GM Stock Upgraded to Buy. Keep an Eye on Margins.

General Motors stock was upgraded to Buy from Hold at UBS with an $81 price target, up from $56. (Getty Images)

UBS analysts moved off the sidelines as they upgraded General Motors shares to Buy from Hold on Wednesday. It’s all about the margins, they said.

The firm also boosted its price target to $81 from $56, suggesting nearly 37% upside to Wednesday’s price. Shares were up 1.3% at $59.31, snapping a three-day losing streak. Fellow auto maker Ford Motor was down 0.9%, while the benchmark S&P 500 was falling 0.3%.

UBS noted that its 2026 and 2027 earnings estimates for GM are both above consensus, driven by the belief that margins for GM’s North America segment can return to their target 8% to 10% range. “While tariffs have added costs that GM won’t pass through to the consumer, we believe GM has a number of levers at their disposal to offset the headwind,” analysts wrote.

The auto maker noted a second-quarter tariff impact of 300 base points. However, UBS sees a return to its targets by as soon as 2026, driven by factors that include possible tariff relief from South Korea and Mexico.

“We prudently model 2026 GMNA margins getting back to 7.8% (vs. consensus at 6.1%), but this still drives our 2026 [earnings per share] forecast 35% above consensus,” the analyst team wrote. “We see a path to being solidly within 8-10% over the coming years, and potentially closer to 9-11% in a blue sky scenario.”

There’s more to the story than tariffs. The UBS team said that it expects GM to benefit from U.S. rate cuts and capital expenditure cycles, as well as looming changes to environmental regulations intended to counteract carbon dioxide emissions.

The U.S. Environmental Protection Agency under the Trump administration has proposed a rule calling for the elimination of the agency’s own endangerment finding, which UBS describes as “the foundation for the regulation of greenhouse gases at the federal level.”

The analysis, published in 2009 during President Barack Obama’s first term, found that human-related emissions of certain gases could significantly endanger public health. The Trump administration has styled its proposal as a cost-cutting measure, saying it “would undo the underpinning of $1 trillion in costly regulations” and “save more than $54 billion annually.”

After the rule is finalized, “there will effectively be no regulation of greenhouse gases in the U.S.,” UBS noted.

Activists are already sounding the alarm. Oregon state environmental regulators submitted formal comments to the EPA on Friday, arguing that rescinding the rule would have “serious and far-reaching consequences.” But the development would objectively be a good thing for GM, as the auto maker will no longer have to buy and expense compliance credits. A final ruling could come as soon as the end of the year, UBS noted.

In short, there are plenty of catalysts on the horizon for GM. Coupled with a strong free cash flow profile and an inexpensive valuation, “we see a positive setup for the shares,” UBS analysts wrote.

The firm is also bullish on the broader industry’s potential to support a richer mix of vehicles. With little emissions regulations holding GM back and renewed demand for pickup trucks—“the contractor vehicle of choice”—to support the buildout of data centers, “we see scope for mix of full-size pickups and SUVs to move higher,” UBS wrote.

Of 39 analysts polled by FactSet, 18 rate General Motors stock at Buy or the equivalent. Nine rate the shares at Hold, and two at Sell.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com