General Motors Stock Has One Major Drawback

General Motors (NYSE: GM) turned in a strong 2024 on the back of rising sales. In fact, Detroit's largest automaker consistently topped Wall Street estimates and raised guidance while crosstown rival Ford Motor Company grappled with higher warranty costs. General Motors rewarded investors with a 48% gain in 2024, compared to Ford's 18% decline.

That price performance suggests the stock is worthy of consideration going forward as well. But there's currently one major drawback to owning GM's shares: the company's woes in China.

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GM is working to manage changing automotive trends in China

China's auto industry is in the midst of a brutal price war that has its roots in the industry's own prowess. Not only did a wave of Chinese automakers take over the domestic market, but a focus on electric vehicle (EV) technology proved key to the takeover. In fact, according to data from the China Passenger Car Association (CPCA), Chinese automakers account for roughly 70% of the Chinese market, up from about 38% as recently as five years ago.

Sensing opportunity, China's government highly subsidized the EV industry and created a long list of worthy competitors. The flood of competition and new EV models created the price war, with automakers slashing prices and offering discounts to maintain market share. At a time when Chinese automakers were already taking over the market, the focus on advanced and highly affordable EVs quickly forced foreign automakers to come up with solutions to remain competitive.

"You can look back 15, 20 years to when GM's China [operation] was its life preserver. It certainly isn't now. It's a money pit," Jeff Schuster, global vice president of automotive research at GlobalData, told CNN in an interview last month. "Every international brand is suffering in China."

Through the first nine months of 2024, GM's sales in China are down 19%; the company has lost $347 million on its Chinese joint ventures over the same time frame. It's a trend that's largely taken place since 2019, as you can see in the graphic below:

Data source: General Motors filings with the Securities & Exchange Commission. Image source: Author.

Still fighting

But General Motors isn't going to give up on China without a fight. Late in 2024, management announced the company would record two noncash charges totaling more than $5 billion on its joint venture in China. That's important for investors because most of the charges will be recorded during GM's fourth-quarter earnings. They'll reduce net income but not adjusted results, which are key figures for Wall Street analysts.

GM is attempting to turn around its former profit engine with significant reductions in dealer inventory and modest improvements in sales and market share. CEO Mary Barra told investors in October that improvements would be visible as soon as the end of 2024.

Despite the company's woes in China, its profit engine in North America is humming along nicely. In fact, GM's North America operation is enabling management to raise financial guidance throughout 2024, sell more vehicles that people actually want to buy, and vigorously buy back shares -- and still the stock trades at a paltry price-to-earnings (P/E) ratio of 5.

While China may be a drawback for General Motors shareholders, the Detroit automaker is still one of the top industry stocks to own right now. It's worthy of a closer look.

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Daniel Miller has positions in Ford Motor Company and General Motors. The Motley Fool recommends General Motors and recommends the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.