Near-term EV production is also being revised downward as costs related to strikes increase
24 October 2023 - 16:07
byJoseph White
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The GM logo is seen on the facade of the General Motors headquarters in Detroit, Michigan, US. File photo: REBECCA COOK/REUTERS
Detroit — General Motors (GM) on Tuesday withdrew its previous guidance for 2023 profits and near-term electric vehicle (EV) production as costs related to the United Auto Workers strikes jumped to $200m a week in October.
GM's third-quarter net income fell 7.3% to $3.06bn, while revenue rose 5.4% to $44.1bn. The adjusted earnings per share tracked by analysts were $2.28, ahead of Wall Street expectations, and up from $2.25 a year ago because of the effect of share buybacks.
GM shares were up 1.6% in premarket trading.
The rising toll of the UAW strikes, the outlook for higher labour costs once a new contract is reached, rising warranty expenses and an uncertain macroeconomic outlook have forced GM to abandon previous targets for full-year financial performance that it had lifted in July.
The UAW walkouts cost the company $200m during the third quarter and $600m so far in the fourth quarter, GM CFO Paul Jacobson said in a briefing with reporters.
Strike costs are now running at $200m a week, Jacobson said. He would not discuss the potential effect should UAW president Shawn Fain order new walkouts at GM’s most profitable North American factories such as the Arlington, Texas, plant that builds Cadillac Escalades and Chevrolet Suburbans, or the Flint, Michigan, heavy duty pickup assembly plant.
As the pace of EV sales growth has slowed in North America and even industry leader Tesla is expressing caution over the pace of its expansion, GM is shifting its EV strategy in the region.
The Detroit carmaker said its EV strategy will be to match “supply with demand to maintain strong pricing while taking immediate steps to enhance the profitability of our EV portfolio”.
GM is abandoning a goal of building 400,000 EVs from 2022 through mid-2024, Jacobson said.
GM CEO Mary Barra had reaffirmed that target in July, before the UAW strikes began consuming cash, at a time when GM had also raised its 2023 operating profit forecast to a range of $12bn to $14bn.
“We’re just not going to be talking about the interim production goals,” Jacobson said. “We want to make sure we’re balancing that against what we see out there. The real focus is getting to 1-million EVs of production by the end of 2025 alongside hitting our margin targets.”
Barra said in a shareholder letter on Tuesday that GM has “work to do” to hit its low- to mid-single digit earnings before interest and taxes (EBIT) margin target by 2025.
GM’s decision to delay retooling of a large factory in Orion Township, Michigan, to build electric pickup trucks will save $1.5bn in capital investments in 2024, Jacobson said.
The delay to the electric truck expansion “will actually allow us to incorporate some of the changes and improvements that we've seen in early-stage production” and improve profit margins when the electric Silverados and GMC Sierras start production, he said.
The company has joined other carmakers in urging the Biden administration to back away from ambitious emissions and fuel economy rules aimed at pushing EVs to two-thirds of the US vehicle market by 2032.
So far, GM’s sales and pricing in North America have remained stable. Average selling prices for GM vehicles were $50,750 in the latest quarter, slightly down from the previous quarter.
However, the carmaker said its cost-cutting efforts only “partially offset” higher costs for EV launches, increased warranty expenses and lower pension income in the quarter. Overall, GM said profits for the quarter were pulled down by $1.5bn because of higher costs and the effect of selling more EVs, the company said. Unlike rival Ford, GM does not break out losses from its EV operations.
Jacobson said GM executives are concerned about rising interest rates as well as the conflict in the Middle East and whether that could effect consumer behaviour. But he did not echo Tesla CEO Elon Musk’s pessimism about the impact of rising interest rates on consumer demand.
“What I would tell you is that so far the consumer has held up remarkably well for us as evidenced by the average transaction prices,” Jacobson said.
GM also said losses at its Cruise robotaxi unit widened to $732m in the quarter. GM said the losses were “in line with expectations” as operations expanded to 15 cities.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
GM withdraws guidance for 2023 profit
Near-term EV production is also being revised downward as costs related to strikes increase
Detroit — General Motors (GM) on Tuesday withdrew its previous guidance for 2023 profits and near-term electric vehicle (EV) production as costs related to the United Auto Workers strikes jumped to $200m a week in October.
GM's third-quarter net income fell 7.3% to $3.06bn, while revenue rose 5.4% to $44.1bn. The adjusted earnings per share tracked by analysts were $2.28, ahead of Wall Street expectations, and up from $2.25 a year ago because of the effect of share buybacks.
GM shares were up 1.6% in premarket trading.
The rising toll of the UAW strikes, the outlook for higher labour costs once a new contract is reached, rising warranty expenses and an uncertain macroeconomic outlook have forced GM to abandon previous targets for full-year financial performance that it had lifted in July.
The UAW walkouts cost the company $200m during the third quarter and $600m so far in the fourth quarter, GM CFO Paul Jacobson said in a briefing with reporters.
Strike costs are now running at $200m a week, Jacobson said. He would not discuss the potential effect should UAW president Shawn Fain order new walkouts at GM’s most profitable North American factories such as the Arlington, Texas, plant that builds Cadillac Escalades and Chevrolet Suburbans, or the Flint, Michigan, heavy duty pickup assembly plant.
As the pace of EV sales growth has slowed in North America and even industry leader Tesla is expressing caution over the pace of its expansion, GM is shifting its EV strategy in the region.
The Detroit carmaker said its EV strategy will be to match “supply with demand to maintain strong pricing while taking immediate steps to enhance the profitability of our EV portfolio”.
GM is abandoning a goal of building 400,000 EVs from 2022 through mid-2024, Jacobson said.
GM CEO Mary Barra had reaffirmed that target in July, before the UAW strikes began consuming cash, at a time when GM had also raised its 2023 operating profit forecast to a range of $12bn to $14bn.
“We’re just not going to be talking about the interim production goals,” Jacobson said. “We want to make sure we’re balancing that against what we see out there. The real focus is getting to 1-million EVs of production by the end of 2025 alongside hitting our margin targets.”
Barra said in a shareholder letter on Tuesday that GM has “work to do” to hit its low- to mid-single digit earnings before interest and taxes (EBIT) margin target by 2025.
GM’s decision to delay retooling of a large factory in Orion Township, Michigan, to build electric pickup trucks will save $1.5bn in capital investments in 2024, Jacobson said.
The delay to the electric truck expansion “will actually allow us to incorporate some of the changes and improvements that we've seen in early-stage production” and improve profit margins when the electric Silverados and GMC Sierras start production, he said.
The company has joined other carmakers in urging the Biden administration to back away from ambitious emissions and fuel economy rules aimed at pushing EVs to two-thirds of the US vehicle market by 2032.
So far, GM’s sales and pricing in North America have remained stable. Average selling prices for GM vehicles were $50,750 in the latest quarter, slightly down from the previous quarter.
However, the carmaker said its cost-cutting efforts only “partially offset” higher costs for EV launches, increased warranty expenses and lower pension income in the quarter. Overall, GM said profits for the quarter were pulled down by $1.5bn because of higher costs and the effect of selling more EVs, the company said. Unlike rival Ford, GM does not break out losses from its EV operations.
Jacobson said GM executives are concerned about rising interest rates as well as the conflict in the Middle East and whether that could effect consumer behaviour. But he did not echo Tesla CEO Elon Musk’s pessimism about the impact of rising interest rates on consumer demand.
“What I would tell you is that so far the consumer has held up remarkably well for us as evidenced by the average transaction prices,” Jacobson said.
GM also said losses at its Cruise robotaxi unit widened to $732m in the quarter. GM said the losses were “in line with expectations” as operations expanded to 15 cities.
Reuters
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