May 18, 2024

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General Motors beats quarterly results targets, raises forecast

4 min read

General Motors Co. GM-N on Tuesday posted quarterly results that topped Wall Street targets and raised its annual forecast, citing stable pricing and demand for its gas-engine vehicles, sending shares up 5 per cent.

The Michigan automaker upped its adjusted pretax profit projection for the year to US$12.5-billion to US$14.5-billion, from its previous range of US$12-billion to US$14-billion.

“Our consumer has been remarkably resilient in this period of higher interest rates,” GM chief financial officer Paul Jacobson said.

He said demand held up well in the first quarter and pricing was stable in April, but GM still is planning for pricing to decline 2 per cent to 2½ per cent for the rest of the year.

Despite the company’s struggles in China and with EVs, stronger-than-expected vehicle pricing with gasoline-powered trucks pleased investors.

“There … is the reality that the pricing is staying stronger for longer than anybody anticipated,” said Tim Piechowski, portfolio manager at ACR Alpine Capital Research in St. Louis, which owns GM shares.

“The engine of the company is truck and SUV at this point,” he added. “They’re just generating substantial profit and free cash flow that will continue to fund the initiatives in EV. Full steam ahead.”

Some analysts were more cautious.

GM could lose additional market share in the near and intermediate term owing to its lack of hybrid gasoline-electric vehicles and cash flow will be hampered by heavy planned spending on electric vehicles, CFRA Research analyst Garrett Nelson said in a research note.

The automaker reported that net income in the first quarter rose 24.4 per cent over the year-ago period to US$3-billion, on a 7.6-per-cent rise in revenue to US$43-billion.

Adjusted earnings per share of US$2.62 beat the average Wall Street target of US$2.15, according to LSEG data. Revenue topped the Wall Street target of US$41.9-billion in the March quarter.

While the company started 2024 strong, chief executive Mary Barra still has two large challenges ahead: turning around GM’s shrinking sales in China, and salvaging Cruise, its robotaxi unit.

Cruise halted operations late last year after one of its self-driving cars dragged a woman down a San Francisco street. Company officials shared earlier this year that GM would cut spending on this unit by US$1-billion. The robotaxi business lost US$2.7-billion last year, not including US$500-million in restructuring costs incurred in the fourth quarter as the unit cut staff. GM spent US$400-million on Cruise in the first quarter, and expects full-year expenses to hit about US$1.7-billion.

Ms. Barra said the business is making progress, citing the return of its vehicles to roads in Phoenix earlier this month, with human drivers and no passengers. She told analysts on a conference call that GM is exploring funding operations for Cruise, including taking outside investment.

GM’s business in China – previously the automaker’s largest market – has also been faltering. Chinese automakers and Tesla Inc. have gobbled up market share in the region, aided by deep price cuts and refreshed technology offerings.

GM lost US$106-million in China in the quarter, which Mr. Jacobson told reporters was less than his team expected, as it worked through inventory.

Mr. Jacobson said the company expects a profit in China for the second quarter and the year. Asked if GM would close or sell its business there, Ms. Barra said GM was committed long term to the world’s largest auto market.

“There’s a place for GM to play and grow share,” she said of China.

The carmaker and its crosstown rival Ford Motor Co. are counting on profit from gas-engine trucks to ease investors’ concerns as they continue to funnel cash into costly EV development. GM said it gained more than three points of market share in full-size pickup trucks in the quarter from rivals, which includes Ford and Stellantis NV.

GM has not broken out financial results for its EV business, but Mr. Jacobson stuck to previous forecasts for turning a profit. He still expects so-called variable profit, which excludes fixed costs, to be positive by the second half of 2024. “We also continue to see sequential and year-over-year improvements in profitability as we benefit from scale, material cost and mix improvements,” Ms. Barra said.

The company’s joint venture with LG Energy Solution Ltd., called Ultium Cells, is ramping up production of battery cells at plants in Ohio and Tennessee, Ms. Barra said.

Questions about the market for battery-powered vehicles have increased as EV leader Tesla laid off more than 10 per cent of its global staff earlier this month and slashed prices on its models across several markets.

Tesla will release quarterly earnings on Tuesday, and the EV maker is expected to post its first revenue drop and lowest gross margin in nearly four years, according to LSEG data.

GM outlined last year a US$10-billion stock buyback on the heels of reaching a costly new labour agreement with the United Auto Workers union. The first tranche of this was completed in the first quarter, and the company is on track to reduce its outstanding share count to under US$1-billion, Ms. Barra said.


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