Q4 2020 General Motors Co Earnings Call
Ladies and gentlemen, welcome to the General Motors Company fourth quarter 2020 earnings Conference call.
During the opening remarks, all participants will be in a listen only mode.
After the opening remarks, we will conduct a question and answer session.
I'll ask a question press Star then one on your telephone keypad to withdraw your question press the pound key.
As a reminder, this conference call is being recorded Wednesday February 10, 2021, I would now like to turn the conference over to Rocky Gupta, Treasurer, and Vice President of Investor Relations.
Thanks, David good.
Good morning, and thank you for joining us as we review Gm's financial results for the fourth quarter and calendar year 2020.
Our press results were issued this morning, and the conference call materials are available on GM Investor Relations website.
We're also broadcasting this call via webcast.
I'm joined today by Mary Barra, Gm's, Chairman and CEO, Paul Jacobson, Gm's Executive Vice President and CFO, and Dan burst President and CEO of GM financial It's my pleasure to welcome Paul to his first earnings call with us today and gift Paul the chance to talk about his enthusiasm for a shared vision and accelerating our path forward.
Before we begin I would like to direct your attention to the forward looking statements on the first page of the chart Smith.
Hunter difficult will be governed by this language I will now turn the call over to Mary.
Thanks, Rocky and Hello, everyone. Thanks for joining this morning, we shared the details of our strong 2020 financial performance, including Q4 records for EBIT adjusted EBIT adjusted margin EPS diluted adjusted and a record year for GM financial these.
These results were driven by the quick actions, we took to recover from the early effects of the pandemic.
Looking at the past year, our employees suppliers and dealers rallied with speed and agility to support our customers and our communities as well as protecting the business.
Pandemic has been a catalyst for finding new and better ways to work, while strengthening our resolve to win.
And some of our plants suspended production in the early days our teams rapidly turned to producing critical care ventilators and personal protective equipment for patients and frontline health care workers.
After our first conversation with Ventech life systems, we began production in just 30 days and we built 30000 ventilators and 154 days.
And with that same speed, we developed rigorous safety protocols. So we could restart our operations around the globe.
This collective spirit was inspiring and it still drives us and it's contributing to the greatest era of transformation in the history of our company.
In spite of the pandemic, we accelerated mission critical businesses like our E V. In a V initiatives, we maximize production of full size trucks, and we launched our new family of full size Suvs safely and on time.
We will sustain this culture of innovation and leadership in 'twenty 'twenty, one and beyond.
And that is my focus. This morning, we are fully committed to our capital allocation strategy that invest in new and existing businesses to drive growth.
We're going to generate that growth through our EV portfolio as well as businesses like break drop I'm, sorry insurance services subscription services like Super cruise and Onstar Guardian and much more to come from our growth and innovation team.
Semiconductor shortage won't slow our growth plans and with our mitigation strategies, we still expect a very good year for general Motors and Paul will share additional details in his remarks.
We have strong underlying performance and very strong momentum with customers.
Last year for example, we posted our largest year over year U S market share gain since 1990 led by full size trucks and Suvs and.
In 2020, GM was the full size pickup sales later in the United States. Thanks to gains by the Chevrolet Silverado and record GMC, Sierra deliveries and we plan to expand our capacity in early 2022.
The new Cadillac Escalade, GMC, Yukon and Chevrolet Tahoe, and suburban are leading the full size SUV market.
And GM, China road, the increasing market preference for large M. P vs and luxury vehicles to year over year sales increases in these segments, including record deliveries for Cadillac.
And as we look to the future we are well positioned from a policy standpoint, I personally and members of our senior leadership team have had discussions with President Biden, Vice President Harris and several key cabinet appointees. The biting administration is increasingly aligned alike around the importance of domestic Manny.
Factoring and the need for widespread adoption of Evs, we look forward to working with the administration and policies that support safer transportation with zero emissions.
When you look at the strategy, we have shared it should be clear, we will seize every opportunity to drive growth expand our markets and enter new ones are altium platform is core to these initiatives. It is the foundation for our upcoming global family of Evs with our first generation Altium platform, we will now see us.
40% battery cost reduction compared to today's Chevrolet bolt EV.
And we're already working on the next generation of Altium battery technology, which will deliver a 60% improvement over bolt EV with double the energy density.
To do this work we've hired almost half of the 3000 expected new tech employees across engineering design, and I T and we expect to finish hiring by the end of the quarter.
What is especially exciting to me is that our vision and our commitments and our aspirations are attracting incredibly talented people to GM. They believe in what we are doing and when they arrive they are finding like minded colleagues already hard at work.
Since we first introduced our growth strategy and related announcements in November we have shared even more of the aggressive steps. We are taking to accelerate our plan, we have committed to increasing our EV and EV investments to 27 billion from 2020 through 2025, including more than 7 billion. This.
Year alone with this investment we will launched 30, evs globally and achieve EV market leadership in North America.
In addition by mid decade, we plan to sell at least 1 million Evs per year in our two largest markets in North America, and with our joint venture partners in China.
During CES in January we revealed a new GM brand identity that honors our past, but signals our future. We also introduced a new safety brand periscope. It describes how we will advance toward a world with zero crashes by integrating vehicle technology research and advocacy.
And we launched a new brand campaign called everybody in which is our call to action to get everyone in an EV.
Everybody in is a powerful idea because we must all be all in to achieve our goals. We will offer <unk> across all of our brands and at price points and spanned the global EV market from the Wuling hung one many to the Cadillac scholastic.
As for the GMC Hummer EV, we have prototypes on the road right now and they are undergoing cold weather testing and Michigan's upper peninsula than they will head to Yuma, Arizona and to the toughest off road trails in Moab, Utah.
In the meantime, Vin 001 is already spoken for.
As part of Gnc's partnership with a tunnel to Tower's Foundation. The first GMC Hummer EV will be auctioned on March 27th all proceeds will go to assisting the families of fallen and disabled soldiers and first responders.
We envision a future where there is an EV offering for everyone. Our future will be inclusive and comprehensive and it will create new businesses and in some cases new brands.
Drop is a powerful example, it is a new commercial EV business that targets delivery and logistics providers, particularly those in the parcel and food delivery industries with innovative zero emission solutions.
From a revenue standpoint will provide vehicles like an EV 600, van which is a substantial opportunity in and of itself because the global market for light commercial vehicles is almost 9 million units today. According to IHS markit.
And we believe demand for electric light commercial vehicles will grow quickly the market seems to agree in fact third party research estimates that the addressable market for E. L. C V's could be $30 billion by 2025 and double that in 2030.
Break drop also allows us to create new sources of value for our customers beyond the vehicle driving diverse income streams from a full ecosystem of products and services.
Fedex Express is slated to receive the first E V. Six six hundred's later this year.
The E V. Six hundreds will help them meet their stated fuel efficiency goals as part of their broader sustainability strategy and electrification efforts Fedex Express. It has also conducted a pilot with the bright dropped E. P. One electric pallet product and has another one planned in this first pilot the P. One.
<unk> had significant productivity increases and the delivery process.
Similarly merchants fleet, which has more than 150000 vehicles under management is targeting to have 50% of its mobile fleet electric by 2025, and 50% of its managed clients fleet by 2030.
It is moving forward with plans to put 12600 bright dropped E V six hundreds into service.
Another exciting and potentially lucrative source of growth for is our hydro tech fuel cell technology.
Like break drop hydro check is proof that general General Motors vision of a world with zero emissions isn't limited to passenger vehicles.
Less than two weeks ago, Navistar, GM and one each to announced a zero emissions long haul transportation ecosystem that will launch in 2024 now.
<unk> will begin building class eight trucks for its launch customers GM will supply hydrogen fuel cells and one H two will supply the hydrogen fueling infrastructure, it's an exciting way for us to partner in the class eight segment and nearly 30 billion dollar market in the U S alone and that one that we haven't seen before.
And we believe this is just the beginning for hydro Tech. This is a nascent multibillion dollar hydrogen power industry for trucking for military aerospace and stationary power applications that we are targeting directly as well as through GM defense.
Customers and shareholders will continue to see even more evidenced throughout 'twenty 'twenty, one that we're executing our vision and plans for growth.
One Great example is right around the corner and Sunday GM will unveil the 'twenty 'twenty two bolt EV, which arrives this summer and will be built in Oregon, Michigan.
The all new bolt EV and refresh bolt EV feature unique exterior designs and new interiors. The bolt EV will provide nearly three inches more leg room than the bolt EV and will have available, whereas wireless phone charging and wireless Apple car play and Android auto, allowing customers to easily access.
Their music and podcasts like.
Like the original bolt EV, the new bolt EV and refreshed bolt EV will build on chevys commitment to attainable Evs.
The Chevrolet bolt EV is the first Chevrolet and the first G. M E V to offer Super cruise technology, one of the 22 GM vehicles that will offer super cruise by 2023.
Based on feedback from Cadillac customers, we're confident that we will build a steady stream of subscription revenue because our customers don't want to drive without it.
In addition, GM cruise and Microsoft will increasingly leverage Azure, Microsoft cloud and edge computing platform to help commercialize self driving vehicles at scale.
And with new investment by GM, Microsoft Honda and other institutional investors. The estimated valuation of crews now stands at $30 billion and just yesterday, the California DMV released the 2020 disengagement data for autonomous vehicles, and we are very pleased with the ex excellent continuing improvement and.
Leadership shown by cruise.
This fall we will begin building the GMC hummer EV at our factories zero in Detroit him and Hamtramck work on our flagship EV plant is on track and we cannot wait to start shipping vehicles to customers.
Among its many advanced manufacturing capabilities factory zero will be the first you with auto plant equipped with five G fixed mobile network technology.
As we said in November our 27 billion in EV and EV investments will include additional EV Assembly and battery capability beyond what we've announced for factory Zero Spring Hill, Tennessee, and our LTM sells JV plant in Ohio, where hiring is already underway in fact employees will build prototypes later this.
This year.
Along the way Onstar insurance services is on target to expand to all 50 states by the end of the year.
What's happening inside our company and behind the scenes is also important to our success.
Delivering this exciting new chapter for GM requires a special team that values diversity and inclusion a safe workplace and a commitment to create a better safer and more sustainable world.
We aspire to be the most inclusive company in the world because it's the right thing to do and because diversity and inclusion are the foundation of a winning culture I am deeply and personally engaged in this part of our strategy. Our strong values are a compelling tailwind for GM, They will drive creativity agility.
And so much more for our future.
This future also inspires us to do even more to help mitigate the efforts of climate change and we will less than two weeks ago, we announced plans to become carbon neutral in our global products and operations by 2040, we will set science based targets to achieve carbon neutrality, and we aspire to eliminate tailpipe emissions.
From new light duty vehicles globally by 2035.
We will source, 100% renewable energy.
However, our global sites by 2035, five years earlier than we announced just a year ago and we have signed the business ambition pledge for a one five degree Celsius a call to action from a global coalition of UN agencies business and industry leaders like everything else. We do we will provide updates on.
Our progress and we will hold ourselves accountable.
And now I'd like to turn the call over to Paul.
Thanks, Mary and good morning, everyone before I get into the results I wanted to take a quick minute to thank Mary the broader executive team and really the entire organization for the warm welcome that I've received in my time, so far here at GM.
I'm really excited for the opportunities that we have ahead of us as we build appreciation for the innovation that we are championing right now whether it's an E V E V connected services or our overarching vision of zero crashes zero emissions and zero congestion, we are executing well on our growth strategy and accelerating these opportunities.
With an emphasis on investing in new businesses, while maintaining a strong investment grade balance sheet. We believe we can take advantage of these once in a generation opportunities to achieve strong profitable growth with a solid return on investment.
Being a part of GM as it writes the next chapter of its history is a huge honor for me.
I look forward to continuing the conversations I've had with the investment community, thus far and getting to know those of you I have not yet had the chance to meet.
Now, let's get into the results well.
Well 2020 was adversely impacted by production challenges experienced in the first half of the year, we demonstrated resilience and flexibility as we quickly moved to preserve liquidity and manage inventory, while still launching an all new lineup of our highly profitable full size Suvs and prioritizing investments in our all electric future.
Even in the face of the pandemic, we generated results of $122 $5 billion in net revenue $9 7 billion in EBIT adjusted seven 9% margins $4 90 in EPS diluted adjusted and $2 $6 billion in adjusted automotive free cash flow in 2020.
In the fourth quarter, we continued to see strength in demand as we generated $3 $7 billion in EBIT adjusted including the $1 1 billion dollar charge for toccata, we far exceeded the top end of the scenarios shared on our Q3 earnings call absent the impact of Jakarta due to strong performance in North America.
And GM financial in particular.
We also drove strong Q4 net revenue of 37 $5 billion, approximately 10% EBIT adjusted margins and $1 93 in EPS diluted adjusted.
And $3 $4 billion in adjusted automotive free cash flow.
The Q4 dollars 93, EPS diluted adjusted includes a negative impact of 59 cents from the Takata airbag inflator recalls and a 26% gain from investments in PSA and Workstyle Motor Corporation.
In Q4, we fully repaid the remaining balance on our corporate revolver draw and ended the year with strong automotive cash balance of $22 $3 billion in total automotive liquidity of more than $40 billion.
Let's take a closer look at North America in the calendar year, North America delivered EBIT adjusted of $9 $1 billion up 900 million year over year, and a nine 4% margin.
Q4, North America delivered EBIT adjusted of $2 $6 billion up $2 3 billion year over here as we move past the effect of the 2019 strike.
Continued performance from our launch of our all new full size Suvs and disciplined pricing on our full size pickup trucks offset the impact of the takata recall.
U S retail sales have continued to recover with Q4 GM results up 12% year over year. Despite limited inventories closing the year strong with December retail sales up over 19% year over year. We've seen the strong performance continue into January with sales up 9% year over year.
Additionally, U S retail market share gains have been solid up one four percentage points year over year in Q4 exceeding 18% market share driven by the newly launched full size Suvs and high demand for large pickup trucks.
And we're looking forward to retail EV growth, where we are seeing encouraging signs for demand. We're really excited about the launch of the GMC Hummer EV. This fall when we revealed that in Q4. It was the most watched auto review in history with one 3 billion impressions and 370 million views.
And it created the highest website traffic of any GM model ever.
We wanted to kick off gm's acceleration towards Evs with something as exciting as the GMC Hummer EV a vehicle that we are very proud of and it's just the beginning as we rollout 30, new Evs globally by 2025 with several high volume entries in North America by 2023.
Let's move to GM International full year EBIT adjusted in GMI was a loss of $500 million down $300 million year over year due to the effects of the pandemic on operations, particularly in China, partially offset by performance improvement outside of China.
For the fourth quarter, we were encouraged by our progress with EBIT adjusted of $300 million up $400 million year over year due to positive price mix and benefits from our cost actions, partially offset by weaker FX in South America.
We delivered $500 million of equity income in China for the calendar year, including $200 million in Q4 in line with our expectations.
As we progress through the year. Following Q1 lows, we saw market recovery and benefits from our launches and cost actions returning to the approximately $200 million quarterly equity income run rate in Q2 through Q4.
We received $500 million in dividends from our China automotive JV in Q4, bringing total dividends to $1 billion for the year.
Just a few comments on GM financial cruise and our Corp segment before we turn to 2021.
GM financial posted revenue of $13 $8 billion for the year and record EBITDA.
Adjusted of $2 $7 billion in the fourth quarter GM financial generated revenue of $3 4 billion and EBT adjusted of $1 billion, a Q4 record of $500 million year over year due to strong used vehicle prices contributing to gains on sale of off lease vehicles improved credit performance and lower.
Interest expense due to declining interest rates.
Cruise costs for the year and in the quarter were $900 million and $300 million, respectively, 2020 was a huge year for cruise after substantial development and testing cruise has now reached the point, where it was removed the human driver from behind the wheel and is now fully testing driverless cars on the streets of San Francisco successor.
As Mary noted earlier.
We expect many more good things to come for crews in 2021 cruise segment spend is projected to be about $1 billion in 'twenty one.
Corp segment costs were $600 million for the year and better than the fourth quarter than the normal run rate of $1 billion due to investment gains we expect the underlying spend in the corp segment to be about $1 $2 billion in 2021, an increase over our normal run rate as we are accounting for certain growth initiatives in the Corp segment.
In late 2018, we made a strategic decision to accelerate our transformation for the future to strengthen our core business and capitalize on the future of personal mobility and drive significant cost efficiencies.
Our plan included a path to achieve 4% to $4 $5 billion in cost savings through 2020 I.
I am pleased to report that we have achieved $4 $5 billion in savings since 2018, including $200 million in Q4, and inclusive of $200 million of savings related to the wind down of Holden and sale of our Thailand business.
Having the right cost structure that aligns with our strategy as a key focus for US we've made great progress with the actions taken over the past several years and we will continue to pursue incremental efficiencies.
Now, let's turn to the 'twenty, one 'twenty 'twenty, one outlook for the calendar year.
As we enter 2021, we see ongoing industry recovery and strong demand for our most profitable products.
Underlying business has never been more robust.
I want to provide some macro context around 2021 to help set the stage with continued recovery of the U S light vehicle industry in 'twenty, one we expect Saar to be in the mid 16 million unit range with a stronger second half as we experienced normal seasonality in Q1 and expect to see an inflection point in the spring as vaccines.
Vaccination rates increase and warmer weather list consumer sentiment and auto demand.
In China, we expect the industry to grow year over year as the economy continues to recover. However, we expect a continued competitive pricing environment with increased environmental compliance costs.
In South America, we expect continued commercial and portfolio strength to more than offset the macro headwinds.
Finally, we expect commodity prices to be a significant headwind as platinum group metals in steel prices have seen major increases in recent weeks and months.
Underlines our underlying 2021 performance is expected to be strong, including EBIT adjusted in the $10 billion to $11 billion range as the fundamental business is robust and we will offset significant commodity headwinds, while increasing investments to support our growth strategy and EPS diluted adjusted in the range of $4 50.
To $5 25.
As Mary mentioned at the outset of this call the industry wide semiconductor supply shortage will also impact us this year as it does many other industries.
Included in the guidance I just provided is an estimated one $5 billion to $2 billion in EBIT adjusted full year impact driven by loss contribution margin, partially offset by mitigation efforts through cost and go to market actions.
We expect the shortage to be temporary and we will look to focus on protecting supply of our highest demand products such as full sized trucks and suvs as well as EV.
Importantly, we do not believe this short term headwind will affect our long term earnings power and we remain committed to our growth initiatives and the acceleration we have previously communicated.
From an adjusted automotive free cash flow perspective, we estimate a 2021 impact from the semiconductor shortage in the one five to $2 $5 billion range, putting 2021, adjusted automotive free cash flow guidance in the range of $1 billion to $2 billion.
We announced the extension of downtime at Fairfax County, and San Luis Potosi yesterday, which is included in our numbers above.
Our intent is to make up as much production loss at these plants in the second half of the year as possible.
We expect 2021 capex to be in the $9 billion to $10 billion range, which includes approximately $2 billion of deferred capex from 2020, as well as accelerated investments in our all electric future.
Also included in our guidance and cash is cash outflow from the Takata recall, which we expect to occur over the next two to three years from the expense we took in fourth quarter.
Non operating items included in our guidance worth mentioning include higher year over year net interest expense and an expected tax rate of approximately 24%, which is higher primarily from the tax deconsolidation of crews.
Regarding earnings results cadence, we expect second half to be stronger than the first half primarily as a result of some of the production downtime, we will take in certain plants to manage the semiconductor supply shortages.
Finally, I want to spend a minute on capital allocation the top priority for us is to invest in both new and existing businesses, including previously announced investments to accelerate EV and EV growth, while reducing complexity and leveraging current architectures across the ice portfolio to drive better productivity.
Customer response, which will help fund investments in our future to.
To support this growth strategy in 2021, we will spend more capital on EV and EV product programs, then on gasoline and diesel powered development for the first time in our history.
Our capital allocation plan includes more than $6 billion spending on EV and $1 billion on AAV in 2021, and we will fund key growth initiatives, such as bright drop Onstar insurance services subscription services like Super cruise and Onstar Guardian aimed at accessing new addressable markets that we have never.
Tap a four representing a significant top line growth opportunity.
We will fund these growth investments with internally generated cash while maintaining our investment grade balance sheet.
In summary, we had a strong finish to the year highlighting the underlying strength of our business. We have again demonstrated our strength flexibility laser focus on execution and ability to manage through a significant disruption while still generating strong results.
This focus will continue in 'twenty, one as we manage the challenges of the industry wide semiconductor shortage, while continuing to launch new and exciting products and services and positioned to GM position GM to win in the future of mobility and I'm proud to be a part of this team. This.
This concludes our opening comments and we'll now move to the Q&A portion of the call.
At this time I'd like to ask a question Press Star then one on your telephone keypad to withdraw your question press the pound key.
Our first question comes from the line of Rod Lache with Wolfe Research.
Good morning, everybody.
Gratulation is on the performance I actually had.
Two longer term questions I wanted to ask you.
One is.
You alluded that.
Some of the growth initiatives could result in new brands like bright drop but.
Noticed that bright drops continuing to use the independent dealer model.
Obviously independent dealers make some money they do cleave off some gross margin in F&I per vehicle, which some.
Some of the new entrants are suggesting is kind of a disadvantage for existing players.
I'm wondering if there are changes to the way that bright drop is the franchise.
Agreements work day kind of.
Levels, the playing field with new entrance.
So rod.
In general we say our dealers is a huge assets to the company. They have they're they're responsible for partnering with us to deliver.
Industry, leading sales and service and so of course as the industry transforms as the customer expects different things, both retail and fleet from a bright dropped perspective, we know and we are working with our dealers and they're transforming as well and they are especially you know there's.
A huge percentage of our dealers that are very excited about the EV transformation and the opportunity and we've been working and frankly it accelerated last year during the pandemic of ways that we can better support the customer and meet them, where they want to be and take cost out of both of our business to improve both so that's the journey that we're on and not for <unk>.
Imperative reasons I'm not sharing all of this specific.
Changes in transformation activities that we're doing but they are pretty substantial and like I said, our dealers are very much engaged and excited about that.
Thank you and then just secondly, you mentioned subscription services and actually one of your slides mentioned that.
Your next generation electronic architecture is going to be available on 29 different models by 2023.
It sounds like you think that the vehicles that you still have the potential to become platforms for deploying services and features that you can charge for so I was hoping you can maybe give us a little bit more insight into the potential there. It sounds like Super cruise is one of these things, but what what is the sort of projected population.
The vehicles that you're going to be targeting what are the kinds of subscriptions that you think you might be able to generate.
So Ryan we are we're very excited about the opportunity we have to present services and especially as we now have the vehicle intelligence platform, which is our new.
Electrical architecture, and underpinning the entire vehicle and it protects the vehicle from a from a cyber safety perspective, as well as gives us tremendous over the air updates and the ability to do provide services on demand you mentioned Super cruise Ah.
That is one that will have the ability to do theres several other opportunities.
Opportunities that we're exploring and frankly working on right now again, we haven't announced any of them publically, but I will tell you we have a whole team across.
Our sales and marketing team partnering with our engineering team and software engineers. So you'll hear more about this as we go forward, but we think it's going to be a huge growth opportunity for us.
Okay alright, thank you.
Your next question comes from the line of each time, a Kelly with Citi.
Great. Thanks, Doug Good morning, everyone.
Good morning, just had a one financial and one strategic question on the financial question is hoping you could quantify for 'twenty and 'twenty. One bridge just the raw material impact that you're expecting as well just the volume impact embedded in the estimates for the semiconductor shortage.
Sure so for the for the commodities first we've seen about 120% increase in steel and PGM.
Prices over the last really since may of last year.
That's a couple of billion dollars I would say that we're making some strides to offset that and we're going to continue to target where we can in order to drive savings to help offset that but thats rough order of magnitude. What we've included in our numbers and of course, there's always some lag in terms of being able to respond to those price.
Yes.
On the volume side I would say that these numbers are moving around rapidly and between them.
Building vehicles that we will go back and retrofit with the components later in the second half and managing through second half makeup volumes, it's premature to talk about the volumes that are at this point in time, but.
But that's where we've come up with a one and a half to 2 billion net of the initiatives that we think we can bring.
Bring together to help offset through this.
Great. That's very helpful. Paul and then on the strategic question wanted to focus on the <unk> part of the story and it really kind of two parts to the question first on cruise just given the progress we're seeing in the California reports I was hoping you can update us on the latest thinking from yourselves and the cruise team around.
When cruise deploys.
Do do compete against Rideshare networks would you partner with them or both just love some updated thoughts there and then on the.
Kind of EV investments inside of GM, It sounds like you're accelerating that as well I was hoping perhaps maybe you could talk about the the plan around the zero crash vision, how do we think about a redeployment within the GM vehicles, let's say over the next five years and kind of what kind of paths should we expect there.
Sure Dan Thanks for the question.
I'm really excited because if you look at the fact that we're going to be putting super cruise and multiple vehicles and the strong customer reaction, we've gotten from them and that continues to grow and and definitely contributes to a safer world of zero crashes world.
And you know we've talked about the next generation of Super cruise and that will have even more capability that we'll be able to to provide to vehicles and in some cases launch and provide additional functionality over the air.
So that's something that will be quite significant by 2025 than when you've got crews.
They continue to hit their milestones there they're on track from a safety perspective, because we've always said safety will be our overriding priority. They're also working on.
Making sure the ride is enjoyable from a customer perspective, and again, they're making progress I'm very enthused you know that they're testing right now in San Francisco without drivers are in the vehicle in certain situations I'm not going to put a specific timeframe on when we'll will launch commercially but the.
The progress, we're making puts us in a very good place that that's not years away like people think.
<unk> talked about it from.
Are we going to partner with existing Rideshare as you know we have the ability to go and launch our own service, we already have our own application that is being leveraged by our employees right. Now. So we have you know I think when we are in a position that we can take the driver out of the vehicle from a convert and launch the business commercially.
We'll have many opportunities and we will do what's going to drive the biggest Val.
Value from a shareholder perspective, I think at that point, you can think of it like a platform.
Terrific that's very helpful. Thank you.
Your next question comes from the line of Emmanuel Rosner with Deutsche Bank.
Hi, good morning, everybody.
Good morning.
First one financial question and then longer term one as well.
So on the financial side.
It seems like.
It was very strong price mix very strong volume contribution in North America, but then at the same time I think that there was a bit of a cost headwind, even excluding the airbag recall and I think your slides talked about some warranty and materials performance and so I wanted to see if you could give a little bit more detail around.
What happened specifically North America cost in the quarter.
And how to think about it is in Europe, which through 2021.
Hey, Emmanuel good morning, its Paul.
You mentioned the biggest one obviously was toccata in there, but I would say the other two were primarily.
Really related to content and major material. So we've taken a conscious effort and the new line of full size Suvs.
To improve contact and content and you're seeing that in the pricing offsets and what we're able to get in the mark because these are content improvements that consumers really love and they're willing to pay for and and we feel good about that and then theres a little slug of commodity pressure that we saw in the fourth quarter probably about <unk>.
60, 40 between materials and commodities of that remaining piece.
And then just on this so we're thinking about 2021 is it fair to then assume.
Continued pressure.
Pressure I guess from the materials cost.
Excluding commodity the content cost.
Yes, I would say that content is a good reflection of where we're heading especially in terms of the volume of full size Suvs and trucks.
Okay, Great and I guess on the electrification side looking at this longer term that you have a few.
Very strong milestones that you've put out there more than a million units.
By 2025, and then obviously you cant take each day.
2030 phase and then several high volumes in North America by 2023 can you give us.
Remember that holistic view of how you think.
So, yes, we get deployed what sort of.
Segment. So a time line can we expect.
Can we learn more.
General Motors or on the bridge to get you to this mill needs by 2025, and so it gets you to 100 per se.
By 2035, what what's models, we will make this up and on what time line.
Sure Emmanuel.
I think we're really excited.
We're launching the Chevrolet bolt EV and next generation bolt EV. This week and so that that starts to I think a very positive momentum, especially when you look at the affordability of the bolt in the boat.
And the bolt EV later this year, we'll have the GMC Hummer early next year, we'll have the Cadillac selected we've also announced the Cadillac or excuse me the Cadillac lyric and then we'll have we've already shared the Cadillac <unk>, which is really a flagship.
And Youll, just see a steady launch of vehicles, because we've said two thirds of the 30 by 25 will be in the United States.
You'll hear more about which vehicles are coming in what order as we start to move through the year, but I would say as you go then.
That and from competitive reasons, we're not going to share too much but we will continue to share more as we get closer to these launches as we go through this year and next when.
When you start to look at 2035 right now we're a full line manufacturer.
And.
So we will cover the full line and more when you think about products like bright drop and then our first mile last mile you put on top of that the services that will be available through the vehicle that we've talked about subscription service and then you put things like insurance that we think we can do very well with that.
The learnings we have from our connected vehicles so.
It will be a full line broader than we have right now and that's all enabled by the Altium platform and we intend to take share and grow overall as we as we do this with the number of vehicles sold as well as the growth opportunities that sit on top from a services and other businesses perspective.
Great. Thank you.
Your next question comes from the line of John Murphy with Bank of America.
Hi, good morning, guys.
I just wanted to ask a question I mean, you really accelerating the advancement of your EV Navy technology much faster than people would've thought not too long ago, but there is the risk of creating some obsolescence around Europe core ice products and it seems like we're going to reach the tipping point in the next few years. So just kind of trying to understand I mean, pessimists may say, hey, you're going to block it.
Residuals and Youre going to have a real problem and after this might say youre going to create a real super cycle for demand. So just curious how youre thinking about that and how you might manage that.
Well, John it's an excellent question and I definitely think it presents a super cycle opportunity for us when you look at our ice business and the platforms. We invested in over the last five years, we're well positioned and that's what puts us in a place where we can be investing more in EV and EV than we are in ice and so we're going to leverage the platforms that we already have.
Have the strong franchises in full size trucks full size Suvs midsize crossovers and you know I'm also super excited about products like the Chevrolet Trailblazer and the encore. So we have a really strong portfolio of products as we make this transition that's going to lead need limited investment and then we are demonstrating right now we also have.
Very capable manufacturing team manufacturing workforce, we're transitioning to the Detroit Hamtramck plant right now factory zero to build electric vehicles.
We've also announced spring Hill, so we have a very well thought through plan of how we will transition our manufacturing facilities to electric vehicles, we can do it in a pretty short timeframe and with the shorter vehicle.
Vehicle development process, we have for Evs those two go hand in hand and in some cases.
The investment that we're making to increase our.
Our our ice vehicles, we're doing that with a mind for what it will take to then have a quicker less expensive conversion to evs. So it's a very well integrated plan will be customer driven but we're working hard too.
Create a delightful E V ownership experience with the right range the rate charging the services on top of it.
The connectivity that we think we can grow as we make this transition and not you know not have stranded assets.
Okay. That's incredibly helpful. And then just a second question around the chip shortage. When we saw production disruptions and supply shortages last year, what it really resulted in was very.
Tight inventory, but very very strong mix and a focus on your more highly profitable vehicles I'm. Just curious as you go through this process of working through the chip shortage hopefully be done sometime later this year.
Do you reallocate these chips too.
Vehicles, how much fungibility, there is and could we be in another environment, where mix just remains incredibly strong and offset some of this potential weakness.
Production volume and just how much of that is kind of a.
We accomplished in this $1 billion $5 billion to $2 billion EBIT hit you're talking about the chip shortage.
Hey, John Good morning, its Paul.
What I would say is that obviously the situation is very fluid and you've seen that from various manufacturers across the board and what I would say is we're adapting to kind of focus production on two things number one those vehicles that have higher margins and and.
Provide better contribution for us, but also with the full size Suvs and the trucks.
They are already operating at full capacity and projected to pretty much for the entire year. So the makeup volume in the back half of the year is harder.
So where we are taking chips from our vehicles, where we either have a little bit more inventory or more importantly, we've got production gaps in the back half of the year or capacity to be able to make that up so it's very fluid as we're managing through this but that's all baked into the numbers that we gave earlier.
And then just one quick housekeeping on the dividend it sounds like the growth investment Capex R&D everything you're doing is going to crowd out the dividend for a little while is that a is that a fair statement or will it be a rethinking around the dividend sometime this year.
We talked at the end of Q3, we talked about having a dividend that's the right size and and at the right time we.
We continue to be dedicated to that but we are very much focusing on the first pillar of our capital allocation strategy, which is to invest in growth businesses.
You'll hear more from US later this year as it relates to the dividend, but I think the focus that we have on growth and what we're investing in growth is going to provide a really strong return for our shareholders.
Sounds good thank you very much.
Your next question comes from the line of Joseph Spak with RBC capital markets.
Good morning, everyone.
Good morning.
Just the first question.
On the on the chip shortage.
I was wondering if could help us think through maybe some of the.
Cash flow and working capital timing impact I know you gave the impact that's included in the guidance, but it would seem like with some of the strategies you're employing.
You know it might be a little bit more of a working capital drain in the first half relative to the EBIT impact and then maybe a recovery in the back half is that is that correct.
Hey, Joe its Paul good morning.
I think I think that's an accurate assessment I mean, we do expect some choppiness in the near term as we are altering.
Production and managing through this as well as.
You mentioned, if we're building vehicles, and then come back coming back to retrofit them. So we do see.
A bigger working capital an EBIT impact in the first half of the year.
The expectation is that we'll be able to make up for that in the second half also incorporated into our numbers our cash impact guide. If you noticed was a little bit wider than our EBIT guide that.
That's due in part to we were we were planning going into the year on having a little bit of a build in inventory levels benefiting working capital that is as we make our production volumes in the second half depending on how the semiconductor situation works itself out.
We could see.
Our year end, where inventories are flat or.
And not have that working capital benefit that we might otherwise see which is why we put a little bit more cash impact into it.
Thanks for that and then second question is Paul welcome to GM, but in general.
Yes, I just wanted to get your.
You sort of view here someone that's looking at general motors with some relatively fresh eyes, and I think somewhat of a reputation as being a creative thinker and ability to help realize value as you look at gms assets and balance sheets. I mean, how do you think about unlocking further value and what do you see as the opportunities that may be underappreciated by the market well.
Well first of all things that are welcome Joe and I'm not sure who you were talking to but I appreciate it nonetheless.
What I would say is that there is tremendous opportunity here too.
Help the market understand that we're really transitioning from what I would say it has been historically at kind of an old school industrial type mindset for the market to a real technologically savvy growth oriented company that's.
Really going into a lot of new markets and as we see those continue to develop and we continue to ratchet success stories like cruise and what I believe price drop will be as well as the EV portfolio.
I think theres a lot of opportunity here to drive value for our shareholders and that's ultimately what what sold me on coming here to join Mary and the team.
Thank you.
Your next question.
That's helpful.
Okay.
Uh huh.
Can you hear me Yeah, we've got a we've had right now.
Alright, I was going to ask Mary why she hates Norway, so much but in the interest of time I'll move on.
Look I'm not worried about that I'm not worried about the chip shortage Mary I'm worried about the battery shortage.
Well, we're seeing.
And the next couple of few quarters, a couple of years the potential for a real serious supply demand imbalance.
On EV sales now Fortunately youre pretty close to the bread truck.
And you've used your vision to get to kind of secure.
Relative basis, a lot better supply domestically and otherwise, but it seems like a real problem I'm curious Mary at a high level, whether you and the team based on what you see all the way up to the mines and the surface of the Earth.
With the metals do you see a risk of a cell supply constraint that could really impact volume for the broader EV industry over the next couple of years at this point and then I have a follow up.
And well you know as we look at it and of course, our purchasing and supply team knows.
The projections that we have the volume that we have by by year and we're working to make sure we have adequate.
Supply all the way from the mines are you you rightly point that it's one of the reasons why we're investing in our own cell manufacturer and as I kind of alluded to in my opening remarks, there is more coming in than what we've announced already so we want to be in control our own destiny not only from making sure we have.
The ability to have the sales that we need but also to work on cost improvements and technology improvements I would also say you know the work that we have the joint partnership with LG Chem not just for manufacturing, but also development. We also have significant resources.
Resources in our R&D and we're also looking as part of our cost out plan to need less precious metals. So we're working at it from all angles.
No it's strategically critical for our future and so the right attention is placed on it.
Mary Thanks, So just a follow up it is a question on bitcoin, it's inevitable I might as well just rip the band aid off right Mary.
A growing number of high profile companies, including our major competitor or owning bitcoin and crypto as a way to diversify and maximize their cash holdings in treasury outcomes in a world, where Fiat currencies like the U S dollar being debased and the purchasing power of Roading.
And also as a potential means of payment I mean, a $45000 BTC is optimal for a big ticket purchase like a car. So how does GM think about this opportunity and yes. This is a very serious question actually how do you think about this opportunity is this something that GM would consider and what would be the signposts that you're team would need to see in <unk>.
Treasury in order to move in that direction.
Sure Adam well first of all we don't have any plans to invest in bitcoin so full stop there.
This is something we will monitor and we'll evaluate and if theyre strong customer demand for it in the future Theres nothing that precludes us from doing that so.
Your question very seriously that's my answer and I do want to answer your Norway question.
97% finish so I like all the Scandinavian countries, we're actually very we look at what <unk> accomplished from Evs and we think it's a message to have make everyone aware and drive awareness and adoption of EV.
That's awesome. Thanks Mary.
Okay.
Your next question comes from the line of Ryan Brinkman with J P. Morgan.
Great. Thank you thanks for taking my question.
Jim's EV day in March of last year, you introduced the target of selling 1 million I think OLT him powered battery electric vehicles between North America, and China by the middle of the decade, I don't recall as much discussion of Evs not powered by LTM batteries, Although I see one example, the Wuling Hong Kong Mini EV has in some recent months been selling 30.
Three of 35000 units an annualized run rate of 400000. So can you tell us a little bit more about the demand you're seeing for these other attainable GM evs in China, and what kind of market. You think there could be for them do you see the potential to export to markets outside of China and should we think about their volume being incremental to the 1 million units.
Just at every day.
So we're really proud of what our are willing partner S. G. M. W has been able to accomplish and we tried to have a battery day Altium is our new platform and we are.
Or are going to continue to roll that out and we see significant volume coming.
After that when coming from that I should say when we look at the greater than 1 million units by by mid decade, and that includes our products in in GM, China with our joint ventures as well as in the U S.
But that's just a starting point and then we're going to continue to grow altium as well as potential products like you say with the the Honeywell.
E V. Many that have the opportunity to continue to grow.
I was looking at where the rate growth is inside and outside of China, I don't have anything specific to share right now.
Thanks, and then just lastly wanted to check in on the on GM financial after the strong result, there I think about the business is benefiting from gains on the sale of off lease vehicles, given the step up in residuals that also the underlying earnings might be growing also on the harvesting of earlier investments. So when should we expect the off lease tailwind to subside and then when they do.
What do you think is the underlying earnings power of GM financial.
Yes. This is Dan Denver speaking so.
We're guiding to earnings for 2021 of about $2 5 billion, which is comparable to what we made this year to seven EBT.
We do expect.
Good gains on residuals again in 2021.
We guided to.
Residuals being down.
Low single digits, but we're comping to what was a record year in 2020.
We're starting the year.
Quite well from a auction standpoint.
Beating last year's numbers, but the tough comps from a residual standpoint to really be the second half of the year.
Even.
If prices are down a couple of points in 2021.
They will still be comparable to where they were in 2019. So leases we made in 2018 2019.
We expect really good favorability when they come off lease.
Okay very helpful. Thank you.
Your next question comes from the line of Brian Johnson with Barclays.
Hi.
Since most of the housekeeping questions have been addressed I wanted to talk about GM hydro.
We knew about the Nicola refocused on fuel cells.
Navistar was a bit of a surprise and in fact, the whole Renaissance of your fuel cell business is a bit of a surprise.
Do remember that Larry Burns day. So it was the technology of the future that was never quite the future, but now it looks like there is real opportunities there in the commercial vehicle market.
Just wondering in particular can you talk about where the hydro test technology is versus competing fuel cell solutions in terms of cost per kilowatt and other key factors.
Well, we're really excited about the potential of hydro tech.
And.
When you look at commercial trucks defense aerospace and stationary backup power.
Situations, where you need large quantities of energy over extended periods of time to move heavy payloads. So yeah.
That's where our hydrogen fuel cells are really I'm, most applicable and so we see hydrogen fuel cells as well as evs being part of the solution I was here for when we started working on fuel cells, we've never stopped and we have a very productive partnership with Honda.
So I think you know we've invested appropriately in shared that investment to be efficient. So I think there's huge opportunity. We're very pleased with our partnership with Navistar and they'll have vehicles on the road in 2024. So the time has come.
And just as a follow on.
Given that's not core to the passenger or personal use mobility business.
Unlike <unk>, where you did rollout of spin off but perhaps more like cruise where are the structure of the way. It's set up kind of contemplates maybe at some point monetization. How would you think about hydro Tac along that spectrum.
Core could ever consider monetizing too if the prices right. It could go its own line.
Well I think as I've said repeatedly we will always do within the long term best interest of our shareholders to unlock the most value. So we are committed to doing that.
We're in the early days of hydro tack with and also with our GM defense business and and other opportunities. So right now we're focused on the growth opportunity that's in front of us and if it at some point there is a different.
Structure that would enable that growth two to be even faster, we'll definitely consider it.
Okay. Thank you.
Your next question comes from the line of Dan Levy with Credit Suisse.
Hey, Hi, good morning, everyone. Thanks for taking the questions share.
And welcome to <unk> welcome to the team Paul.
Thanks, Dan first question.
First question wanted to ask about about E V and I think you've mentioned in your opening remarks, you've had discussions with the new administration I think we know a big part of EV uptake until now and likely for the foreseeable future is likely.
The role of government in setting policies encouraging uptake in Europe doing commercials on Norway, Norway has been one of the most aggressive in policies encouraging uptake.
You have these new 2035 zero emission target can you tell us what your baseline assumption is for increased regulation in the coming years is to encourage EV uptake how aggressive do you expect the government to be or would you advocate with government today would you advocate for the government. The U S government to Institute a ban on combustion vehicles by two.
35, similar to what we've seen from other countries.
I think our focus Dan is really on delighting the customer with our incredible ownership experience, allowing them to have the vehicle in the segment that they want at the price point that fits their their life.
And then excuse me, having the right range, making sure the whole ecosystem supports them from a charging perspective, whether it's home charging at work when theyre, making long distance trips or if they live in an apartment and how do we make sure. They have regular available and dependable charging infrastructure. So I think there's a huge amount of opportunity with business partners.
<unk> with government to make sure the infrastructure is there to support it we do want to see.
The EV tax credit, we think there's a period of time, where that's still important and frankly, we'd like to see.
That not penalize first movers.
But generally we are very much focused on delighting the customer mark the overall ownership experience, having the right vehicles and making sure every aspect of their ownership.
Is is a step above what is today, that's really going to drive the adoption we need.
Okay. Thank you and then second question on this 2035 target, which is the first time, you've put out firm timing on this target and.
I think the word that you used in the release is aspire.
Rather than.
Hard firm target, which makes sense because it system yourself, but maybe you could walk us through the factors that you think could accelerate or challenge your ability to meet this target what are the largest factor determining the ability to hit the target between cost improvements on EV.
Addressing the head transmission engine passenger traffic that needs to be downsized challenges on distribution or just broadly on U S. Consumer acceptance, so what needs to be done to hit this 2035 target, but can you use the word aspire rather than a hard line.
Well.
Nearly customers will drive this in what customers want and that's why we're focused on and trading that excellent customer experience that I just talked about but there's really nothing holding general motors back you know we have the manufacturing capability, we have the altium platform and we already have the second generation of technology, that's being worked.
To further take cost out.
And allow energy density to increase which all benefits the consumer where we have the ultra fine buying I know, how we will provide the customer experience and we're partnered partnering with our dealers to make sure. It's a order of magnitude better customer experience from an ownership perspective the services.
Whether it's subscription or whats offered in the vehicle from a connectivity is another thing that we think we can completely delight the customer and build on the fact.
That we know we have leading technology right now so to me there's not one big factor that's going to hold us up we have all the assets to achieve this we've got to solve issues and win customers, but I think we're well positioned to do that across the portfolio and that's why we say it is such a tremendous growth opportunity for general Motors.
Great. Thank you very much for the whole calendar year.
Your next question comes from the line of Felipe <unk> with Jefferies.
90 basis points, yes, good morning, and thanks for putting me on the call.
Following on to this discussion about this aspiration and your targets or aspiration to put 2035.
I'm trying to understand I'm thinking no 10 years out or so if we assume that SAR grows relatively slowly in a mature market and GM targets new ice by 2035.
What happens if the adoption is lagging significantly, let's say, 60% or so.
Logically GM must be prepared to either shrink volume.
Sales hardware revenue with other associated revenue and keeping in mind some of the shrinking.
Growth and better margin is not necessarily negative flow to the market is quite contrary.
Lee if you don't want to shrink we're not planning to shrink you need to work on squeezing your competitors, especially in the basically may.
Doug will see even more difficult so I'm just trying to understand strategically.
Over the next 10 15 years.
As GM ready to shrink.
Or is Jim gonna be aggressive.
I'm trying to understand what am I missing something.
We're gonna be aggressive because I think we've got the technology. We've got the talent, we have the manufacturing capability, we already sell more vehicles in the United States and we're number two in China. So I think we're well positioned.
Because of our current us brand strength around the world and our position and then with the technology that we're bringing forward. So we don't plan on shrinking we plan on growing, especially if you look at in the United States on the coast, we don't get what I would say is our fair share of the market that that's a growth opportunity right there but.
We think we're extremely well positioned and we again I can't underestimate how much opportunity we have with the altium platform because of the modularity of it that we can take so many vehicles across so many segments price points to really delight the customers. So that's our focus.
Sure.
Thank you. Thank you very much.
Your next question comes from the line of Chris Mcnally with Evercore as I said before we experience good morning, everyone.
Barry I wanted to follow up on the questions on on cruise and I know you can't be too specific on.
Exactly when that launch would happen or even maybe a more extensive beta testing of our program in San Francisco, but could you maybe talk about some of.
Any ambition to test aggressively in other cities.
So whenever a commercial launch or beta launch was to happen could we expect multiple launches sort of succession on a sort of an annual type basis.
I think you will see we talked very early on that once we have launched in one city the opportunity to go to the next to do the work to make sure the technology.
<unk> is adaptable to the unique things of a another city.
So I think once we launch successfully and demonstrate that the technology is safer than a human driver and.
And we we demonstrate to customers I think that we can.
Really.
Increase the the number of cities that were offering offering it.
Quite quickly and that's what we'll focus on doing.
And then.
Finally, the rationale behind the tax deconsolidation of of crews.
Super interesting I'm, just curious does it ever make sense that the cruise has its own.
Separately listed assets.
Funding funding options would be.
Obviously much broader than internal or.
External private investors.
Hey, Chris It's Paul So I would say those two issues are.
Separate and distinct from each other the the tax deconsolidation is really just mechanical because our ownership is below the required thresholds to consolidate for tax.
And obviously with their with their spend and their growth we benefited from that which is why we're seeing attacks increase with the deconsolidation.
I think what we've proven out with our last round of funding is an ability to partner and raise external capital alongside the strength and the foundation that GM provides.
So I think access to capital.
As a as really unconstrained the way, we think about it right now we brought we bore that out in the last fundraising round.
Okay. Thank you.
Doug.
Our last question comes from the line Nathan of Daiwa.
Okay.
Hi, Thanks for squeezing me in I have two questions.
For me do you want to pause for me for me.
Longer term do you see evs as an opportunity to enter into Europe, with a clean slate, especially given government, having had been more conducive to giving incentives to evs.
I believe it.
Simone did for like 10% penetration in the fourth quarter of 2020.
What's your thoughts around that.
Theres nothing that precludes us with the sale of both the Baxalta do that we already have our iconic products in Europe, right now with Cadillac and the Chevrolet corvette et cetera. So there's nothing that precludes us and I think it's a natural growth opportunity for us as well.
Okay, Thanks, and Paul coming from industry, which benefited significantly from consolidation.
What are your thoughts for the automotive industry.
[laughter].
I think that's a bit of a trick question, but I think they are obviously very different.
Industries across the board I think there are some similarities in that the industries are both capital intensive.
But what we have here is much more of a platform to create a growth model and I think.
We saw some of that in my past life as well, but.
Really here, it's about diversifying the business is about growing into the increasing.
Shipping point like demand of Evs, and Avs technology going forward and when you combine that with the strength in the brands and the capabilities of of GM I think we've got a lot of opportunity ahead of us.
Okay. Thank you that's all day.
Thank you I'd now like to turn the call over to Mary Barra for her closing remarks.
Well first of all I appreciate all of you joining and thanks for the great questions. This morning, I Hope you know and see that it's overwhelmingly true that we are at an inflection point on sustainability on inclusion and diversity and on growth that will deliver shareholder value not just this quarter, but for many years to come.
Hope that's coming into even sharper focus for all of you every quarter moving forward you can expect to hear US advance our story I believe we have the talent the technology the profitability and the balance sheet to lead and we will continue to innovate and I look forward to sharing more in the months I've had so thank you please take care and stay safe.
Ladies and gentlemen that concludes the conference call for today. Thank you for joining.
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