GM raised its 2026 profit outlook to as much as $16 billion -- the second raise this year. Here's the part of the business that turned.

General Motors (NYSE: GM) raised its full-year profit outlook on Tuesday for the second time this year, and the stock rose about 5% in response.

The automaker now expects 2026 adjusted earnings before interest and taxes (EBIT) of $14 billion to $16 billion -- up from a prior range of $13.5 billion to $15.5 billion. It also lifted its adjusted earnings per share forecast to $12 to $14, from $11.50 to $13.50, and raised its outlook for adjusted automotive free cash flow to $9.5 billion to $11.5 billion. Through six months, adjusted earnings per share of $7.27 is already running 37% ahead of last year.

Guidance raises usually trace back to a hot product or a booming market. GM's is more interesting than that. Management pointed to steady vehicle pricing, falling warranty costs, and shrinking losses in the electric-vehicle business the company has spent the past year pulling back from.

A quarter better than its headline profit

On the surface, GM's second quarter looks mixed. Revenue rose just 1.9% year over year to $48 billion, and net income fell 31% to $1.3 billion.

But the profit decline is mostly an accounting story. The quarter absorbed $2.3 billion of charges tied to GM's electric-vehicle realignment.

Set those one-time items aside, and the quarter looks strong. Adjusted earnings per share rose about 41% year over year to $3.57, and adjusted EBIT climbed about 30% to $3.9 billion. Adjusted automotive free cash flow of $5 billion, up 78% year over year, told the same story. And GM's EBIT-adjusted margin expanded to 8.2%, from 6.4% a year earlier.

North America did the heavy lifting.

"Our 8.6% EBIT-adjusted margin in North America was up 2.5 points from a year ago, and we continue to lower our warranty costs, reduce EV losses, and increase operating efficiency," CEO Mary Barra said in her letter to shareholders.

Pricing held up, too. GM's average vehicle transaction price was $52,000 during the quarter, and management said it stayed disciplined on incentives. For an automaker, holding price without buying sales through discounts is about as good a sign as a quarter can give.

The part that turned: electric vehicles

The most surprising driver of the improvement is the EV business itself. GM has spent the past year shrinking its EV ambitions to match real-world demand, and the cleanup that came with that decision has been expensive (the company has recorded $10.9 billion in EV-related charges since the second half of last year). On Tuesday, GM said the expected material cash charges are now substantially complete. And with the restructuring mostly behind it, the remaining EV business is losing much less money; GM expects its EV losses to improve by $1 billion to $1.5 billion this year compared with 2025.

At about $80 per share, GM trades at roughly 6 times the midpoint of its guided adjusted earnings per share for this year. The market rarely pays up for automakers, given the industry's cyclicality and capital intensity. Even so, a multiple this low, backed by two guidance raises in one year, leaves a lot of pessimism baked into the price.

Of course, there are risks. Tariffs remain a moving target for the industry. And the pricing strength carrying GM's results can't be counted on forever -- the company's own guidance assumes North America pricing rises only about 0.5%. If demand softens and incentives creep back up, earnings power would likely shrink as well.

Still, I think GM has earned some benefit of the doubt. The company just showed it can grow profits without growing revenue much. In addition, the EV cleanup is mostly paid for, and management raised the bar twice in one year. Even after Tuesday's pop, the shares also sit below their 52-week high of $87.62. For investors hunting for a genuine value stock in this market, GM looks like one. And at about 6 times this year's guided earnings, they aren't paying much for the progress.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool recommends General Motors. The Motley Fool has a disclosure policy.