GM leans back into Detroit iron while monetising software

Reshaping the profit engine

General Motors closed 2025 with an air of hard‑won confidence: a business reshaped by tariffs, policy whiplash and a stalling EV boom, yet still converting metal into cash at a rate that would have looked improbable a decade ago.

Full‑year EBIT‑adjusted came in at $12.7bn, toward the top of guidance, and adjusted automotive free cash flow hit $10.6bn. Over the past two years, GM has generated nearly $25bn of free cash, lifting its average annual free cash flow from roughly $3bn to $10bn in five years.

That cash has not been left idle. Since late 2023, GM has retired some 465m shares – roughly 35% of its share count – and now sits at about 930m diluted shares outstanding. Buybacks over the period have totalled $23bn, contributing to a 170% share price appreciation since November 2023. In 2025 alone, GM repurchased $6bn of stock and paid more than $500m in dividends. The board has now authorised another $6bn in repurchases and a 20% dividend hike to $0.18 per share.

The balance sheet remains comparatively conservative: GM ended 2025 with $21.7bn of cash and retired $1.8bn of debt during the year, giving CFO Paul Jacobson room to argue that chunkier capital returns are underpinned by structural, not cyclical, cash generation.

Tariffs, tariffs everywhere – and how GM ducked the worst

If 2025 was the year tariffs stopped being an abstract risk factor and became a hard P&L line item, GM’s response underlined the value of an old‑fashioned manufacturing footprint and disciplined commercial execution.

Gross tariff costs reached $3.1bn in 2025, below the revised $3.5–4.5bn range GM signalled in October. The delta came from a combination of internal “self‑help” – price and mix actions, footprint shifts, fixed‑cost cuts – and late‑breaking policy shifts, notably lower rates on imports from South Korea. In aggregate, GM offset more than 40% of its gross tariff bill.

Looking into 2026, the tariff burden is not going away. GM is guiding to $3–4bn in gross tariffs, reflecting a full year of exposure partially cushioned by the Korean rate and expanded MSRP offset programmes. However, Jacobson expects net tariff costs to be lower year‑on‑year as the 2025 mitigation actions annualise.

The caveat is political. The 2025 guidance assumes a 15% tariff on Korean imports based on an October agreement that is now encountering legal and political pushback in Seoul. Should the rate revert to 25%, GM would face renewed pressure, forcing further offsetting actions or margin sacrifice.

EV whiplash and a costly capacity reset

The most striking numbers on the call were not about trucks or tariffs, but about electric vehicles – or more precisely, the cost of building too much EV capacity for a regulatory landscape that has shifted beneath GM’s feet.

Over the second half of 2025, GM booked $7.6bn in EV‑related charges as it unwound parts of its earlier EV build‑out:

• In the third quarter, $1.6bn of charges, including $1.2bn of non‑cash impairments tied mainly to converting Orion Assembly from EVs back to internal combustion vehicles, and $400m of cash for contract cancellations and supplier settlements.
• In the fourth quarter, a further $6.0bn, of which $1.8bn was non‑cash impairments linked to discontinuing the BrightDrop electric van and other EV assets. The remaining $4.2bn is mostly cash commitments for supplier settlements and contract exits.

Of the $7.6bn total, GM expects $4.6bn to be settled in cash, with about $400m paid in 2025 and the bulk landing in 2026. Mary Barra framed the reset as a rational response to “softer than expected consumer demand” and US policy changes, notably the termination of certain EV tax credits.

Crucially, GM has not impaired its existing retail EV portfolio beyond BrightDrop. Instead, it is doubling down on cost engineering – new chemistries like LMR, a shift toward LFP cells, and ongoing component cost take‑out – while accepting that volume ramp‑up will be slower than once envisaged.

In the near term, that painful reset is expected to free up margins. For 2026, GM is guiding to a $1–1.5bn benefit from right‑sizing EV capacity and lower EV wholesale volumes. That improvement, combined with a $1bn tailwind from lower warranty costs and $500–750m from reduced regulatory credit purchases, is core to management’s confidence in restoring North America margins to the 8–10% range this year.

ICE still pays the bills

Behind the EV gyrations, the core combustion portfolio remains GM’s profit engine. The company has now logged four consecutive years of U.S. market share gains, adding 60 basis points in 2025 to reach its highest share in a decade. That has been achieved with lean inventories – 48 days at year‑end versus a 50–60 day target – and “some of the lowest incentives in the entire industry”, as Jacobson put it.

Full‑size pickups and SUVs remain the backbone. GM again led the U.S. industry in both categories, while revamped crossovers such as the Chevrolet Equinox and Traverse, and smaller models like the budget‑friendly Chevrolet Trax, helped deliver GM’s best‑ever crossover year. The new sixth‑generation small block V8, developed with heavy use of simulation and AI tools to cut engineering time and prototype costs, underscores how much capital is still being committed to combustion.

The 2026 guidance for North America reflects the push and pull of this portfolio:

• Light‑vehicle production in the U.S. is expected at a low‑16 million SAR industry‑wide.
• GM expects ICE wholesale volumes to be flat to modestly up, despite portfolio shifts such as the end of the Cadillac XT6 and downtime ahead of new Chevrolet Silverado and GMC Sierra launches.
• Pricing is assumed to be flat to up 0.5%, primarily from the full‑year benefit of 2026 model‑year increases rather than fresh hikes, and with room for elevated incentives baked in.

GM has to thread multiple needles at once. The company wants to maintain discipline on incentives while managing downtime for truck retooling and coping with lingering supply‑chain frictions, including higher DRAM prices and some input cost inflation. Management is guiding to $1–1.5bn in headwinds from onshoring production and software investments, and another $1–1.5bn from commodities, memory and FX.

Even so, the ICE franchise remains robust enough that GM feels able to onshore high‑margin capacity – expanding full‑size pickup and SUV production in the U.S. – while absorbing near‑term cost pressure. Those shifts should start to mitigate tariff exposure and lift margins beginning in 2027.

Software, subscriptions and the slow pivot to “tech multiple”

Where the script deviates from Detroit tradition is in services. GM is quietly building a recurring revenue and margin stack that increasingly resembles a software story layered atop trucks and SUVs.

OnStar ended 2025 with a record 12m subscribers and $5.4bn in deferred revenue. Within that:

• Super Cruise, GM’s hands‑free highway driving system, counted more than 120,000 subscribers, with nearly 80% year‑on‑year growth.
• Renewal rates for Super Cruise after the initial three‑year bundled period have reached the low 40% range, according to Jacobson – an unusually strong attachment rate for an automotive subscription.
• OnStarFleet has 2m connected vehicles, twice as many as the nearest competitor, by GM’s reckoning.

For 2026, GM expects another $400m of incremental high‑margin software and services revenue, largely from OnStar and Super Cruise, and projects deferred revenue to rise to roughly $7.5bn – an increase of around 40%.

This software architecture is set to be further professionalised in the next decade. GM is targeting a second‑generation “software‑defined vehicle” platform for both ICE and EVs in 2028, with a unified high‑speed compute core and vastly expanded over‑the‑air capability. That same architecture will underpin an “eyes‑off, hands‑off” driving system initially on the Cadillac Escalade IQ.

Investors might reasonably discount 2028 promises; GM’s nearer‑term proof point is the ability to grow subscription revenue and corresponding deferred revenue at scale while maintaining strong renewal rates, without materially eroding hardware margins.

China and the rest of the world: smaller but steadier

GM’s China joint ventures, long viewed as a structural headache, are beginning to look more like a stabilised, if diminished, earnings stream.

In 2025, GM’s China equity income was $100m excluding a $600m restructuring charge tied to prior capacity rightsizing. The joint ventures have sufficient cash to cover those charges, and GM does not expect to inject capital. New energy vehicles now account for about half of GM’s China sales, roughly 1m units in 2025, and are profitable across price points, according to management.

The broader international portfolio – South America, the Middle East and export operations – delivered $200m of EBIT‑adjusted in the fourth quarter and is expected to be broadly similar in 2026. GM points to improved performance in Brazil despite intensifying competition from Chinese brands, noting the ability to manage inventory and incentives to protect margins and dealer profitability.

Taken together, China and GM International are no longer the growth engine they once promised to be, but they appear less likely to be a chronic drag. For investors, that stability, combined with clearly bounded capital commitments, may be more valuable than heroic growth stories.

GM Financial: a quieter lever on cost of capital

GM Financial continues to provide a solid earnings contribution while quietly improving the group’s funding profile.

The captive finance arm delivered $2.8bn of EBT‑adjusted in 2025, within guidance, and upstreamed $1.5bn in dividends to GM. Fourth‑quarter EBT‑adjusted of $600m was slightly lower year‑on‑year as reduced lease termination gains were mostly offset by higher retail yields and lower provisions.

The more strategic news was regulatory: GM Financial has received conditional approval for an industrial bank, allowing it to raise deposits via high‑yield savings and brokered deposits. CEO Susan Sheffield cast this as a complementary funding source rather than a wholesale pivot away from capital markets, but even modest basis‑point savings on a large funding base will be meaningful.

The bank will also provide GM more latitude to compete aggressively on auto loan pricing, an increasingly important lever as consumers face higher rates and as GM tries to deepen its integration between vehicles, financing and digital services.

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For investors, the 2025 numbers confirm that GM remains, at heart, a cash‑rich manufacturer of profitable trucks and SUVs that is learning to behave like a capital allocator and a software platform, even as it digests the costly hangover of over‑building for an EV future that has arrived more slowly than regulators once promised.