General Motors has spent billions convincing you its future is electric. Its EV sales are booming. So why did the company just quietly place a nearly $1B bet on the gas-guzzling V-8 engine? The answer reveals a hard truth about the EV revolution...

Recommendations

My favorite finds

 Deals

Health-Ade Kombucha Sells for $500 Million

Industry News

Microsoft poaches top Google DeepMind staff in AI talent war

World

US and Japan agree trade deal

Companies

Why GM is spending $900M on an engine from the past

General Motors’ latest earnings report is a wild ride. On the surface, things look… okay? They beat Wall Street’s expectations, and people are snapping up their cars.

But beneath the hood, the engine is sputtering. The company just revealed that new U.S. tariffs vaporized a staggering $1.1B in profit in a single quarter. Their stock promptly fell over 8%.

So what’s the real story? GM is walking a tightrope. They’re absorbing a massive financial blow to execute a high-stakes pivot, betting billions that they can outmaneuver the very policies designed to disrupt them.

It's a tale of disappearing revenue, a V-8 engine paradox, and a tariff-induced "sugar high" that could lead to a nasty crash.

The Billion-Dollar Problem

Let's get straight to it. GM's profit didn't just dip; it got torpedoed.

The company's adjusted profit (EBIT-adjusted) fell by $1.4B compared to last year. The new 25% tariff on imported vehicles and parts was responsible for $1.1B of that drop.

That means this single policy accounted for nearly 79% of GM's entire profit decline.

Instead of jacking up sticker prices immediately, GM decided to eat the cost. The result? Profit margins got squeezed hard, falling from a healthy 9.3% to 6.4%. It’s a classic business dilemma: protect your market share today, or protect your profits? GM chose market share, for now.

The pain was most acute in their main profit center, North America, where adjusted profits plummeted by 45.5%—a $2B nosedive in one quarter. A surprise comeback in China helped soften the blow, but it was like putting a Band-Aid on a cannonball wound.

The Case of the Disappearing Revenue

Here’s the weirdest part of the report: GM’s retail sales were up 10%, yet its total revenue fell by 1.8%.

How is that possible? You can thank a classic case of demand pull-forward.

  1. The Tariff Threat: When the government announced the 25% tariffs, everyone knew car prices were about to go up.

  2. The Customer Rush: Smart buyers rushed to dealerships to snag a car before the price hikes hit, creating a "sugar high" of sales. Dealers sold an impressive number of cars.

  3. The Inventory Drain: This demand surge was met by selling cars already sitting on dealer lots. Dealer inventory dropped by nearly 10%.

  4. The Revenue Lag: GM books revenue when it ships cars to dealers (wholesale), not when dealers sell to you (retail). Because they were selling down existing stock, GM’s wholesale shipments to dealers actually fell by 7%.

Fewer shipments to dealers = less revenue for GM.

This is the central risk. The strong sales were a one-time event fueled by beating a deadline. Now that the sugar high is wearing off, dealers are looking at a potential slowdown for the rest of the year.

The $4 Billion Counter-Offensive

CEO Mary Barra isn't just sitting back and taking the hit. GM has launched an aggressive counter-strategy, and it’s all about gaming the rules of the United States-Mexico-Canada Agreement (USMCA).

The new tariffs have a crucial loophole: they don't fully apply to vehicles and parts that are "Made in North America" compliant. The more U.S.-made content, the lower the tariff bill.

So, GM is doubling down on 'Murica. The company announced a $4B investment to boost U.S. production of its most profitable trucks and SUVs.

A prime example? The company is moving production of the gas-powered Chevy Blazer SUV from a factory in Mexico to a plant in Spring Hill, Tennessee.

The goal is to re-engineer their supply chain to mitigate at least 30% of the tariff impact. It’s a costly, painful realignment, but it’s a direct and calculated response to the new world of trade policy.

The V-8 Engine Paradox

At the same time GM is pushing its "all-electric future," it just made a seemingly bizarre move: it invested $888M to build a brand-new V-8 engine.

That's the largest single investment GM has ever made in an engine plant, and it's for old-school gasoline power.

Contradiction? Not exactly. It's a pragmatic hedge.

The Reality: The EV market is growing slower than expected. Barra admitted the internal combustion engine (ICE) market "now has a longer runway."

The Cash Cow: GM's gas-guzzling trucks and SUVs (like the Silverado and Sierra) are still its profit engine. They generate the massive, consistent cash needed to fund the multi-billion-dollar EV transition.

Investing in a new V-8 isn't a retreat from EVs. It's a strategic move to keep the cash cow healthy so it can keep paying the bills for GM's electric "north star."

Lapping the Competition (For Now)

To see how well GM is navigating this storm, just look at its rivals.

Stellantis (parent of Jeep, Ram, Chrysler) is getting wrecked. It posted a preliminary $2.7B loss for the first half of the year, blaming tariffs for production halts and a catastrophic 25% plunge in North American shipments. They were forced to completely withdraw their financial guidance for the year.

Meanwhile, GM—despite its own pain—is standing by its full-year forecast. While GM's 7% drop in shipments hurts, it looks downright stable next to Stellantis's collapse.

The key takeaway: GM is engaged in a high-stakes bet on its own resilience. It's absorbing immense short-term pain to fundamentally rebuild its business for a new era. The second half of 2025 will reveal if this was a masterstroke of foresight or a case of corporate bravado in the face of an unforgiving economic storm.

See you next week,

— Matt

P.S. If you enjoy my emails, move them to your primary inbox and let me know by sending a reply or clicking the poll below. I read every response.

Login or Subscribe to participate

Keep Reading

No posts found