GM is expected to post an annual profit of $1.04 per share and $32.67 billion in automotive sales, which is a 0.1% reduction compared with the same quarter a year ago, according to Refinitiv.
GM’s competitor, Ford, recently reported brilliant results. Expected profits per share was estimated to be 21 cents, but actual profits per share came in at 89 cents.
In recent years, steady earnings have been the norm for GM.
Any revisions to its 2021 outlook, the semiconductor chip scarcity, and its work on electric and driverless cars will be watched carefully by investors.
GM Chief Financial Officer Paul Jacobson stated at the end of the first quarter that he was “increasingly confident” that the automaker would meet its earnings targets for the year despite the chip shortage. However, it is unclear whether the situation has deteriorated more than expected since then.
GM 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 this year. 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.
Ford announced last week that it expected to lose roughly half of its planned second-quarter production. It also stated that the parts shortage would reduce earnings by $2.5 billion in 2021, the high end of its previous guidance for the year.
While Ford “may be the worst example of chip supply disruption,” Morgan Stanley analyst Adam Jonas stated in a note last week that it is “still a relevant read-across to the industry.”
At the end of the first quarter, GM chief financial officer Paul Jacobson said he was “increasingly confident” that the automaker would achieve its earnings targets for the year despite the chip shortage. But it’s unclear if the situation has worsened more than expected since then.
GM’s earnings forecast for the year is $10 billion to $11 billion, or $4.50 to $5.25 per share, in adjusted pretax profits and adjusted automotive free cash flow of $1 billion to $2 billion. The forecasts factored in the potential impact of the chip shortage, including a hit of $1.5 billion to $2 billion to earnings and decrease of $1.5 billion to $2.5 billion to its free cash flow.
Ford said last week it expected to lose about 50% of its planned second-quarter production. It also said it anticipated the parts problem to decrease its earnings by $2.5 billion in 2021, the high end of its previous guidance for the year.
While Ford “may be the worst example of chip supply disruption,” Morgan Stanley analyst Adam Jonas in a note last week said it is “still directionally a relevant read-across to the industry.”
Tightening vehicle inventories and consistent demand have resulted in lower incentives and record transaction prices for new vehicles. Consumers have fewer options as a result of the situation, which has resulted in higher profits for dealers and automakers such as GM.
GM reported first-quarter average transaction prices of $40,353, but inventory was tightening. 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.
Strong consumer demand in April may have depleted the automaker’s vehicle inventory even further.
Products and production
Wall Street will closely monitor any updates on production of the automaker’s pickup trucks or electric vehicles, including upcoming electric pickups such as the GMC Hummer EV or an all-electric Chevrolet Silverado.
Due to the ongoing semiconductor chip shortage, GM, like most automakers, has been forced to close plants. GM has prioritized production of full-size pickup trucks and SUVs, while closing several car and crossover plants. Shutdowns have lasted anywhere from one week to several months.
But it’s unclear how long GM can keep this up. It’s also unclear whether the company’s production of next-generation EVs, which will begin with the Hummer EV pickup later this year, will be hampered by the parts shortage.
Despite the coronavirus pandemic and chip issue, GM CEO Mary Barra told investors in February that the company is “fully committed” to investing in EVs and new businesses.
“The semiconductor shortage will not slow our growth plans, and with our mitigation strategies, we continue to expect a very good year for General Motors,” she said on the automaker’s most recent earnings call.
Cruise, GM’s majority-owned autonomous vehicle unit, will go commercial “sooner than many people think,” Barra told investors last month at a JPMorgan conference.
“I believe it will happen sooner than people think,” she predicted. “We’ve said since the beginning that we’ll be gated by safety, and we will be. However, I am very excited about the progress Cruise is making with their software development.”
Any new information about the launch of a Cruise, which recently announced plans to expand to Dubai, could be beneficial to investors.
GM has been spending approximately $1 billion per year on Cruise, which it purchased in 2017. New investors have included the SoftBank Vision Fund, Honda Motor, and Walmart, among others.
Commercializing self-driving cars has proven far more difficult than many predicted even a few years ago. After years of touting the technology as the next multitrillion-dollar market for transportation companies, the challenges have resulted in a consolidation in the autonomous vehicle sector.
Cruise had intended to launch a ride-hailing fleet in 2019. However, the unit postponed the plans for further testing indefinitely.
During the company’s most recent earnings call, Barra promised that “much more is on the way” from GM’s growth and innovation team, which has been tasked with expanding the automaker’s operations.
So far, the team has launched a new military defense unit, an EV commercial business called BrightDrop, and expanded OnStar’s offerings.
According to executives with GM’s global innovation unit, the Detroit automaker has identified $1.3 trillion in new market opportunities that it believes complement its core business and that it has a right to “win in.” This excludes Cruise and urban air mobility, both of which could be $1 trillion markets in their own right.
Wall Street will be watching for any updates on GM’s new businesses, particularly BrightDrop, which is in the process of being launched.