Recession concerns may be weighing on consumer minds, but General Motors Co. showed Tuesday those fears aren’t affecting its sales or financial performance.
Powered by a successful first three months of the year, the Detroit automaker outperformed Wall Street expectations in its first-quarter earnings. And it increased guidance for the year, upping its adjusted earnings before taxes target to between $11 billion and $13 billion, an improvement over the previous outlook of $10.5 billion to $12.5 billion.
The results are the first glimpse into a crucial year for GM and crosstown rivals Ford Motor Co. and Stellantis NV as they prepare to accelerate their respective pushes to electrify best-selling brands, introduce new ones and prepare for consequential national bargaining talks later this year with the United Auto Workers and Unifor in Canada.
The Detroit automaker did see some year-over-year declines in net income and earnings before taxes. But executives delivered a positive message for the year as they work to cut costs by $2 billion by the end of next year to compete with electric vehicle heavyweights.
“We’re empowering our leaders to structure their teams to be faster and more agile,” CEO Mary Barra told investors. “In addition, we are prioritizing programs and projects that have the highest revenue and cost impact. We understand the bar continues to be raised, so we’re holding ourselves accountable to drive improvements every single day.”
GM’s adjusted earnings per share of $2.21 well surpassed Wall Street’s expected $1.73. The automaker’s shares jumped when earnings were released early Tuesday, but then dropped 4% to $32.91 at the close of trading. At midday Wednesday shares traded near $32.60.
“The EPS beat is encouraging as is the guidance increase,” David Whiston, a senior autos equity analyst for Morningstar Inc., said in a statement. “It shows GM still expects a strong year despite continued fears about a recession. Demand remains strong with robust orders for the highest trim packages. They just need to keep striving for the healthiest cost structure possible while making great vehicles and they’ll be fine.”
Earnings performance
GM’s net income for the year is expected to be between $8.4 billion and $9.9 billion, down from the previous outlook of $8.7 billion to $10.1 billion. A main reason: it includes a $875 million charge to cover the costs of a buyout program for 5,000 employees.
GM announced a $2 billion cost-reduction program earlier this year with the goal of reaching that amount of cost savings by the end of 2024. With the buyout program, the automaker expects to reach about 50% of its goal this year, GM CFO Paul Jacobson told investors.
“With Barra & Co. in the midst of a massive EV transformation, this was a key quarter and outlook for the Street as it appears the profit margins and growth targets for the rest of the year are humming in a shaky macro,” Wedbush Securities analyst Dan Ives wrote in a note reacting to the GM numbers. “Importantly the $2 billion of cost savings (by the end of 2024) is ahead of plan and the EV production/model lineup looks on target with a robust 2H23 (second half of 2023) on the docket. Overall this was a strong quarter/outlook with GM heading into a pivotal 2023.”
Outside of lowering its employee count, GM is also looking to “reduce complexity across the portfolio and throughout the business in everything we do, from vehicle design to engineering and manufacturing,” Jacobson said.
Additionally, the automaker is prioritizing growth areas that offer the largest returns on revenue and margin, including the autonomous vehicle business Cruise and BrightDrop, a GM startup focused on offering electric delivery options. GM also is being “tactical” on discretionary spending with items like corporate travel and marketing, Jacobson said.
The automaker also is balancing its supply with demand to maintain higher pricing. In the quarter, GM halted production of light-duty trucks for two weeks at the Fort Wayne Assembly plant in Indiana.
“We proactively planned some downtime, which allowed us to end the quarter with U.S. dealer stock flat compared to December, while we gained 1.3 points of share and increased volumes 4% year over year,” Jacobson said.
Net income for the quarter was down to $2.4 billion from last year’s $2.9 billion. Revenue was $40 billion in the quarter, up from the $36 billion the company made in the same three months last year. GM’s adjusted earnings before interest and taxes in the first quarter were $3.8 billion, a slight drop from the $4 billion reported in the first quarter of 2022.
“Total company results were down only $200 million year over year despite a combined $800 million headwind from lower pension income and lower GM Financial earnings, providing more evidence that the underlying business remains quite strong,” Jacobson said.
The Detroit automaker in the first quarter saw a year-over-year 17.6% sales increase. With more inventory available, GM’s U.S. dealers sold 603,208 new vehicles in the first three months of 2023, up from 512,846 sold in the first quarter of 2022. Notably, it was the first quarter GM sold more than 20,000 electric vehicles in the United States.
GM’s net income margin for the quarter was 6%, down from last year’s 8.2%. Pre-tax earnings in GM North America totaled $3.6 billion in the quarter, up $400 million due to higher pricing and volume.
Jacobson noted the company “saw a $1.3 billion pricing tailwind year over year in (the) quarter.” GM expects the pricing benefit to “moderate” through the year but expects its new midsize and heavy-duty trucks to help offset that.
GM’s average transaction price in the quarter was $51,431, up 1% from the same quarter a year ago, according to Cox Automotive calculations released Monday. The automaker’s incentives were down 3% from a year ago, with the automaker spending an average of $1,908. That’s the lowest level in years for the first quarter but is up from the $1,337 per vehicle seen in the last quarter of 2022, Cox noted.
Michelle Krebs, executive analyst at Cox Automotive, noted in the report: “the chip shortage appears to be largely over for GM. Production kept running and inventory kept building. That helped GM far outpace the industry in the U.S. in sales. It retained its sales leadership position.”
GM International’s pre-tax earnings were flat year over year at $350 million for the first quarter. Equity income in China was down $150 million from lower sales and pricing pressure, Jacobson said. He added the environment in the world’s largest auto market is “challenging” and GM does not expect an improvement until the second half of 2023.
Ford Motor Co. releases its first-quarter earnings on May 2. Stellantis NV releases first-quarter shipments and revenues on May 3.
Electric vehicle transition
As GM moves on to electric vehicles powered by its Ultium platform, the automaker is saying goodbye to its first mass-produced all-electric vehicle not based on Ultium: the Chevrolet Bolt.
Barra confirmed GM would stop production of the electric car at the end of this year as it moves to transition the Orion Assembly plant for production of electric Silverado and Sierra pickups. GM intends to still produce a record number of 70,000 Bolts this year out of the Orion plant as it launches production of the Silverado at its Factory Zero Detroit-Hamtramck facility later in the second quarter.
Production of the electric Chevrolet Blazer and electric Chevrolet Equinox SUV also is launching this year at the Ramos Arizpe plant in Mexico. The Blazer is scheduled to come first this summer followed by the Equinox in the fall.
GM expects to make 400,000 EVs by the first half of 2024, “including 50,000 EVs in North America in the first half of this year, and double that in the second half,” Barra told investors.
The automaker’s goal is to have the capacity to make 1 million EVs in North America by 2025. Increases in battery cell production will help. GM has one battery cell plant with LG Energy Solution producing cells in Warren, Ohio. The Ultium Cells LLC joint-venture plant is expected to reach full capacity by the end of the year, Barra said.
Ultium will begin hiring and training production workers in “a matter of weeks,” she said, for its second plant in Tennessee opening later this year. A third plant is under construction in Delta Township near Lansing that is slated to open next year.
And on Tuesday GM and another Korean battery supplier, Samsung SDI, confirmed they are partnering on a $3 billion U.S. battery plant expected to be operational in 2026. Increasing cell production will help lower GM’s battery costs as rival Tesla Inc. continues to slash prices on its products, creating a pricing war with its growing list of competitors.
GM is offering a range of EVs in different price ranges from a $30,000 Equinox to a $105,000 debut Silverado EV RST (lower-priced options for the pickup will be available later).
“We’ve actually been very consistent with our pricing on our EVs, and that’s really a function of the demand that we’ve seen for them,” Jacobson said in a live TV interview with Bloomberg on Tuesday. “There’s been a lot of industry noise around pricing all across the world … we’ve been very consistent with our strategy and it’s one that consumers are responding to.”
But GM also knows it has to reduce its internal costs to compete, which is why it’s moving quickly on its $2 billion cost-reduction program.
“Obviously, we’ve got a competitor that’s posting really strong results, really strong margins,” Jacobson said. “We need to make sure we lower our costs, especially our structural costs, and we’re aggressively getting after that.”
