Al Root

The auto industry can be chaotic, with news about electric-vehicles, self-driving cars, tariffs, foreign parts, and labor making it difficult for investors to evaluate car stocks.

Investors can gain an edge, though, if they learn to cut through the noise.

A good example came earlier this week when The Wall Street Journal reported General Motors dropped plans for an EV motor plant in upstate New York and would invest in gas-guzzling V-8 engines instead. The story followed recent revelations that GM was working to gain relief from California's onerous EV goals.

The company is supposed to be all-in on electric cars with its "EVerbody In" slogan. So what gives?

GM still wants to sell EVs profitably and is building battery plants to help drive down costs. The market for all-electric cars, however, has developed slower than anyone expected when auto makers made splashy EV announcements in 2021.

That year, GM announced $35 billion in EV spending, spanning 2021 through 2025. GM spends roughly $10 billion on new plants and equipment and another $10 billion annually on R&D. So, $35 billion over four years amounts to roughly 45% of the capital and R&D budget. That leaves 55% for gasoline-powered cars. The math from other auto makers looks similar.

What's more, GM has talked about new trucks and new truck engines for about a year. The engine plant announcement wasn't a surprise, although where it would be located -- Tonawanda, N.Y. -- was new.

As for the California regulations, they require that for model year 2026, roughly one-quarter of all the cars sold in the state -- and states following California standards -- need to be electric. EV penetration of new car sales in California is about 20%. It's about 6% everywhere else in the U.S. There is a slim chance of hitting goals in California and no chance of hitting them in the rest of the country.

Despite all this, car companies aren't abandoning EVs wholesale, and EV demand is still growing as new models come out and as battery costs fall. GM reported EV sales of about 32,000 vehicles in the first quarter, up 94% year over year. A solid result, although it was still about 5% of total U.S. sales volume.

When evaluating the latest auto news, investors should remember that companies tend to be reactive -- and positive in what they report. Hyundai, for instance, said early in 2025 it would hold pricing steady through June in response to President Donald Trump's tariffs. That made sense since all the inventory on dealer lots was tariff-free. Now, with tariffs in place, there are news reports that Hyundai will raise prices. Hyundai didn't immediately respond to a request for comment.

Remembering the reactive principle can help investors weather all the market highs and lows with each announcement. They should also keep in mind that EV strategy has had essentially no correlation with stock returns.

GM was aggressive about adopting EVs and its shares have roughly doubled over the past five years, through midday trading on Friday, beating the S&P 500 by a few percentage points. Ford Motor was an EV first mover, and its shares have risen 80%, lagging GM. Stellantis chose to be an EV follower, waiting to introduce all-electric cars. Its stock is up only 15% over the past five years.

Profit margins in the ongoing business and capital return mattered far more than EV strategy.

GM's margins have been relatively stable compared with its peers, and the company has spent billions on share repurchases. GM had roughly 1.4 billion shares outstanding at the end of 2020. Now, it has less than one billion.

Write to Al Root at allen.root@dowjones.com

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May 30, 2025 13:58 ET (17:58 GMT)

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