Mary Barra is sure that General Motors (GM) “is well positioned for a year of strong financial performance.” The GM CEO spoke today during a conference call for analysts and investors about top and bottom line results for the Q4 2024. Barra affirmed that the US economy, the job market, and auto sales “will continue to be resilient.” As a result of the current macro environment, she expects healthy industry sales of about 16 million units, with GM’s mix of EVs continuing to grow.
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Brief opening remarks for GM’s January 30, 2024 conference call for investors and analysts were delivered by the VP of Investor Relations, Ashish Kohli. Barra and Paul Jacobson, GM’s executive VP and CFO, were on the call, and a theme permeated their remarks: they are confident that billions of dollars of current GM investments will convert to profits.
The accelerated share return was another frequently cited topic, with the caveat that capital and cost efficient methods are forthcoming.
Barra and Jacobson spoke in firm tones and offered strong, positive forward thinking, unlike the melancholy that permeated the Tesla earnings call last week.
Barra read most of her Q4 2023 Letter to Shareholders aloud but also added layers of explanation. The GM CEO was conservative yet optimistic about 2024 profitability. GM’s 2024 capital spending will likely be in the $10.5 billion to $11.5 billion, which is roughly flat year-over-year and down “considerably” from the $13 billion top of end initial 2023 guidance.
“As we look ahead, our priorities and commitments are clear. They are to maximize the opportunities we have with our winning ICE portfolio with new models like the 2024 Chevrolet Traverse and 2025 Chevrolet Equinox; grow our EV business profitably; deliver strong margins and cash flow; and, refocus and relaunch Cruise.”
Final 2023 GM Guidance
- Net income attributable to stockholders = $9.1 billion
- EBIT-adjusted = $11.7 billion
- Automotive operating cash flow =$19.5 billion
- Adjusted automotive free cash flow = $10.5 billion
- EPS-diluted = $6.52
- EPS-diluted-adjusted= $7.20
The right profitability and the right balance for GM’s investors, Barra affirmed, is the key strategy for the company now and looking ahead.
How EVs Fit into the GM Big Picture
“We’re building on a foundation that our customers love,” Barra explained. The important internal combustion engine (ICE) sector of trucks and SUVs will continue to prop up the company until the full transition to EVs is at hand.
“We also have more than 10,000 — excuse me, 100,000 reservations and orders for EV pickups that we expect to fulfill in 2024 and 2025. However, if demand conditions change, we’ll take advantage of our manufacturing flexibility in Spring Hill and Ramos to build more ICE models and fewer EVs. We can also mix between different EV products at Factory ZERO. Ultimately, we will follow the customer.”
The environmental benefits of EVs will be compelling, she agreed, but EVs need to be deployed in strategic segments as the nation continues to build its charging infrastructure. Nonetheless, Barra was confident that calendar year 2024 is for EVs.
Jacobson acknowledged the sputtering trajectory of EV growth in his remarks but insisted that GM expects to overcome them.
“We know the EV market is not going to grow linearly, and we are prepared to flex between ICE and EV production, given our unique manufacturing capabilities to balance inventory levels and to build customer demand. This will help support pricing and our continued incentive discipline.”
A lower EV operational cost will be driven by higher EV volumes, aided by EV and battery manufacturing. GM International has expected stability in South America, Jacobson described, but pressure will continue from China.
A Confluence of Elements will Make 2024 Profitable for GM
End-of-year inventory supply per individual segment continues to be at about 50-60 days, Jacobson responded during Q&A, which “has provided us with the ability to be disciplined with incentives.” A “planning assumption rather than an expectation” helps drive cash flow. EV positive per unit on the price-mix side in the low 200,000 units “is based on a pretty consistent demand profile” — how customers have reacted to models. “We feel very good on the trajectory we’re on right now.”
Attributes to support GM company growth include supply chain and software changes as well as on time battery production schedules. Executive compensation has become “tied more tightly” to ICE, EV, AV, and software targets.
Paul Jacobson picked up when Barra ended. Key focus has been “profitable growth” while keeping incentives “well below industry averages.”
Rod Lache with Wolfe Research mused that it seemed from the outside as if “there’s a lot more scrutiny being applied to capital allocation.” Is there movement from growth to cash flow? Is this temporary or an adjustment to strategy? Barra answered that GM, “as we’ve continued to progress in the EV transformation,” has found more ways to be much more efficient with capital. “When you look at our ICE portfolio, the investment that we made in the last part of the last decade really sets us up well to have all new products coming off the existing platforms, whether it’s full-size trucks, full-size SUVs, mid-size SUVs, etc.”
The GM CEO Took Some Tough Questions about EVs
Not all topics discussed during the call were rosy.
Chevy Blazer EV balance issues continue to be researched, with a major goal to improve standardization of software. Stability issues impacted some consumers’ screens and charging experiences. GM is “working with a huge sense of urgency to lift the stop sales soon. We disappointed these customers and we know it,” Barra noted. A software quality division within the software and services team has been performing a retrospective on the Blazer EV and has improved the current software development and test processes across the enterprise.
Dan Ives of Wedbush was interested in Cruise initiatives and how GM looks at it long term. “What are some of the targets for this year,” he began, “that we should think about that would just give more confidence that we’ve turned the corner there?” Last week GM released the results of the third-party reviews and indicated they had already begun to implement significant changes. Barra insisted that GM is “committed to Cruise… When we look at the technology, the foundational technology is sound.” Having proven that it is already safer than a human driver, now the Cruise division must meet the expectation that humans “expect technology computers to be much more safe than they.” The company is working on a detailed plan that outlines how they will move forward with such Cruise expectations, including earning back the trust of regulators and the public through company commitments and actions.
Adam Jonas from Morgan Stanley asked about strategy — “What portion of your forward year CapEx and R&D is dedicated to EV battery, AV projects, the Auto 2.0?” Has GM pulled back? Do they agree with Musk’s comments that China will “demolish” EV marketplace in the US? Barra said that “all of the architectures for our really strong ICE portfolio, that capital has already been deployed. ” From an infrastructure perspective, “we will continue to evaluate our vertical integration.” There are options, she said, to take the overall capital down. But “on Elon’s comments about China, I think, look, I don’t discount any competitor. We need to make sure we have beautifully designed vehicles that have the right features, the right safety and the right customer experience. And we have to do it at a competitive cost base, and that’s why we’re focused so much on our cost base.”
Fits and starts surrounding GM’s EV portfolio was a continual questioning thread from analysts. John Murphy with Bank of America captured the zeitgeist by asking, “Can we think about the potential for real shifts in strategy of focus where the highest margin and highest return is sort of in the business truly five to 10 years down the line, which might include things like exiting China… and maybe rebranding Cruise?” Barra said that, at GM, “we continue to evaluate the strategy on a regular basis.”
The world is changing quickly, the GM CEO noted, “whether it’s EV, whether it’s software, autonomy, etc.” GM is evaluating China, which “is a tremendous growth opportunity if we can do that well, and that’s our goal. But nothing is off the table in ensuring that GM has a strong future to generate the right profitability and the right return for our investors.”
A shout-out is due to Seeking Alpha for their handy transcript of today’s GM earning’s call transcript.