Q1 2021 General Motors Co Earnings Call
Okay.
Good morning, and welcome to the General Motors Company first quarter 2021 earnings Conference call.
The opening remarks, all participants will be in a listen only mode.
After the opening remarks, we will conduct a question and answer session Charles.
A question Press Star then one on your telephone keypad to withdraw your question press the pound key.
This conference call is being recorded Wednesday may <unk> 2021, I would now like turn the conference over to Rocky Gupta, Treasurer, and Vice President of Investor Relations.
Thanks, Kevin and good morning, and thank you for joining us as we review Gm's financial results for the first quarter of 2020 one.
The conference call materials were issued this morning and are available on the GM Investor Relations website.
As usual we are also broadcasting this call via webcast.
I'm joined here today by GM, Chairman and CEO, Mary Barra G M CFO, Paul Jacobson, and GM financial precedents Denver.
Before we begin I would like to direct your attention to the forward looking statements on the first page of the charts at the content of our call will be governed by this language I will now turn the call over to Mary Barra.
Good morning, and thanks for joining our first quarter earnings call. Our start to this year was very strong with a record Q1 performance that was driven largely by robust product demand and the U S as well as an outstanding quarter for GM financial we remain confident that we will achieve our full year guidance, we are on a path.
To transform our company and the timeline, we have shared with you and we are demonstrating our ability to accelerate our plan.
Before I discuss the progress we've made on our transformation and growth strategy I'll provide some highlights about our performance.
I'm very pleased with the strength of our global business, which contributed to EBIT adjusted of $4 4 billion and and EPS diluted adjusted of $2 and 25 10 and the.
And the strong quarter with a full team effort with people working and our plants all the way to our dealers.
Global purchasing and supply chain engineering, and manufacturing have been especially nimble and opportunistic as we manage through the semi conductor shortage. For example, our engineers are creating effective solutions using chips that are more readily available or by identifying alternatives can serve semiconductors where possible.
They're worked helped us maximize production of our highest demand and capacity constraint vehicles, reducing downtime and further demonstrating our team's agility.
We have have production downtime and the second quarter, we expect to have a strong first half with EBIT adjusted around $5 5 billion ish. We are also reaffirming reaffirming our guidance for the full year and based on what we know today, we see the results coming in at the higher and at the 10 to 11 billion dollar EBIT adjusted range that we shared earlier.
This year.
We remain committed to find and $7 billion and EV and EV investments that includes capital and engineering this year and accelerating 12 EV programs as we first announced last November and.
Paul will discuss our Q1 numbers and outlook in more detail and a few minutes.
Looking ahead I think there are many reasons why we are confident for starters, we have great product momentum despite tight inventories, we maintain a clear lead and the full size SUV market and the U S and our full size pickups, there and high demand and China. Our sales are rebounding sharply with the economy and Cadillac achieved a record first quarter.
<unk> led by its SUV lineup of X P for XT, five and X T. Six.
In addition, we are executing and one of the fastest production launches in our history last November we said, we would return full size production pick up production to Ottawa Assembly, and Canada, and early 2020 two because of the team's speed. We are pulling to start up retail production ahead into the fourth quarter of this year, the new timeline and incremental volume.
We'll begin to have a meaningful impact next year as we ramp up production, but I'm sharing it with you now is another example of how we are working urgently to achieve key milestones.
Let's turn now to our growth strategy strategy, starting with a battery update.
We intend to lead on all aspects of battery development and cost reduction and we are moving quickly on every front.
Vertical integration approach to battery technology, which includes building our own cells will help us scale quickly and efficiently to deploy new innovative chemistries that boost energy density and reduce cost over time.
I'll Tee and batteries are unique and the industry because of their large format pouch style cells that can be stacked vertically vertically or horizontally inside the battery pack. This allows engineers to optimize better battery energy storage and lay out for each vehicle design, depending on the vehicle Altium enables a GM estimated range of up to 450.
Miles or more on a full charge with zero to 60 miles per hour acceleration and three seconds. As we've previously said, we realized we will realize a 40% battery cost reduction with our first generation and Altium platform compared today with today's Chevrolet bolt EV.
And we're already on the road to delivering a 60% cost reduction compared to the bolt EV with the next generation of Altium and we expect cost will continue to decrease from there currently.
Currently our Nextgen lithium metal prototypes have completed about 150000 and simulated test miles and we expect them to have nearly doubled the energy density of our current EV batteries and.
The team has already secured 49 patents for Gms lithium metal battery development with another 45 pending.
Our own work along with the intellectual property from solid energy systems will form the basis of our recent joint development agreement with Ses, one and one of the companies were working with to commercialize lithium metal batteries. We are targeting production of our Nextgen Altium battery by mid decade, and we're also expanding our battery cell man.
In fact shrimp footprint to control our costs and south supply.
Last month, LTM sales LLC, our joint venture with LG energy solution announced its second high volume battery cell plant and the United States and construction begins immediately on the site adjacent to our Springhill Assembly plant in Tennessee.
The new facility will create about 1300, new manufacturing jobs. When it comes online in late 2020 three it will join the Altium cell L. L C facility and lordstown and that its opening next year.
And this is just the beginning and we will continue to expand our battery cell capacity on our way to achieving our goal of EV market share leadership and North America.
Let's turn now to our LTM powered products during the quarter, we unveiled the second new Hummer EV, the 2020 for GMC, Hummer, EV, SUV, which launches in 2023 and will be built at factory zero and Detroit Hamtramck.
It will be available loaded with new GM developed software driven technologies, including crab walk extract mode and many more features that are either industry, leading our segment differentiators.
The Cadillac team unveiled the stunning lyric production model, which we accelerated by nine months and as we've previously said we have cut the development time of most of our E vs and half because of our use of virtual engineering and other software tools.
Cadillac will take reservations beginning in September with initial availability and the first half of 2020 two.
We were also excited to confirm that Chevrolet will introduce a silverado full sized electric pickup truck for retail and fleet buyers with a GM estimated 400 miles of range on a full charge for certain configurations. The initial interest has been overwhelming especially from commercial and government customers. We gave a small number of them a sneak peek.
At the interior and exterior design, they said it exceeded their high expectations with zero emissions long range pickup capability innovative storage and strong value along with a powerful design and what is especially important is that this truck will be at a high volume entry and one of the most popular income.
<unk> segments and the industry and.
In addition to Altium propulsion Super cruise is a feature that connects all of these vehicles and an increasing number of vehicles, we're selling today.
Since its debut in 2017 Super Cruise has twice been ranked as the best driver assistance technology and the industry by a leading third party consumer group.
Super cruise is enhancing our reputation elevating our brands and laying the foundation to generate substantial future subscription revenue for us as we move forward.
To creatively illustrate how fun and liberating super cruise can be Cadillac recently wrapped up its it's time to let go campaign. It captured celebrities as they drove that 2021 and Cadillac Escalade with Super cruise and its new Lane change capability. It was really fun to watch the reactions are and how people quickly shifted from being <unk>.
Cautiously curious to just pure excitement.
And we'll roll out Super cruise to 'twenty two models by the end of 2020 three and we plan to add even more features our ultimate vision is that this system enables hands free transportation and 95% of driving scenarios.
What makes our large scale deployment of Super cruise and all of its new features possible is our vehicle intelligence platform or VIP, which connect every vehicle system into one and advanced high speed and very secure network.
And the eyepiece four five terabytes of data processing power per hour represents a fivefold increase from our previous electrical architecture.
That's enough capacity to manage all of the day to loads of our self driving technology driver assistance systems electric propulsion over the air updates of every vehicle module plus capacity to manage future applications.
It's also an enabler for software as a service, including new apps and capabilities that we can market to our customers such as the latest must have trailing and parking apps.
By the end of 'twenty three.
He will be on 7 million vehicles and 38 global models.
Another major element of our growth strategy is our bright dropped commercial delivery business and it is progressing and on track and March our product and manufacturing teams reached an important milestone as they conducted EV 600 prototype builds.
Plans to build the break drop of <unk> 600 at Cadillac's excuse me at GM, Canada is Cammy Assembly and Ingersoll are progressing rapidly the bright trap team remains on track to reach its goal of delivering E V. Six hundreds to its first customer Fedex Express by Q4 of this year intra.
Interest is high and we continue to have active discussions with many prospective new customers, who are seeking the efficient and zero emission delivery solutions that break drop offers.
And this is encouraging as third parties estimate that the addressable market for E. L. C V's could be $30 billion by 2025 and double that and 2030.
As our EV volumes grow we are also investing and relationships to build a robust reliable and easy to use public charging infrastructure.
Last week, we rebuild altium charge, $3 60, and innovative and holistic approach that integrates charging networks GM vehicle and mobile apps and other products and services to simplify the charging experience for G. M E B owners.
It builds on our existing work and partnerships to support a charging ecosystem that will give G. V. G. M E V owners more confidence and convenience.
We have signed agreements with seven major charging network, giving customers a more seamless access to nearly 60000 plugs across the U S and China as part of.
Our existing collaboration with E. V. Go we've opened the first three of fast charging stations, and California, Florida, and Washington on our way to 'twenty 700 clubs by the end of 2025, and we expect about 500 and fast charging styles to go live by the end of this year.
We'll continue to provide updates about altium charged through 60, including new elements and collaborations.
The last major EV development I want to share follows up on our joint announcement last year with Honda that we will co develop to LTM based evs for Honda to be built in North America by the G. M team Honda recently confirmed these vehicles are large SUV for the Honda brand and one for the Acura brand and will launch in North America and market for the <unk>.
2020 for model year.
This further validates our Altium technology, and we continue to work closely with Honda to expand our partnership and cooperation in key areas, such as purchasing and research and development and connected services.
Turning to Avs cruise continues to establish itself as a leading force and commercializing self driving vehicle technology.
And the latest funding round that closed after raising $2 75 billion. It included investments from Microsoft and Walmart and this brings the valuation of crews to more than $30 billion with GM continuing to own a majority stake.
Cruises moving steadily closer to commercialization.
It's real World Driverless vehicle testing and San Francisco and its last mile delivery pilot with Walmart and Scottsdale, Arizona will help pave the way for new commitments like the one cruise just signed with the city of Dubai.
Cruise will be the city's exclusive provider of self driving taxis and ride hailing services with plans to deploy up to 4000 and self driving vehicles by 2030.
Dubai chose crews over several competitors. So it's another great validation of cruises technology, and our overall approach to autonomous vehicles.
Before I turn the call over to Paul I want to quickly update you on our coronavirus measures, we remain village and the Bill.
Diligent and disciplined with our safety protocols to keep employees safe as variance and new hotspots emerge. The GM medical team continues to monitor new COVID-19 cases globally and our vaccine task force teams are working to understand vaccine administration priorities for each country and determine how we can best assist our employees.
<unk> operating vaccine clinics and several of our U S facilities.
All the work day and medical has done and behind the scenes was crucial as we restarted production last spring and their work has helped the rest of the team stay focused on driving our business today and driving our growth strategy.
I also want to recognize the entire GM team for its hard work flexibility and resilience and addition to our suppliers and our dealers who are helping us manage the semiconductor issues. We are also working to serve our customers and leveraging and everything we can do to turn inventory quickly.
Everyone has been remarkably dedicated and it shows and our results and we appreciate everyone's hard work. This.
And this is just the beginning for the next generation of General Motors, we are well on track with our plans to transform our company and lead the industry.
And to the future and we are pleased with the significant progress we have made on all fronts. During the quarter, we look forward to building and its strong momentum and providing a more comprehensive update on our growth initiatives and progress later in the year, we plan to have an investor event and the Detroit area, and we will announce and a date later and the <unk>.
Number because we would like this event to be face to face. We'll use this event to go deeper into our growth strategy and financial opportunities and everything that drives them, including software hardware and services along with our strong brands.
So with that I'll turn it over to Paul to provide more details on our financial performance and our full year guidance.
Thank you Mary and good morning, everyone. Thanks for taking the time to join US This morning.
And it's been a very exciting first full quarter for me and G. M. A C. So much opportunity here for us to use our world class capabilities and manufacturing engineering and customer loyalty to really leverage these with our scale to achieve our growth initiatives.
First to set the stage before I get into the details we had a great quarter and <unk>.
First quarter record and fact, despite the volatile backdrop.
Our strong Q1 performance continues to highlight the resiliency of our business as well as our ability to take decisive actions to adapt to the fluid supply chain environment.
And Q1 for example, we were able to build and wholesale more vehicles and forecasted and defer and anticipated plant downtime.
And the strong operational execution combined with the additional actions on price and expense reductions enabled us to deliver stronger than expected results for the quarter.
We are collaborating across the global supply chain and working tirelessly to route available parts to the appropriate plants in order to maximize plant efficiency. We've been focused on leveraging every available semiconductor to build and ship, our most popular and and demand products, including our highly profitable full size pickups and full size Suvs.
I'm very proud of the team for everything they've accomplished and the first quarter and what Theyre continuing to do including strong pricing for every vehicle that we're able to produce prioritizing production of higher demand and vehicles continuing to be very controlled on costs and being agile across the board.
As Mary mentioned, the full year, 2020, one guidance, we outlined last quarter and reiterated a couple of times remains intact and.
And we expect to be at the higher end of our EBIT adjusted range. We expect Q2 to reflect the largest impact of the production disruptions, resulting from supply shortages and the re timing of vehicles reproduced without certain modules and plant downtime and the second quarter is expected to be significantly higher than Q1, resulting in lower EBIT adjusted quarter.
Over quarter.
Our current view is and our first happy her first half EBIT adjusted will be around $5 $5 billion.
Recognizing the situation remains fluid we are cautiously optimistic that our second half will be similar to or better than the first half.
And importantly, our commitment to the acceleration of our EV product programs has not changed our important upcoming launches, including our GMC Hummer EV Super truck and Cadillac lyric are on track and the construction and Lordstown and factory zero Springhill and Tammy is progressing on schedule and we're still planning to invest 9%.
$10 billion of Capex in 2020 one.
Finally, our earnings power and cash generation potential remains robust and a more normalized environment, we expect that certain headwinds we're facing today will dissipate, but the strength of the underlying business powered by exceptional demand for our brands will remain.
We expect that our normalized EBIT adjusted performance will be strong as we continue producing and selling are in demand and highly profitable full sized trucks and suvs, while continuing to launch new and exciting products and services are positioned GM to win and the future of mobility.
So let's get into the strong results of the quarter and more detail and Q1, we generated $32 5 billion and net revenue $4 $4 billion and EBIT adjusted 13, 6% EBIT adjusted margin and $2 25, and EPS diluted adjusted and minus $1 9 billion and adjusted automotive.
Free cash flow.
We exceeded expectations by driving strong price and mixed performance in North America through our production prioritization actions and our go to market strategies and.
Additionally, high used vehicle prices due to low new vehicle inventories and part drove record results at GM financial.
Our adjusted automotive free cash flow of minus $1.9 billion was lower $1 billion year over year, primarily driven by the working capital impact from plant downtime and inventory carrying value of approximately $1 $2 billion associated with vehicles built without certain modules due to the shortage of chips, which will.
A reverse when those vehicles are completed partially offset by strong EBIT performance.
We ended Q1 with a strong automotive cash balance of $19 billion and total automotive liquidity of more than $37 billion.
So let's take a closer look at North America, and Q1, North America delivered EBIT adjusted of $3 $1 billion up $900 million year over year, and a 12, 1% EBIT adjusted margin driven by continued strong pricing on a full size pickups and performance from the launch of our new all new full size Suvs.
Our average transaction prices were up 9% year over year for the quarter with full sized trucks up 10% and full size Suvs up over 20%, helping to overcome headwinds from commodity inflation and lower volume.
These results speak to the strength of the consumer and the strong brand equity, we have and our products, which we plan to leverage as we rollout our EV portfolio.
On the cost side, we continue to leverage efficiencies executed during COVID-19, including opportunities directly related to third party services travel and all discretionary spend.
Teams across the organization have also gone above and beyond to meet strong and rising demand where they can to.
And to drive strong sales with lower inventory GM has introduced a new proprietary software application that helps dealers tracked vehicles from when they are completed at the plant to when they're released at their final destination with many of our full sized trucks and Suvs being sold prior to arriving at the dealer or within days of hitting a lot. This software called Vin view.
<unk> allows dealers to both track vehicles and provide and informed estimated delivery time and enhancing the customers arrival confidence and experience and.
Additionally, we also have a software application called focused ordering that includes a dashboard, which combines vehicle trim options with market data to help dealers and ensure their own ordering the most in demand products to meet customer preferences. This has been a huge help in our prioritization efforts for example of all the 2021 light duty crew cab sales and the first.
Quarter about 60% were based on this focused ordering dashboard and these models are turning five and a half days faster than non focused orders.
In addition to these near term benefits, we expect this technology to drive long term cost efficiencies and lower inventories within the dealer network and.
And we still have a lot of excitement ahead of us this year as we complete renovation of factory zero to launch the GMC Hummer EV Supertruck. This fall factory zero will also build the GMC Hummer EV SUV and the Chevy Chevy Silverado full size electric pickup which is the first of many high volume EV entries to come and it will be the home of.
And the cruise origin or purpose built all electric and shared self driving vehicle.
And also as Mary announced our second battery plant recently and the last 18 months, which is a great indicator of our acceleration combine these plants will have a capacity of over 70 gigawatt hours of production and there are more being planned and we'll make additional sales capacity announcements as we progress and our product rollout.
Let's move to GM International we continue to be encouraged by our progress and GMI with first quarter EBIT adjusted of $300 million up $900 million year over year as we move past the initial effects of the pandemic and China. We also experienced positive price and mix benefits as well as benefits from our structural cost actions across.
The segment.
We delivered $300 million of equity income in China, and Q1, due to higher volume stabilization and pricing and continued cost actions EBIT.
EBIT adjusted and GMI, excluding China was up $400 million year over year, the second consecutive profitable quarter, as a semiconductor and commodities impact and the quarter was more than offset by the favorable pricing and mix.
And with continued semiconductor driven plant downtime and low inventory levels, we expect Q2 to be challenged but these results underscore the improvements in the region.
A few comments on GM financial cruise and our Corp segment GM financial has provided a significant offset to some of the semiconductor headwinds strong used vehicle prices combined with consumer credit strength helped to drive Q1, EBT adjusted of $1 $2 billion up $1 billion year over year.
We received $600 million and dividends from GM financial and Q1, and we anticipate dividends and 2021 from GM F will significantly exceed the 2020 dividend of $800 million due in part to their expected upside in 2021 crew.
Cruise costs and the quarter were $200 million and as Mary mentioned cruise continues to make great progress towards commercialization every day.
Corp segment, EBIT was $30 million and the quarter are better than historical quarterly run rate, primarily due to mark to market gains and the period.
Turning to our 2021 the outlook for the calendar year last quarter, we outlined strong full year 2021 guidance of EBIT, adjusted and the $10 billion to $11 billion range, including an estimated net semiconductor impact of one and a half to $2 billion, which is calculated by taking loss contribution margin offset by tactical efforts through cost.
Go to market actions and earnings growth at GM financial.
Diluted adjusted and the range of $4 50 to $5.25 and adjusted automotive free cash flow guidance, and the $1 billion to $2 billion range, including and estimated semiconductor impact of one and a half to two and a half billion dollars.
Since we shared guidance with you in February the business has faced additional pressures due to semiconductor shortages as well as commodity inflation.
Even though the gross impact of these headwinds has increased the net impact remains the same as the company has identified additional mitigation initiatives inclusive, including pricing and mix go to market strategies growth at GM financial and pull ahead of offshore full size pickup production and other cost efficiencies and.
And what we've been able to prove and the fluid environment. We're facing today is that we have the resiliency to flex to the challenges.
In spite of the volatility and semiconductor availability, we're confident in achieving our full year 2021 outlook, including EBIT adjusted at the higher end of $10 billion to $11 billion with the expectation that first half EBITDA adjusted will be around $5 5 billion. We continue to expect EPS diluted adjusted of $4 50 and five.
$5 25, and adjusted automotive free cash flow of $1 billion to $2 billion.
Our expectation is that Q2 will be the weakest quarter of the year as we increase plant downtime and continue to build vehicles without modules impacting Q2, EBIT adjusted and working capital as we hold vehicles and inventory to wholesale later in the year and once the semiconductors are received.
We are managing the shortage through select plant downtime and the second quarter, which may extend into the second half. However, we plan on operating through the traditional U S summer shutdown and early Q3 at select facilities.
We do not believe this short term semiconductor headwind will affect our long term earnings power and we remain committed to our growth initiatives and the E V acceleration, we've previously communicated.
And the medium to long term, we are focused on working cooperatively with our supply base and the semiconductor manufacturers to improve our line of sight on the full supply chain mapping and gain more control over the chip itself, we're working to proactively implement risk mitigation strategies that will help avoid future disruptions to the supply chain and we've also learn.
A lot over the last year about our and our dealers' ability to manage it lower inventory levels. We're taking these learnings to implement dealer efficiency tools to optimize inventory levels and we are creating sales tools to allow for more online shopping and purchase options.
Finally, I want to reiterate our capital allocation priorities I mentioned that the top priority for us is to invest in both new and existing businesses with more than half going to accelerate EBITDA growth as well as continuous strong ice portfolio that funds our journey, while maintaining our investment grade balance sheet.
To summarize we had a strong beginning to the year highlighting the strength of our underlying business. We have again demonstrated our strength our flexible ability our laser focus on execution and our ability to manage through a significant disruption while still generating strong results.
There are still big challenges ahead of us, but we have the team and expertise to navigate this while not losing sight of our vision, we will continue investing and exciting new growth opportunities, including Evs battery supply and technology and software solutions that will drive growth and desirable differentiated products and services for our customers.
Despite the challenging environment, we remain confident and our ability to deliver strong results and 2021 and I couldnt be more proud of the GM family.
This concludes our opening comments and we'll now move to the Q&A portion of the call.
At this time, if you'd like to ask a question simply press star one on your telephone keypad.
Your first question comes from the line of Rod Lache with Wolfe Research.
Good morning, everybody.
Good morning.
I want to probe this.
And semiconductor issue a little bit with you so you're maintaining the full year.
And I suspect Q1 was better than you expected and that maybe this renaissance fires, having a larger.
Pac near term than you anticipated, but maybe if you can help us a little bit with what's happening behind the scenes.
Number one.
And what's embedded in the implied Q2 earnings.
Are all the earnings and essentially coming from China, and and maybe Gms and near term.
Number two.
And I assume that the full year, one and a half of two and a $1 billion impact from semi that you talked about has a very large gross negative volume impact and some very large offsets pricing and other things maybe you can provide some color on the gross effects and then lastly.
What gives you confidence and the recovery of our U can you maybe share a little bit.
And what youre seeing happening through the tier two supply chain.
Hey, Brian Hey, there's a lot a lot in there, but I first start off by saying I know the team is working to to get every chip, we can and to look at how do we leverage and maybe chips that we.
We're planning to use and how do we leverage them as well as simplifying some things. So I would say, it's really the ingenuity and creativity of the team.
That is allowing us about yes, the Renaissance fire did have an impact and the team goes to work and figures out how to how to and offset or minimize it and that's what they're doing so.
There was a lot of great problem solving that was done in and in Q1. We have said, we think Q2 will be the weakest and then we see recovery coming in Q3, and Q4 and that's based on all the work. The team is doing working with suppliers et cetera. So there's no. It's just it's just.
Chip by chip working the issues to find solutions and that's what the team is so good at doing.
And then and it remains very dynamic. So you know I think and look here today and try to quantify exactly what all the ins and outs are going to be for the rest of the year.
I think it would that'd be data that has a pretty short shelf life, but I think what you can count on and what we see with all the work that's been done across the whole supply chain and engineering team is that we have confidence that we're going be able to hit our hit our guidance and that is with everything we know today, we will be at the top and.
Could you at least maybe give us some color on the magnitude of the volume loss that Youre currently embedding and this.
Full year forecast.
Hey, Raj Paul Yeah, I think the challenge with the volumes is that as we've said repeatedly. This is a really fluid situation I mean, it and quite literally changes day to day. So.
And the commentary that we've given that no doubt this situation has somewhat worsened and the short term since.
Since the first quarter.
We're constantly flexing so some day that gets a little better some days it gets a little bit worse and what we're trying to do is just kind of reorient everybody around this the semiconductor challenge was baked into our full year expectations certainly the timing is somewhat fluid and you see that the fact that the first <unk>.
<unk> has blown out expectations and <unk>.
And as under consensus, but if you actually look at the first half when you add for Q1 and Q2 together, it's actually exceeding where street consensus was for the first half of the year. So I think we're pleased with the way that we're managing through this and we want to try to keep it to the big picture because we can really get lost and the details on how fluid the situation is under.
And just lastly, very nice to see the international operations ex China approaching breakeven and I assume a lot of that.
And it's related to some of the things that you've talked about before and in South America. The actions you've been taking what's the strategy longer term for that region and do you.
And you think that that fits into the long term zero emission future.
That you described.
So and so right I am really proud of the GMI team ex China and proud of the China team as well, but that team, that's really focused on and those countries and and the great progress they've been making you know when we specifically talk about South America, we have strong brands and a strong dealer network and leading products in the in the market.
And the team has continued to work and reducing costs and managing the business and a way that has allowed us to achieve achieved those results and Q4 and Q1.
That region will be impacted by Q2, which we've indicated overall will be weaker but you know again, that's a it's a temporary thing and we're continuing to work all aspects because that region, we've got to get to earn its cost of capital and that's the journey that we're on and we'll continue.
Okay. Thank you.
Your next question comes from the line of <unk> with Citi.
Great. Thanks, Doug Good morning, everybody.
Good morning.
Maybe just first just a couple of financial questions, Paul any thought to where U S dealer inventories could end the year and with the new tools that you've implemented for ordering any updated thoughts and how youre thinking about running dealer inventory, let's say over the next couple of years.
Yeah, and good morning, Utah and thanks for the question.
Thank God.
And think anybody would say that dealer inventory levels are optimized right now just drive by some lots and you see empty lots and <unk>.
Means that we're operating a much much lower than what I think we even think is optimal but as we mentioned and the comments theres a lot of tools that we're learning how to operate at these lean levels that I think will provide some long term efficiencies and the dealer network has done really an amazing job of not only working with us.
But also providing an environment for the customer that where the vehicle may not be immediately available and they give them reassurance.
And to help.
Drive that purchase transaction versus the customer being disappointed that the vehicle that he or she wants doesn't wants isn't isn't there and I'm a lot. So that visibility I think undoubtedly will help us over the long term and we're taking those lessons and we're figuring out how to make sure that we manage that as efficiently as we can but we certainly.
<unk> into the year expecting.
And to build inventories out of coming out of the COVID-19 situation.
That clearly is challenged and that some of the production.
And that we've seen with the semiconductor shortage, but we certainly hope to build as we as we get into perhaps late 2020, one into 2020 two to start getting our inventory levels and what we think is a is a much safer value to have vehicles on the lots where customers want to.
Purchase them.
That's all helpful. I appreciate all the detail Paul and then maybe just one strategic question actually on a fee above the $27 billion of spend on EV and EV can you maybe dimension how much of it is going towards the <unk> side and how much of that maybe is outside of crews and what kind of I'm trying to get out and sort of maybe if you can give us a bit of a sense of your day.
And.
For autonomy on the GM consumer vehicles, and whether a cruise may or may not play a role within that and kind of how you see that developing over the next several years as part of the thought about Doug.
Because of the other company.
Sure well you know our focus at cruises to get create the technology, that's safer than a human driver and deploy and our first and market from a commercialization perspective, and then we will continue to expand that.
And to other cities and really excited with the progress there showing and San Francisco, Obviously, Dubai is very significant as well.
So you take that and.
I've always said, we have kind of a revolutionary and and evolutionary strategy around driver.
Driver assistance, all the way to full level four level five autonomy CEC crews really focused and and on that and you know full autonomy, but super cruise, we continue to add more and more features and we've said that we envision that to get 95% of of being able to handle all solutions.
Later in the decade, I I believe and you know theres a lot to still unfold, but I believe we will have personal autonomous vehicles, and then that will leverage.
And the capability, we have at cruise with the capability that we have a car company to really be well positioned to delight the customers from that perspective. So.
Both paths are very important because the technology, we put on and vehicles today, I think makes them safer and delights our customers and it is going to give us an opportunity for subscription revenue and then the ultimate work that we're doing at cruise I think that is full autonomous and really opens up more possibilities and I think we can outline today.
That's all very helpful. Thanks, so much.
Thank you each day.
Your next question comes from the line of Emmanuel Rosner with Deutsche Bank.
Hi, good morning, everybody.
Good morning.
First our financial questions, So Paul and I was hoping.
You could talk a little bit above.
Sequential factors.
Profitability T. Comparing first half to second half, so youre, calling for similar levels of profitability and $5 5 billion each but obviously.
First have you started off very strong and the first quarter and lot of the headwinds in the second quarter or.
Somewhat unusual and unlikely to repeat so there's obviously, some offsets and raw materials and cost and pricing.
Just could you sort of talk about these various factors.
Yes, Thanks, Emmanuel for that question and it's.
And obviously, a challenging environment to be able to be thinking about longer term.
And even six months nine months ahead.
As a as we are navigating through this so I think what we see is what I would say cautious optimism. So while we talk about the second half of the year being similar or.
Or potentially slightly better than the first half.
And some caution and that so for example things.
Things like the used car vehicle prices that GM financial is clearly benefiting from.
And that's likely to stay in place as long as new car inventories remain low so that.
And as an example of I would say that our variable that's it's sort of hedged directly against the challenges of the semiconductor, but as more vehicles come online and I think most industrial forecasts are that chip availability is going to be better and the second half than it is and the first half and I think we think that's true as well.
That could lead to pricing that maybe isn't as strong as it was and the first quarter. So I think we're trying to maintain some caution and some rationality of the reality is where we and others are right and the middle of this I think we're doing a really good job of managing through it as evidenced by the first quarter and the fact that the first.
Half of the year is coming in above above consensus estimates before we before we announced.
That it's trying to provide a mix of reassurance and the and the projections that we've given as well as some some cautious optimism about the what the future holds.
Okay, and if I could just follow up quickly and this one.
<unk> dimension at all some of these more.
Discrete buckets. So for example, raw materials, how much larger of a headwind could it be and the second half versus the first half and then I also noticed and your first quarter cost walk you were talking about higher engineering costs for <unk> in particular, how should we think about that.
And the rest of the year.
Well clearly on the on the second part of that question first you're going to continue to see engineering expenses pivoting into Evs and I think as we continue to lean in and accelerate.
Some of those vehicle programs. We are we are investing resources to be able to do that.
As to the first part of your question.
Clearly commodity Inflations had a massive impact you just need to look at and some of the indices to be able to see that but we're not really isolating that because were taking all of the cost pressures that we've seen both from our initial expectations and what is constantly changing.
And putting that all into the same bucket so much the same way that the.
Sector issue is fluid and day to day.
Why are the commodity prices going forward. So while we have a little bit of forward purchasing going on obviously and the supply chain.
There is some exposure out there, but theres also some potential goodness, if if prices normalize. So we're trying to keep all of that very very fluid as we manage it and the aggregate both in terms of go to market strategies as well as production prioritization.
Great and then my second question.
And the electric vehicles.
So your Silverado and electric vehicle, which confirms officially and April I think you said it will be your first high volume EV.
<unk> towards several high volume models and by 2023, I'm curious if you could dimension for us.
How much of a contribution will be silverado and be towards your mid decade goal of 1 million plus units by 2025 or maybe expressed differently.
Do you expect the pickup.
Pickups for EV powertrain, and I guess in the and.
And the relatively near to midterm.
Well I think we see it as a huge opportunity I mean, we've gotten really strong response from commercial and government motors as a lot of.
Fleet customers are looking to have zero emission vehicles and again, we have incredible knowhow and this company and how to do full size trucks, and we're taking that into an EV.
Propelled vehicle and that and that I think is going to give us a winning formula and I'm excited to share that vehicle with everyone. Because it's just stunning. So I think we're going to see strong demand there it will along with some other products and important part of getting to our goal to have North America leadership and.
And.
Dan.
And I would say, it's one of our a few or several getting into the high volume segments that obviously, we need to do and GM is well positioned to do building on the altium platform to achieve that leadership.
Okay. Thank you.
Okay.
Your next question comes from the line of John Murphy with Bank of America.
Hey, guys good morning.
Good morning, everybody Hi, Mary.
So.
I just wanted to get back into this question of the inventory being too tight or light and and.
I mean, you just put up a record quarter and you're telling us that the inventories not optimal and it's too late I mean.
Would you argue that record profits indicates that your and optimal inventory I mean, it's I mean, the industry has gone through this and we've been in this for.
If you take stage now where the inventories being out of whack and too high and now suddenly it supposedly too tight and we're seeing record profits put up I mean is it really too tight and what do you mean by like going back to something.
It's more normal I mean look the last three quarters or even and I think the inventory was 492000 and <unk>.
The third quarter of last year, and and now you're at $3 35. So is it somewhere in that ZIP code because I mean, you just put up the best three quarters stretch and I think GM has had and history with this inventory that's not optimal or too tight and it just seems like you shouldn't change that much what do you mean by by growing inventory.
So John and I think you're right that will never go back to the levels of inventories that we held our pre pre pandemic because we've learned we can be much more efficient and getting the right models to the right dealers.
And leveraging and and not having as much on the a lot, but there are still customers, who want to walk into a dealership and walk out or drive off the dealership with a brand new vehicle and we've got to be responsive to those customers as well so.
It's going to end up being a little higher, especially when you look at our dealer network.
I've got them, sending me pictures, if they have virtually nothing and anglepod. So there is an optimal level.
<unk> lower than it was in the past, but higher than it is now I think what youre seeing now though is the ingenuity of our dealers and the new tools, we provided that give them insight into what's coming and they are selling deep not only into the inventories are deep into the pipeline of vehicles that around the way. So you know I credit the just how.
Dedicated this team is a satisfying every customer, but I think there's a optimal level, that's a little higher than we have right now.
I, just think youre being sort of too apologetic and and the ingenuity, you're forcing on the whole chain is actually driving a better outcome and you've ever had before and it just it just seems like youre doing in some ways you reinforced.
And it's being forced and doing the right thing and.
And that and Genuity should continue and it sounds like you're keeping that up and I.
I think rebuilding inventory too much might be non.
And not exactly the right answer.
To be clear, we won't overbuild inventory to be crystal clear and we will keep the ingenuity the tools I mean, because it's better for everybody. It's a bedroom for that car company, it's better for the dealer absolutely Yeah. I mean, it's just a much better outcome right now.
And question Mary Youre talking about 30, new Evs by 2025 globally, two thirds of those would be and North America, So horseshoes and hand grades by my dumb Guy's math, that's about 'twenty, maybe a little bit more.
What ice vehicles are still going to be launched between now and 2025.
And it seems like almost everything and there will be launched and in North America between now and 'twenty 25 would be evs, if youre, saying that there are there any ice vehicles that are that are notable that we should think about between now and then.
Well, John you know I'm not going to give you the full product cadence between now and 25 Megabits did.
And I'm sure you went along with everyone on the call, but and theirs.
And important products coming and as we look at making sure on our franchise products that we are leading from and from an industry perspective, and continuing to delight those customers, but what I will say is I think what's important with the investments that we've made over the last five to seven years with new new platforms from and.
Ice perspective, whether it's small and mid and then full size trucks Suvs.
We don't have to make huge investments and architectures, it's mainly making sure those products are going to win in the marketplace from a customer facing perspective, and that's what we'll be focused on between now and frankly now and 2035 when our aspiration is to sell all evs from a light duty perspective.
Okay. That's helpful. And then just just lastly, Mary on Slide seven you went through multi and bright drop crews charge and infrastructure a bunch of other stuff. There's nothing in there. When you are talking about it seems like swap at all and all seems very very real.
How do you keep track of it like the capital invested and the returns and the profits on all these new growth initiatives, because like I said nothing seems like swaps. It all seems very real and it's not just any powerpoint and stuff you guys have thrown up how do you keep track of that and and then maybe sort of default and once that when you think about Dubai.
And 4000 cruise origin floating around.
I don't know if you can even get the economics for us of what that means I mean, I would guess that's a few hundred million dollars of EBIT.
Be sticky and non volatile like the rest of you know, we're not a lot more or less and less volatile and the rest of and indeed the company, but I mean, how are you keeping track of all of this stuff you know how are things measured and then maybe some idea of what the day by economics look like.
Well, we have a really good CFO.
And so Ed and I mean that in all seriousness job because you are right and you look at page seven and you look at page six but you look at everything and our deck. They are all real and you know we have a long term plan and a short term plan and everyone has to earn its place to get whether it's engineering or capital capital capital excuse me.
And allocated to it so we have a very rigorous process. So.
Rest assured that this is not Powerpoint. These are real initiatives that are being executed on and accelerated fashion as it relates to Dubai I mean, I think it highlights. The fact that you know as we grow not only and Dubai, but in other cities.
Across the United States across North America, and across the World, we're uniquely positioned and the AAV space because we have the ability to produce those vehicles I mean, we're already tooling up are.
The origin to be produced and factory zero. So that's a huge opportunity for us and to your point, that's going to drive to the bottom line. So.
And I'm very excited about the future growth opportunities that we have with with cruise with the production of the vehicles will do for that but then with all these additional.
And whether there going into other markets like we can leverage with altium, expanding and a market we don't really.
Operate that much and right now from a commercial vehicle perspective, with Evs with bright drop.
And and beyond with things like Onstar insurance and subscriptions for things like Super cruise. So that's why I'm, so confident of our growth capability.
Non Latin America.
I agree with everything Mary Fedex at this point on the CFO.
And so you're just saying that because you were there Paul.
Clearly.
Yeah.
And on.
And do you buy I mean, there are other cities that have like city and we hear that Dubai is obviously, a great sort of crown jewel to come out there with us I mean Mary.
You have other cities engaging or reaching out to.
Because I mean, it seems like that's something that everybody and New York and San Fran and everybody's gonna be like Hey would you buy is doing and we have to do it too I mean are there other indications of interest and are popping up.
Yeah, I am not going to get specific but there definitely is interest and other other parts of the world and I think there is a lot going to be a lot of opportunity and the United States alone.
Okay, Alright, thank you very much guys.
Thank you Dan.
Your next question comes from the line of Joseph Spak with RBC capital markets.
Thanks, Good morning, everyone.
Paul.
Fully appreciate and.
And you said this.
Timing is difficult given everything going on and the industry, but you did say the first quarter came in better. So I guess the implication is that very little of that semi impact that you called out for the year happened and first quarter and and you've always called second quarter worse, but it does seem like maybe it's a little bit worse than a few months ago. So at least that's the rush and I got.
And since you didn't give more clear color on implied second quarter I think it would really help investors here is if you could compare that second quarter production maybe versus expectations at the beginning of the year.
And then and then as we as we go forward for the rest of the year.
You mentioned and Gms is better and we saw that and the guidance, but what and you mentioned pricing, but what are you I guess, specifically, assuming or how you're thinking about modeling pricing.
To offset and things like higher commodities.
So thanks for that question, Joe You know I think if you go back to the fact that this is obviously a very dynamic situation.
And in all honesty that Q2 is probably worse than we expected.
It was going to be a few months ago.
But that's due in part to some of the timing of of how we map. This out so what I would say is that we are carefully evaluating.
The short term supply chain and the intermediate term supply chain and some of the longer term issues as well so depending on the confidence of where we see chips coming in and which chips and our ability to reallocate those and re prioritize those.
We did see an opportunity to accelerate some production into Q1.
To take advantage of the market that we see right now, which is obviously very very strong and and the confidence to be able to make up some of that volume in Q2. So that's why I think we need to be really cautious as we're thinking about the full year.
It gives us the confidence is the agility that the team has displayed and being able to respond to this and and how are how dynamic. It really is so part of the reason, we don't want to anchor and on production volumes and and and so on is and just because that's going to change it's going to.
And next week, it's going to change the week after sometimes its better sometimes it's worse. So it's really trying to operate and at this level of where we need to take go to market strategies, where we need to prioritize mix.
And where we need to accelerate or potentially.
Cut down a plant and anticipation of some challenges that are coming up over the over the short to medium term then that's kind of what we're doing you saw that.
Going into plant downtime in Q1, so I wouldn't say that Q1 was immune from the semiconductor challenges I think.
Certainly the consumer has proven to be very robust used car values continue to go up which I think is endemic of of the inventory challenges that we see across the board and that everybody sees so all of that is just as working in concert into what I would say is a very agile plan.
For us to meet our objectives. It's also why we were trying to steer this to the first half versus Q1 and Q2. So there isn't there isn't necessarily a read through in the short term because you know something that happens in March versus something that happens in April isn't really all that relevant.
How we're thinking about managing through this.
And that's why when we have the confidence of looking at where first half expectations, where despite the disparity between Q1 and Q2, we actually think that were performing ahead of expectations that were outlined at the beginning of the year, we just want to be cautious about that and the back half that makes sense.
Yes, and no doubt, but so is it fair to assume that embedded within that the second half versus first half pricing does it take a step down.
No I don't I don't necessarily think that's the case I think the environment is what it is and that's kind of what puts us in that $5 5 billion ish type EBIT adjusted for the first half of the year, but.
And the environment has remained strong.
And in some cases, it's gotten even stronger through the year. So we're meant to capitalize on that wherever we can but I don't I don't see and our and our second quarter any sort of immediate changes to the pricing environment that we've seen to date.
Okay and.
You mentioned.
The relationship with Honda and purchasing RMB and connected services that Mou was announced I think like eight months ago.
Any indication of now like what type of savings you can expect from that to deliver overtime.
And we're not going to frame that right now I will tell you. It's a very very productive relationship and partnership and we continue to work. So you know as we identify and and I want to frame those opportunities there's more there's more to come but nothing to share today.
Thank you very much.
Your next question comes from the line of Adam Jonas with Morgan Stanley.
Good morning, everybody, Hi, Mary Hey, Paul.
So for every for every <unk>.
Adoption there is a day adoption and there seems to be clearly this war against ice waged by by governments.
Bye bye consumers regulators, and then lately Oems waging their own or against ice.
And when I talked to car companies and management teams like you on the topic of potential write downs or impairments.
I ask that because many of these investments of course that you've made and ice.
Go a decade or more 15, maybe even closer to 20 years or in some instances and so.
Maybe it's too soon but I'd love to get your view on when along this journey.
Away from ice would would it be appropriate as you sit down with your auditors to think about curtailment of useful life and that impact the financial impact because it could really change.
Sure.
Your results and and I think it's pretty relevant if I'm wrong tell me tell me I'm wrong, because I'm scratching my head thinking how do you avoid at some point is it is it just you're making too much Dan money selling and ice it's tough right now and it's just.
And just the fit isn't right and we need to wait for things to get worse and helped me out there on the impairment potential over time and I'm not asking you.
2021 issue, but as we look out.
So for Adam a couple of things when you said for every EV adoption. There is it a D adoption for general Motors I think this is a growth opportunity for us because.
There's a lot of EV interest on the coasts, that's where we don't get what I would call our fair share and frankly I'm going after more than our fair share on the strength of our product portfolio. So that's 0.1, we see this as a growth opportunity not over not only in the U S and markets, we're in but in growing into other markets. We're currently not participating in.
I would also say with the assets that we have right now when you look at converting a plant and from a plant that builds ice vehicles to those that produce electric vehicles and theres a lot of reuse body shop structures and machinery and equipment the paint shop, which is a 30% to 35 year asset.
At doesn't care, if it's paint what the propulsion system is and the vehicle that we're gonna be painting and so there's a lot of capital that can be reused.
And as we go forward I would also say with every new internal combustion.
<unk> and engine propelled vehicle that we put out we're looking to make it better for the environment from a fuel economy emission Cotwo perspective, and I also think you have to look at the fact that right now battery costs are coming down but look at what's in the marketplace right. Now I think we're really one of the only people that have an all electric vehicle that's it.
As affordable as the bolt EV, we've got to make sure as we move to an all electric future that it truly is for everyone. So that's more than and advertising tagline. That's something that general motors is very much committed to making sure everybody because ESG has and S and the middle of it which is is making sure we're doing the right.
Thing for everyone. So I think we're moving at a very quick speed to be able to provide <unk> for everyone. I think it's going to be a growth opportunity for general Motors and I think a lot of the assets that we currently have can be reused and an all EV world.
Thanks, Mary I have a very quick follow up and then we're going to look.
I will shut up on Super cruise.
And I see on slide eight you talk about it being available on 22 models and a cup.
<unk> of years can you can you tell us what is the attach rate of Super cruise on the models were available I think that's probably a more relevant metric and maybe where that was a year ago. So we can get some sense of the <unk>.
Tache rate and the growth penetration year on year. Because this is this is emerging is really I think potentially a very very interesting part of the story and and.
And a little extra transparency there I think will go a long way. Thanks.
And so Adam and that I get your point and I think it's a good question I think when you look at and.
The customer customers, who have experienced super cruise and loving and you've heard the 85% say that you wouldn't buy a vehicle with elliott or they'd strongly desire it to be on their next vehicle, but in that and move to have 22 models by 2023, where and that very early ramp because it's going to happen quickly and so the bolt EV.
V. The Cadillac Escalade and so I think we'll have more to share with you as we go forward, but again. This is one of these technologies that you have to experience. It just to understand how phenomenal that it is and that's why I think having the ability to do it in a subscription model is.
Opposed to having to make the decision on day, one I think is going to be very very important. So we can be transparent and share more of that information as we go forward. It's a little early right now with the ramp up that we have.
Alright, Barry Thanks.
Our last question comes from the line of Ryan Brinkman with J P. Morgan.
Hi, Thanks for taking my question, which is also on Super cruise are you able to describe and more detailed the driver attention system on Super cruise and what steps have you taken to ensure that drivers remain engaged and always keep their eyes and the road either in terms of educating the consumer about the capabilities and limitations of the system or putting in <unk>.
<unk> different technological safeguards, including and I'm not sure any measures to prevent consumers from attempting to override your safeguards.
So.
And we're very dedicated to this and the team has worked really hard on this technology, but we're literally watching to make sure that the driver is paying attention to the road and if the system sees that you are not it indicates and it kind of is reminding you to pay attention to pay attention and if you continue to not pay attention it.
It shuts down and so you know.
And I think it's it that's I think one of the reasons, it's been recognized as a leading driver assist technology. So I think the best thing to do is gets you into vehicles. So you can experience it because it's quite quite effective.
Very helpful and lastly, as a follow up I see on slide 21 that you will provide additional insight into software and services at the event. Later. This year are you able to maybe share at a high level now youre sort of thinking about the potential materiality over time of after sales software and services, including subscription services, such as Super cruise and I know Onstar is very strong and China.
Do you offer or plan to offer Super cruise outside North America, such as in China.
Well, we're looking at and we actually already have and.
Looking at how to how do we continue to expand that and China, but I would say overall and.
I don't want to get ahead of myself for what we're going to share at our Investor Day. Later this year, but I will tell you. It's significant when you look at Onstar is already fairly significant the after sales opportunity Onstar insurance.
New features that we'll be offering that can be subscription based and we have a whole team at general motors working on leveraging the strength that we have of the onstar platform and the vehicle and how we can leverage that are especially with the vehicle intelligence platform as well. So I'm excited to share that story as we come out and.
And I think we're at the beginning of a significant opportunity in that space, so more to come and great. Thank you.
Thank you I would now like to turn the call over to Mary Barra for her closing comments.
Well I want to thank everybody for joining I couldn't be more pleased with everything that has been accomplished and the first quarter with a lot of headwinds coming at us with the semi conductor challenges and then some of the other natural disasters that impacted the supply chain, but I think it just shows the ingenuity and the creativity and and the dedication.
Of our team to find solutions and to work to optimize our mitigate to the to the extent we can at the same time. The team was doing that we also made significant progress in our.
Transformation from an electric vehicle and autonomous vehicle perspective, and and some of the new growth opportunities. When you look at break drop and onshore insurance so.
<unk> has really been working on two fronts, the very strategic front, while dealing with some of the tactical challenges and I think we ought to remember is that the challenges we have with semiconductors right now are a temporary situation and we will work through that and and move beyond it and it's not impacting our transformation and growth strategies I I'd also just like to say that.
Please take a look at the sustainability report that we announced just a little over a week ago.
And in it and it outlines very clearly our goals and objectives and we tried to be transparent and we will provide updates and hold ourselves accountable to the targets and the plans that we've outlined so again really appreciate the opportunity to share all the progress at General Motors with you today look forward to being able to see everyone and person later in the year.
And when we have our Investor day, so thanks, everyone.
Thanks, everyone.
That concludes the conference call for today, Thank you for joining.
Yeah.
Okay.
And.
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Peter.
And.
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