Trump's tariffs lead to a cost increase of 1.1 billion US dollars, General Motors Company Q2 profit plunges by 35%

General Motors Company (GM.US) announced its second quarter financial report before the market opened on Tuesday, Eastern Time. Due to the tariff policies implemented by U.S. President Donald Trump, its adjusted earnings decreased by $1.1 billion, resulting in a decline in quarterly profits. The report showed Q2 revenue of $47.1 billion, higher than the market's general expectation of $45.81 billion, but a decrease of 1.8% from the same period last year, which was $48 billion. Adjusted earnings per share were $2.53, higher than the market expectation of $2.33 from a Bloomberg survey, but lower than $3.06 from the same period last year. Despite exceeding expectations, General Motors Company's net profit attributable to shareholders plummeted by 35.4% to $1.9 billion, compared to $2.9 billion in the same period last year. The company's adjusted Earnings Before Interest and Taxes (EBIT) were $3 billion, a 31.6% decrease from $4.4 billion in the second quarter of 2024. The decline in performance was primarily due to the drag from General Motors Company's North American business, where adjusted EBIT decreased by 45.5% to $2.4 billion, with profit margins dropping from 10.9% last year to 6.1%. This weakness overshadowed the improvement in GM's international business, where adjusted EBIT increased from $50 million last year to $204 million. Additionally, the profit decline at General Motors Company was also impacted by an increase in warranty costs and a backlog of inventory of electric vehicles. As of the time of reporting, the stock price of this automaker fell by 2.87% in pre-market trading to $51.68. At the close of trading on Monday, its stock price had remained largely unchanged for the year. General Motors Company's performance highlights the difficult situation automakers face in maintaining profits in the current environment, where global supply chains and cross-border car sales now face punitive policies. GM CEO Mary Barra hinted at this challenge in a letter to shareholders, describing the company's efforts to adapt to the new reality. Barra noted that the company announced in June that it would be moving some production from Mexico to the U.S. She stated, "In adjusting our business layout to adapt to new trade and tax policies and the rapidly changing technological landscape, we are positioning ourselves for a profitable future." Despite higher tariffs, General Motors Company saw an increase in car sales in the U.S. in the second quarter, which exceeded Wall Street's expectations. The company also achieved profitability for the second consecutive quarter in China, with profits increasing by $175 million year-over-year, contributing to the company's net profits. Looking ahead, General Motors Company maintains its forecast of full-year EBIT between $10 billion and $12.5 billion. In May of this year, the company revised its profit forecast for 2025, lowering it from an initial projection of up to $15.7 billion. This quarter, some non-tariff costs also affected General Motors Company. The company announced a recall of 600,000 trucks due to engine defects, leading to a $300 million increase in costs for the quarter. Additionally, GM is focused on increasing inventory of electric vehicles, which added $600 million in costs. Fleet sales price declines also had a $200 million impact on profits. Overall, General Motors Company's North American business saw a $2 billion decrease in EBIT compared to the same period last year, with revenue declining by 1.8% to $47.1 billion, partly due to lower selling prices. The company stated that the slowdown in profit growth in the second half of the year may not be as pronounced. General Motors Company said that with more comprehensive measures in place, they are able to offset one-third of the $4 billion to $5 billion tariff impact.