GM had trouble with the lack of semiconductors during the first quarter, but it is expected to reach great results towards the end of the year.
Wall Street predicted that on an adjusted basis, the company would generate $1.04 in EPS and sales of $32.67 billion, according to Refinitiv’s average projections.
During the first quarter, GM CEO Mary Barra said that the company’s fundamental business was healthy. She reaffirmed that GM’s planned development strategies and future technologies, including as $27 billion in electric and driverless cars through 2025, would not be hampered by near-term chip issues.
Guidance and chip scarcity
GM reaffirmed its earnings forecast for the year, aiming for the upper end of its range. For 2021, the company expects adjusted pretax profits of $10 billion to $11 billion, or $4.50 to $5.25 per share, and adjusted automotive free cash flow of $1 billion to $2 billion.
The forecasts accounted for the potential impact of the chip shortage, which included a $1.5 billion to $2 billion hit to earnings and a $1.5 billion to $2.5 billion decrease in free cash flow.
According to GM Chief Financial Officer Paul Jacobson, the automaker’s first quarter was stronger than expected, but the second quarter is expected to be weaker than planned.
While there will be some production downtime in the second quarter, Barra expects the company to have a “strong first half” of about $5.5 billion in pretax and adjusted earnings. She predicted that the second quarter would be GM’s weakest of the year.
Manufacturing of pickup trucks
Barra said on Wednesday that GM is moving forward with plans to invest up to $1 billion in an Oshawa, Ontario plant that will produce pickup trucks from early next year to the fourth quarter of this year.
When the plant opens, GM anticipates a significant increase in full-size pickup truck capacity.
“As we ramp up production, the new timeline and incremental volume will begin to have a meaningful impact next year. But I’m sharing it with you now as another example of how we’re working hard to meet key deadlines,” Barra explained.
Profits from pickup sales like the Chevrolet Silverado and GMC Sierra enable GM to invest in emerging segments like autonomous and all-electric vehicles.
AVs and EVs
Barra reaffirmed on Wednesday that the company is still fully committed to investing $27 billion in electric and self-driving vehicles through 2025. She stated that GM intends to spend between $9 billion and $10 billion this year, with $7 billion going toward electric and autonomous vehicles.
“The challenges we are currently facing with semiconductors are a temporary situation,” she explained. “We will work through it and move on, and it will not have an impact on our transformation and growth strategy.”
During a conference call with reporters, Barra stated that the automaker’s upcoming EVs, including the GMC Hummer EV pickup scheduled for later this year, are on track.
Barra is also “extremely pleased” with the progress of General Motors’ majority-owned autonomous vehicle subsidiary Cruise. Following an anticipated ride-hailing fleet, she stated that the automaker plans to offer consumers personal self-driving vehicles later this decade.
Inventory of vehicles
Investors should keep an eye on whether auto executives can keep their promises to keep vehicle inventories low in North America, which helps profits, this year and beyond.
A supply of about 60 days has historically been considered healthy for the industry, though highly configurable vehicles such as pickups typically have a supply that is greater than that.
Barra told investors on Wednesday that the company will keep its vehicle inventories leaner in the future: “We’ll never go back to that level of inventory that we held pre-pandemic because we’ve learned we can be much more efficient getting the right models to the right dealers.”
She claims that there is a “optimal level” of inventory that is higher than it is now but lower than it has been in the past. Her remarks were similar to those made by Ford CEO Jim Farley a week earlier.
Lower inventories have resulted in higher prices and consumers spending weeks, if not months, searching for or waiting for the vehicle they desire. However, it has resulted in higher, if not record, profits for automakers and dealers, as well as the sale of vehicles before they arrive at dealerships.
GM had a record first-quarter average transaction price of $40,353, but its inventory was shrinking. The automaker had 334,628 units in inventory at the end of March, down 76,247 units from the end of the fourth quarter of 2020.
Barra announced Wednesday that GM will host an investor day this fall focused on the automaker’s growth initiatives.
“We’ll use this event to delve deeper into our growth strategy and financial opportunities, as well as everything that drives them, such as software, hardware, and services, as well as our strong brands,” she said.
Part of those discussions are expected to focus on new opportunities that capitalize on the company’s core competencies.
According to executives, GM’s innovation organization has identified $1.3 trillion in new addressable market opportunities that it believes complements its core business and that it has a right to “win in.” This excludes Cruise and urban air mobility, both of which could be multi-trillion-dollar markets in their own right.