Q4 2025 Letter to Shareholders

GM reported full-year EBIT‑adjusted results at the high end of guidance and delivered a 54% total shareholder return in 2025. Management boosted shareholder returns with a 20% dividend increase and a $6 billion share repurchase authorization, guided North America EBIT‑adjusted margins back to an 8–10% range, expects U.S. annual production to rise toward 2 million units, and highlighted operational wins including 12 million OnStar subscribers (Super Cruise up ~80% to >620,000) and roughly 100,000 new EV customers in 2025.

Analysis

Market structure: GM’s letter signals rising pricing power and inventory discipline—expect North America EBIT-adjusted margins to normalize to 8–10% in 2026, implying ~200–400bp upside vs peers still running heavy incentives. Direct winners: domestic suppliers (steel, semis, Tier-1 electronics) and GM Financial; losers include low-margin offshore OEMs and loss-making EV pure-plays that lack scale. Cross-asset: stronger GM fundamentals should tighten its credit spread (watch for −25–75bp move) and compress equity implied vols; modest upward pressure on copper/steel demand over 12–36 months.

Risk assessment: Tail risks include a regulatory shift reducing ICE-friendly policy, a major battery raw-material shock (Li/Ni +50% YoY), or a supplier factory disruption that delays the 2m U.S. production target—each could erase near-term margin gains. Near-term (days–weeks): stock reaction to buyback/ dividend announcements; short-term (3–12 months): execution of onshoring and EV cost reductions; long-term (2–5 years): EV profitability and AV commercialization are binary drivers. Hidden dependency: GM’s margin trajectory depends on GM Financial loan performance and China JV outcomes; monitor delinquencies and China unit economics.

Trade implications: Primary trade is constructive on GM while selective shorting of cash-burning EV peers. Implement size-conscious equity and options plays to capture buyback-led EPS accretion and Super Cruise monetization—use calendered call spreads to cap premium. Sector rotation: overweight Autos/Auto Suppliers, underweight Loss-making EVs and non-U.S. export-focused suppliers over 6–18 months.

Contrarian angles: Consensus may underprice the strain between accelerating buybacks/dividend hikes and multi-year EV capex—if GM prioritizes capital returns over aggressive battery investment, EV unit economics could lag competitors and reverse sentiment. History: past OEMs (Ford 2010s) that returned cash then underinvested saw 20–40% drawdowns when competitors surged technologically. Watch for disclosure of battery cost per kWh and GM Financial KPI within next 90 days as a make-or-break inflection.

Key Decisions for Investors

• Initiate a 2–3% NAV long position in General Motors (GM) over a 6–12 month horizon targeting 15–25% total return; set a tactical stop-loss at −12% and trim if NA EBIT-adjusted margin guidance falls below 8% on a quarterly update.
• Establish a paired options trade: buy a 9–12 month GM call spread (delta ~0.35 long, sell higher strike to fund) sizing at 0.75–1.0% NAV to capture buyback-driven EPS upside; roll or close if implied vol rises >40% or after a positive production cadence update.
• Relative-value pair: go long GM (2% NAV) and short Rivian (RIVN) (1% NAV) for 6–12 months—rationale: GM’s buyback/dividend and positive FCF vs Rivian’s cash burn and execution risk; exit if Rivian posts cash runway >24 months or GM revises buyback down >25%.
• Buy GM corporate bonds (5–7 year) for carry if corporate spread to UST exceeds 150bps; reduce allocation if GM’s bond spread tightens below 100bps or if leverage (net debt/EBITDA) rises >0.5x quarter-over-quarter.
• Monitor three near-term catalysts within 30–90 days before adding to positions: (1) quarterly EBIT-adjusted vs 8% threshold, (2) GM Financial 30/60/90-day delinquencies, and (3) announced battery $/kWh target—add to longs if all three move favorably.