GM Cuts Profit Guidance, Plans to Invest in EV Production
Detroit, July 25 (Reuters) – General Motors (GM) removed its full-year profit guidance on Tuesday, as it plans to cut $1 billion in operating costs by reducing investments in new products and by the end of next year.
However, despite raising prices on its vehicles due to revenue and per-vehicle transaction prices, the auto manufacturer’s adjusted North American earnings and margins declined in the first quarter.
On an annual basis, GM said that its net income for the second quarter nearly doubled to $2.6 billion as revenue in 2022 increased by 25% from the same period when production was impacted by semiconductor shortages.
In premarket trading, shares were slightly below $39.17.
Detroit automaker now expects its full-year net income to be between $9.3 billion and $10.7 billion, which is higher than the previous estimate of $8.4 billion to $9.9 billion. On a per-share basis, GM is now projecting earnings of $7.15 to $8.15 for the year, up from $6.35 to $7.35.
The United Auto Workers union’s potential strike cost is not considered after failing to reach a new deal with GM until September 14.
Chief Financial Officer Paul Jacobson said during a media conference call that GM’s more optimistic outlook came after strong demand in the last six months and better-than-expected pricing early in the year.
However, in North America, GM saw declines in its earnings margin and per-vehicle profits in the first quarter as inventory remained stable at 428,000 vehicles. GM earned $3,841 per vehicle on average in pre-tax profit in North America during the second quarter, down 23% from the first quarter.
GM’s high-profit perspective indicates a focus on cost reduction. GM said it will spend between $11 billion and $12 billion on capital investment this year, which is less than the previously announced plan of spending up to $13 billion.
Jacobson said, “We’re really focused on profitability. Our recent results show that we’re not sacrificing margin for volume.”
The decision by GM to cut investments in new products and operating costs comes as the automaker’s profit margin is under pressure. GM’s pre-tax profit margin for the first six months of the year fell to 8.3%, compared with 8.9% a year ago.
GM’s second-quarter results include a charge of $792 million for “new commercial arrangements” with South Korean battery maker LG Energy Solution (373220.KS).
GM CEO Mary Barra wrote in a letter to shareholders that the automaker’s goal “is to build approximately 100,000 EVs in the second half of this year, and we intend to grow from there.” In the first half, GM produced nearly 50,000 EVs, most of which were older Chevrolet Bolt models.
GM’s income outlook has reiterated its previous goal of producing 400,000 EVs by the first half of 2024 and expects $50 billion in EV revenue in 2025, with pre-tax profit in the low single-digits.
In a note to investors, CFRA analyst Garrett Nelson said he is “cautious given the near-term earnings headwind from GM’s EV transition and capacity constraints, along with heightened concerns around the final demand trajectory for its EV models.”
GM’s robo-taxi unit Cruise’s pre-tax loss increased to $611 million in the latest quarter, up from $543 million a year ago. The unit’s first-half loss increased 35% to nearly $1.2 billion.
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