5 billion of adjusted automotive free cash flow in 2024.

General Motors shares currently pay a dividend yield of 0.89% that makes them all the more attractive to own for an additional source of passive income.

Should you build a position in GM stock?

GM stock has significantly rallied over the past four months but analysts at the Bank of America Securities remain convinced that it’s not out of juice just yet.

The investment firm expects shares of the automaker to hit $85 next year on confidence that it can successfully navigate the transition from conventional vehicles to future mobility solutions.

BofA is bullish on General Motors stock also because it has recently signed a deal that enables its EV customers to use Tesla’s network of superchargers across the United States.

Last month, the automotive behemoth laid off about 1,000 of its employees across several departments as part of its broader push to lower costs.