GM's Massive Q4 Charges Validate DeepValue Concerns on EV Strategy and Earnings Quality

What happened

General Motors announced a $7.1 billion special charge for Q4 2025, primarily from scaling back EV plans due to weakening North American demand and restructuring in China. This move echoes the DeepValue report's warning about recurring large adjustments that undermine earnings sustainability. The report had already highlighted deteriorating GMNA EBIT-adjusted margins, falling to 7.0% in Q3 2025 amid tariff pressures and EV write-downs. Despite strong free cash flow and aggressive share buybacks, these charges reveal deeper profitability issues often masked by non-GAAP metrics. Consequently, this reinforces the bear case where persistent restructuring and sub-7% margins could drive the stock toward $55.

Implication

The $7.1 billion charge highlights that GM's EV transition is more costly and prolonged than expected, with demand weakness forcing significant realignments. Recurring adjustments like this suggest adjusted earnings overstate sustainable performance, complicating valuation and trust in management's narrative. For existing holders, the risk of the bear scenario—with GMNA margins stuck below 7% and charges exceeding $4 billion annually—has risen, potentially compressing the stock toward lower valuations. New investors should avoid entry at current elevated multiples, as the price does not adequately discount these persistent headwinds. A prudent approach is to wait for clear evidence of margin stabilization and a tapering of special items in upcoming disclosures before considering any position.

Thesis delta

The Q4 charge validates the DeepValue report's concern that EV and China-related costs are structural, not one-time, increasing the probability of the bear case where margins remain depressed and charges persist. This shift demands greater skepticism toward adjusted metrics and a lower tolerance for margin shortfalls, emphasizing the need for reduced exposure. Investors should only reconsider if management demonstrates a credible path to restoring GMNA margins above 7% with minimal further charges in the near term.