Q3 2021 General Motors Co Earnings Call

October 27, 2021

Okay.

Good morning, and welcome to General Motors third quarter, 2021 earnings conference call. During the opening remarks, all participants will be in a listen-only mode.

During the opening remarks, all participants will be analysts and only mode.

After the opening remarks, we will conduct a question and answer session. We're asking analysts please limit yourself to one question and a brief follow up.

You're asking analysts please limit yourself to one question and a brief follow up.

To ask a question press star then the number one on your telephone keypad. To withdraw your question press the pound key. As a reminder, this conference is being recorded Wednesday October 27th 2021, I would now like to turn the conference over to Rocky Gupta, Treasurer and Vice President of Investor Relations.

Reminder, this conference is being recorded Wednesday October 27th 2021, I would now like to turn the conference over to Rocky Gupta.

Sure and vice President of Investor Relations.

Thanks, Jamie. Good morning, and thank you for joining us as we review GM's financial results for the third quarter of 2021. Our conference call materials were issued this morning and are available on the GM Investor Relations website. We're also broadcasting this call via webcast.

Our conference call materials were issued this morning and are available on the 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, CFO and Dan Berce, President of GM financial. Before we begin I would like to direct your attention to the forward-looking statements on the first page of the chalks set. The content of our call will be governed by this language I will now turn the call over to Mary Barra.

Thanks, Rocky and Hello, everyone. It's great to have an opportunity to talk with you all again today. Before Paul and I discuss our third-quarter results I want to thank all of you who participated in person or remotely in our recent investor day, our team really appreciated the opportunity to deep dive our growth strategy and to hear your perspectives. After spending time with our leaders in subject matter experts I hope, it's clear to you that we have assembled the right technology to have the right platforms and we have the right talent to achieve our long term goals, including doubling our annual revenue and expanding our margins. Our confidence comes from the fact that we are already making significant progress in transforming GM from a traditional automaker to really a platform innovator.

And the subject matter experts I hope, it's clear to you that we have assembled the right technology to have the right platforms and we have the right talent to achieve our long term goals, including doubling our annual revenue and expanding our margins our confidence comes from the fact that we are already making significant progress in transforming <unk> from a traditional automaker to.

You can see it in the conversion of the Orient Assembly and factory zero plants as they have gone from building gas-powered cars to EVS. The construction of our Ultium cell JV plants. The rapid expansion of super cruise, the development of level two plus autonomy with ultra cruise, elite crews has in level four autonomous driving and our portfolio of '20 startup businesses. You can also experience it in the software and services that will enhance our customers' lives and drive growth.

Level, four autonomous driving and our portfolio of 'twenty startup businesses. You can also experienced it in the software and services that will enhance our customers' lives and drive growth and.

And you can see it in our talent and expertise. This includes the new digital business teams that we form to establish digital market leadership for GM and our expanded board of directors, who have deep experience in IT, E-Commerce software development, venture capital, Cyber security and more.

As one of you observed the real magic happens at our vehicles at the intersection of the Ultium and ultra type platforms. Ultium enables us to efficiently deliver the industry's broadest portfolio of EVS, including a diverse portfolio of truck entries.

The team enables us to efficiently deliver the industry's broadest portfolio of evs, including a diverse portfolio of truck entries.

And the beauty of also probably is the way it will allow us to deploy new software and services rapidly and securely across our entire fleet. This includes super cruise upgrades and surfaces will create in the future.

And seeing is believing I have to tell you I will never forget the overwhelmingly positive reaction that people had after they experienced super cruise or had an opportunity to ride and the GMC Hummer EV and experience what's the freedom for the very first time.

The same can be said for the Cadillac lyric that will begin delivering to customers next spring. They were spoken for and just about 10 minutes after we opened a reservation site. So I think that starts to show the strong demand that we will see for the lyric.

Were spoken for and just about 10 minutes. After we opened a reservation site. So I think that starts to show the strong demand that we will see for the lyric.

Our next E V reveal will be the Chevrolet Silverado EB and I can tell you the truck is amazing our dealers love it and so you won't want to miss it when we take the cover off at CES in early January.

It will have a passion and enthusiasm through great design and engineering and we believe it will drive mass adoption of electric vehicles, specifically trucks and I promise you that the capabilities of Ultium and ultra five will be just as evident in mass-market vehicles like the $30000 Chevrolet EV crossover, which we showed. And as Mark shared we're also working on another EV that's even more affordable than that.

And another E V. That's even more affordable than that so.

So to be clear, we will also continue to improve the successful I used vehicles that are funding our future and we will do that while improving them to reduce admissions and also offering new technologies. Our plan provides resources to me leadership in key segments like trucks and Suvs during and after the transition to electric vehicles.

And although it's only been about three weeks since Investor day, the strategies and initiatives we talked about have advanced even further. Let's talk first about our work to build a strong and secure battery supply chain in North America. We've established and announced four major supply chain initiatives recently, and we expect to add more soon to support our growth, our performance and our cost reduction plans.

And our cost reduction plans.

And our goal is to eliminate supply chain risks and control our own destiny as we rapidly scale our EV volumes.

A common thread that runs through these at our recent announcement is a clear commitment to US leadership in EVS.

For example, we will add two more battery plants in the US by mid-decade. We also have plans to build EV motors and another EV truck facility here in the US. We look forward to sharing the details very soon but keep in mind. This is just the beginning as Gerald said at Investor Day, we forecast that North American EV Assembly capacity will reach 20%.

By 2025 and climb to 50% by 2030. We're also bringing Ultium to China, starting with the lyric, which is launching in early 2022. And GM China also recently announced it is doubling the size of its advanced design center to support EV development.

We're also bringing ultra him to China, starting with the lyric, which is launching in early 2022 and GM. China also recently announced it is doubling the size of its advanced design center to support E V development.

Cruises, is the second opportunity that I want to highlight. As you know we have always gated the progress have crews by safety as we speak cruise is just one state-level approval away from full regulatory approval to charge customers for Reits in San Francisco. And it is still the only company with a permit to provide full driverless ride-hail service in the city.

And the city is.

As cruise CEO, Dan Ammann said, a couple of them complementary skills of GM and cruise have brought it to the cusp of commercialization. This includes the launch of the cruise origin that will be produced at factory zero and we have already built dozens of engineering development vehicles like the ones you saw during Investor day.

All of this is why joining cruise is so high among experts in artificial intelligence, machine learning and robotics and why cruises hosting another series of virtual recruiting events called under the Hood on November 4th. If you'd like to participate. Please contact GM Investor Relations.

Now, let's turn to earnings as we have shared before we are taking advantage of GM strong cash flow to fund our investments in growth, our third-quarter results, which while reflecting the near term challenges of the global semiconductor supply chain issues, clearly shows the strength of our underlying business. We reported EBIT adjusted of $2.9 billion.

Which includes another strong performance by GM financial and our joint ventures in China, as well as a recall cost settlement with LG.

LG has been and continues to be a very valued and respected partner and we are working closely with them to deliver replacement battery modules for our customers. In fact, we began scheduling and completing repairs this month.

While the semiconductor situation improves I believe our full-year performance will be strong from an earnings perspective, and far ahead of where we expect it to be at the beginning of the year. And most importantly, as we manage this dynamic environment. Our clear focus is on transforming GM. I'm going to turn the call over to Paul who will share more about the quarter and our outlook.

Thank you, Mary and good morning, everyone. We appreciate you taking the time to join us. We outlined our long term strategy earlier, this month, including the opportunity to double our revenues and expand margins by 2030.

We outlined our long term strategy earlier, this month, including the opportunity to double our revenues and expand margins by 2030.

We believe that the strength of our underlying business today is a crucial element to delivering on that growth and I'm proud of the execution by our team during the quarter in the face of continued challenges.

So let's get into the results of the quarter in more detail. In Q3, we generated $26.8 billion in net revenue, $2.9 billion in EBIT adjusted 10.9% EBIT adjusted margin and $1 52 in EPS diluted adjusted. Adjusted automotive free cash flow was negative $4.4 billion during the quarter.

Due to higher work in process inventory related to vehicles produced without certain modules and working capital impacts from plant downtime and lower production levels as a result of the ongoing semiconductor shortage.

We expect the impact on working capital unwind contributing to positive free cash flow as production increases and vehicles build without the modules are completed and wholesale.

We realized strong price and mix performance in North America again through our production prioritization actions and our go to market strategies. Additionally used vehicle prices drove continued excellent results at GM financial in the quarter. We also reached an agreement with LG to substantially recover the cost of the recall the pretax impact to the quarter. Of this recovery agreement and associated recall was $700 million.

Of this recovery agreement and associated recall was $700 million.

So, let's take a closer look at North America. In Q3, North America delivered EBIT adjusted of $2.1 billion with continued strong pricing on our full size pickups, and SUVs and the recovery agreement with LG, we generated a 10.3% EBIT adjusted margin in the region.

In Q3, North America delivered EBIT adjusted of $2 $1 billion with continued strong pricing on our full size pickups, and Suvs and the recovery agreement with LG, we generated a 10, 3% EBIT adjusted margin in the region from.

From a pricing standpoint, we're continuing to see high customer demand for our products and limited dealer inventory, which is driving strong transaction prices and lower incentive spend.

In the quarter, our incentive spend as a percentage of ATP fell to 4.6%, 7.4% points below Q3, 2020, and even with these ATPs we are growing or maintaining share in key segments. For example, almost seven out of every 10 customers in the full-size SUV segment purchased the Tahoe suburban or ucan. The Escalade remains the best selling large luxury SUV by a significant margin.

On the Escalade remains the best selling large luxury SUV by a significant margin.

That said, our overall volume and inventories remain low which is impacting total market share in the region. We ended the quarter with approximately 129000 units in US dealer inventory, we foresee lower inventories and strong pricing continuing well into next year, even as production volumes are expected to increase.

Let's move to GM International, GMI EBIT, adjusted was $200 million up $200 million year over year, as we experienced price positive price and mix benefits across the segment.

China equity income was $300 million in the quarter. Despite the semiconductor impacts due to continued strong mix stabilization in pricing and material cost performance. GMI, excluding China equity income has made substantial progress toward breakeven despite the impact of semiconductors, reinforcing the structural progress on our path to sustainable profitability and cash flow.

<unk>, excluding China equity income has made substantial progress toward breakeven despite the impact of semiconductors reinforcing the structural progress on our path to sustainable profitability and cash flow.

A few comments on GM financial cruise in the corporate segments. GM financial has continued its record-setting pace with Q3 EBT adjusted of $1.1 billion as used vehicle prices and favorable consumer credit trends continue. We've received $1.8 billion in dividends from GM financial year to date, and we anticipate additional dividends to be paid in the fourth quarter.

Nickel prices and favorable consumer credit trends continue we've received $1 $8 billion in dividends from GM financial year to date, and we anticipate additional dividends to be paid in the fourth quarter.

Cruise losses in the quarter were $300 million in Corp. EBIT was a loss of $200 million in line with our run rate estimates of general and administrative costs, including investments in growth and our new businesses.

Let's turn to the outlook for the rest of the year. Despite some ongoing volatility in the supply chain, which our teams continue to work to mitigate we expect sequentially higher volumes. In Q4, we also expect cost from commodities and logistics to increase along with investments in our growth initiatives.

I want to make sure that we clearly articulate how we're performing relative to the guidance we have in the market. As you recall, we began the year with a guided range of $10 billion to $11 billion of EBIT adjusted and provided updated full year EBIT adjusted guidance at Q2 earnings of 11.5 and a half to $13.5 billion, we now expect to achieve EBIT adjusted.

Approaching the high end of that range. Our EPS diluted adjusted range will increase to $5.70 to $6.70, driven by our revised full-year effective tax rate due to favorable tax determinations and a mix of global earnings. We also expect to achieve EPS diluted adjusted approaching the high end of that range.

Our EPS diluted adjusted range will increase to $5 70 to $6 70, driven by our revised full year effective tax rate due to favorable tax determinations and a mix of global earnings. We also expect to achieve EPS diluted adjusted approaching the high end of that range.

I don't want to provide an update on our capital spending including investments in our LTM Jv's. We now expect spend to be in the $8 billion to $9 billion range this year slightly below the $9 billion to $10 billion range we previously provided.

This decrease is a result of both innovative work by our team to reduce required capital investment while maintaining the schedule on our upcoming product programs as well as certain timing of invoices that will shift into early '22. Adjusted automotive free cash flow for the year is expected to be approximately $1 billion. Note that this guidance now includes the impact of remaining work in process inventory related to vehicles produced without certain modules at the end of the year.

Adjusted automotive free cash flow for the year is expected to be approximately $1 billion note that this guidance now includes the impact of remaining work in process inventory related to vehicles produced without certain modules at the end of the year.

Through the fourth quarter, we expect to clear the majority of our work in process inventory, but anticipate some inventory will remain at year end as we've indicated these units will provide additional cash flow in the first half of 2022 as we wholesale to vehicles.

To close we're at an inflection point for GM, and we're focused on new metrics and KPIs as we progress on this journey. We plan to begin to provide some interim milestones and KPIs that we will use to benchmark our performance relative to the growth plan that we laid out at our Investor event. We look forward to sharing that with you in the coming months.

As we execute on our growth plan, we will maintain the strong business we have today and these results demonstrate that. This concludes our opening comments and we'll now move to the Q&A portion of the call.

A reminder to analysts, we are asking to limit yourself to one question and a brief follow up so that when they get to everyone on the call. Our first question comes from the line of Dan Levy with Credit Suisse.

Yeah.

Hi, good morning, everyone and thank you. First, just a question on the pace of volume recovery. Can you tell us do you have any risk from the emerging magnesium shortage? And then maybe you could just tell us your expectations on what the pace of improvement is in volumes, what the baseline expectation is for when the supply shortages will be fully mitigated, just the shape of recovery.

First.

Question on on the pace of volume recovery.

Tell us do you have any risk from the the emerging magnesium shortage and then maybe you could just tell us.

Your expectations on what.

What the pace of improvement is in volumes, what the baseline expectation is for when the supply shortages will be fully mitigated the shape of recovery.

Yeah, Thanks, Dan and you know related to the Chinese magnesium shortages. Well we do think there is some near term price escalation risk, we do not see it as a significant supply risk or a constraint for our North America operations.

The aluminium alloys, we purchased have a very small percent of magnesium and nearly all of our aluminium is domestically sourced. So we are working with our supply base and we continue to monitor the situation will take appropriate mitigation steps if needed, but that's our view right now. And Paul I'll let you talk volumes.

Yes sure good morning, Dan. Thanks for your question. So when we outlined the second half trajectory on volume, we said that we expected it to be down approximately 200000 units.

Second half to first half with the majority of that occurring in Q3, that's certainly what we have seen so we expect a pretty sizable step up in volume sequentially from Q3 into Q4 that being said when we look at Q4 volumes they look.

More like what we kind of saw volumes in the second quarter, but we have significant sort of additional cost pressures that we've seen most of which relate to either commodity inflation or more importantly investments that we're making in the growth side of the business and in our manufacturing facilities as well. So volume is certainly recovering off of where we were in Q3, which is consistent with what we said.

Certainly recovering off of where we were in Q3, which is consistent with what we said.

And we would we would hope to see that and expect to see that as we go through 2022.

Okay. So continued improvement through 2022, it sounds like there was just sequential you'll have ongoing sequential improvement.

Sequential you'll have ongoing sequential improvement okay.

Okay. Thank you my second question is. I want to draw a comparison with certain EV automaker, which just put up a very strong third quarter and I think you're finally starting to see the EG margins materialize at some extreme given deposit. Now I know you put out the targets for that margin to be equal to or better than heights I know you laid out certain battery targets, that's going to be a big part. But I'm wondering if you could just walk us through maybe the other areas, where you could see opportunity to boost EV margin setting aside the software opportunity just how easily those seem to be attained. Just better architecture consolidation, greener vehicles simplicity is it more in sourcing or more digital or quasi direct to retail sales. Just what other opportunities are there to improve the EV margins aside from the battery cost?

Sure.

Question on the margin I want to draw a comparison with with certain EV automaker, which just put up a very strong third quarter and I think youre finally, starting to see the EG margins materialize at some extreme given deposit now I know you put out the targets for that margin to be equal to or better than heights I know <unk>.

<unk> laid out certain battery targets, that's going to be a big part, but I'm wondering if you could just walk us through maybe the other areas, where you could see opportunity to boost EEV margin setting aside the software opportunity just how easily those seem to be attained.

Better architecture consolidation greener vehicles simplicity is it more in sourcing or more digital or quasi direct to retail sales just what other opportunities are there to <unk>.

The EV margins aside from the battery cost.

Sure. You you rattled off a lot of them Dan. Obviously as we get scale.

You you rattled off a lot of them Dan.

Obviously as we get scale.

As you know the battery improvement is not insignificant, but as we get the scale part of that and get scale with the vehicles.

I think you're going to see margins improve we definitely are leveraging the Ultium platform and being able to launch and roughly half the time, it's there's just savings coming from that from a less engineering because we've already working off the platform as well as the way we've done the control system.

And we're looking across all aspects of the vehicle to ensure that EVs are affordable, really focused on what customers want we do extensive consumer clinics to understand what's going to be important so I think you'll see us every aspect of the vehicle we're looking to improve and then the scale that will be able to get a cross platforms. I think is going to drive it the battery cost will be another. And then you mentioned it but on top of that will be the services and that revenue that you don't get until you sell a vehicle.

Consumer clinics to understand what's going to be important so I think youll see us every aspect of the vehicle. We're looking to improve and then the the scale that will be able to get a cross platforms. I think is going to drive it the battery cost will be another and then you mentioned it but on top of that will be the services and that revenue that you don't get until you sell.

Their vehicle.

So we are working on that plan quite aggressively. Okay, great. Thank you very much. Our next question comes from the line of Rod Lache with Wolfe Research.

Quite aggressively.

Okay, great. Thank you very much.

Our next question comes from the line of Rod Lache with Wolfe Research.

Hi, everybody can you hear me? Yeah. Hi, Rod. Hi, good morning.

Yeah, Hi, Roger and good morning, Hi, good morning.

I was hoping first you could help us a little bit more about with some thoughts on 2022. I know it's still early. We know some of the big items right, you're going to have volume upside on the positive side and it's been like a 10 billion dollar headwind volume for you over the course of '19, with the strike in 2021 with these shortages. That's going to be offset by some headwind from raw materials you're spending on EVs and some reversion of GM financial but can you just maybe provide some high-level brackets on how we should be thinking about that in particular the volume the raws?

19, with the strike in 2020, one with the with these shortages.

That's going to be offset by some headwind from raw materials youre spending on evs and some reversion of GM financial but can you just maybe provide some high level brackets on how we should be thinking about that in particular the volume the raws.

And the spending because it sounds like you still believe that a path to 10% margin in North America is plausible.

Our path to 10% margin in North America.

Is plausible.

Yeah. I'll start with that Rod and Mary can add in any additional color. She wants to give obviously I think we certainly do still see that path I think you outlined kind of the big moving pieces.

I'll start with that Rod and Mary can add in any additional color. She wants to give obviously I think we certainly do still see that path I think you outlined kind of the big moving pieces in.

In your question itself, we're certainly going to see lift in volume I think we're going to see a very different mix because the incremental volume that'll be coming on at a little bit lower of a contribution than what we've seen given some of the prioritization actions we took this year.

Going forward, we do have that commodity inflation, but we still remain convicted about our ability to be able to offset either that through productivity or through some of the pricing actions that we've seen. Certainly we've seen the chips impact trim mixes and other things that we would otherwise want to be doing.

Some of the pricing actions that we've seen certainly we've seen the chips impact trim mixes and other things that we would otherwise want to be doing.

But we've had to reduce a little bit so. We're certainly looking at next year right now in detail and we'll have more color to provide as we get into early '22.

We're certainly looking at next year right now in detail and we'll have more we'll have more color to provide as we get into early 'twenty two.

Okay, but you can't provide any kind of high-level brackets around the magnitude of maybe commodity just based on where spot prices are what is plausible for volume or spending?

Well I think we said earlier this year that we expected the bulk of the commodity inflation to occur in the first half of the year. Everything is moving around obviously as we've seen a lot of volatility in broadly commodities in the supply chain, we've seen a little bit of that retrace from the highs of this summer so we're triangulating around that, but we've seen a couple of billion dollars as we look at 2022 right now. But that could go either way just based on the volatility we've seen so that's why I'm hesitant to anchor on it right now, we're certainly looking at macro trends.

<unk>.

From the highs of of this summer so we're triangulating around that but we've seen a couple of billion dollars as we look at 2022 right now but that could go either way just based on the volatility we've seen so that's why I'm hesitant to anchor on it right now, we're certainly looking at macro trends and.

That's part of the process and will provide more detail as we go through our budget plans. Okay. Thanks, and just second there is a little bit of confusion this morning about the drivers in Q4 versus Q3.

So I was hoping maybe you can elaborate a little bit on that. In the third quarter extra reimbursement. It looks like EBIT would have been about $2.2 billion and it looks like your guidance. If you hit the high end of the range would be around $2.1 in Q4, but it sounds like you've got a fair amount of whip inventory now so volume should be up quite a bit.

Maybe there's some adjustment you've got in GMF and you said some mix in commodities, but can you maybe talk a little bit to the magnitude of those sequential moving parts?

Maybe talk a little bit too.

The magnitude of those sequential moving parts yes.

Yes, so if you look at the wholesale numbers that we articulated. You'd see a pretty sizeable jump from Q3 to Q4 included in that is clearing out some of the build shy going forward, but when you look at sequentially in terms of costs, you've got some seasonality in the fixed costs there, you've got investments in the future, particularly around some of the manufacturing plants marketing related to the new campaigns in the new vehicle launches going forward and just general investment in engineering and growth across the board.

We articulated.

You'd see a pretty sizeable jump from Q3 to Q4 included in that is clearing out some of the build shy going forward, but when you look at sequentially in terms of costs, you've got some seasonality in the fixed costs there you've got investments in the.

The future, particularly around some of the manufacturing plants marketing related to the new campaigns in the new vehicle launches going forward and just general investment in engineering and growth across the board. So.

So that's putting on some of the cost pressure going forward, but that is the type of long term decisions that Mary has mentioned, we're staying focused on as we go through this.

As we go through this.

Okay alright, thank you.

Our next question comes from the line of Joseph Spak with RBC capital markets.

Hi. Thanks, good morning.

Paul maybe just to follow up here. If we look at the third quarter right and we back out the two items from the LG reimbursement and also the cost than you had it looks like about a $2.2 billion dollar headwind in costs. So you just went through like commodities investments I think there's also a non-repeat of some of the I'll start, but can you help us bucket some of that a little bit just so we can better think about how those should trend going forward?

If we look at the third quarter right and we back out the two items from.

The LG reimbursement and also the cost than you had it looks like about a $2 2 billion dollar headwind in costs. So you just went through like a <unk>.

Commodities investments I think Theres also.

A non repeat of some of the I'll start, but can you help us bucket some of that a little bit just so we can better.

Think about how those should trend going forward.

Thanks, Joe. Excuse me to clarify you're talking about Q2 to Q3 sequentially. I'm sorry. In the third quarter on a year over year right your cost. If you look at your costs and you back out the recall and the reimbursement it was like a $2 2 billion dollar headwind, so I'm trying to understand what made that up.

Excuse me to clarify you're talking about Q2 to Q3 sequentially I'm.

I'm sorry.

In the third quarter on a year over year right your cost.

If you look at your costs and you back out the <unk> the recall and the reimbursement it was like a $2 2 billion dollar headwind, so I'm trying to understand.

What made that up.

I would say just as a general rule I would put about half of that into commodities inflation and about half of that into growth investments going forward and what we've seen in our fixed cost structure.

Okay. That's helpful. And then just on the Capex, I know you said you lowered it some of that is efficiency some of that sounds like it sounds like timing. If we go back to your Investor event. I think you said about nine to 10 billion over the midterm. So should we think about maybe towards the higher end or maybe even a little bit above next year, given some of these timing issues?

Is that should.

Should we think about maybe towards the higher end or maybe even a little bit above next year, given some of these timing issues.

I would just stick with that nine to 10 guidance I mean 'cause things bounce around from time to time, but I think the important thing to take away from this update is that everything is progressing on schedule and on target. And that's the biggest concern so timing between year will move sometimes it moves for you sometimes it moves against you.

But what we're really tracking on is the efficiency of the investment which has gotten better.

As well as the timing to make sure that we're hitting our longer term goals and that that remains consistent so I would just stay with the nine to 10.

Okay. Thank you.

Your next question comes from the line of Brian Johnson with Barclays.

Good morning GM team. I wanted to go back to some of the unanswered questions from CND, probably the biggest one we've been getting is all sounds good. But what about the capital markets in particular, where do you think time in the capital markets where billions are being devoted to pre-revenue companies? So if you kind of think of crews in that light. How do you think about the kind of tension between waiting for some commercial milestones on that and for example, particularly another softbank investment and they're paying for this time.

Wanted to go back to some of the unanswered questions from CND, probably the biggest one we've been getting is all sounds good.

What about the capital markets in particular, where do you think time in the capital markets where.

Billions are being devoted to pre revenue companies. So if you kind of think of crews in that light. How do you think about the kind of attention between waiting for some commercial milestones on that and for example, particularly another softbank investment and they're paying for this time.

Versus taking advantage of capital market conditions now. And then for the rest of the portfolio. What's the kind of metrics you are looking about when it's time if ever take at least part of those out to the public markets.

Take at least part of those out to the public markets.

So from a cruise perspective. We have cruise well funded so we're executing aggressively to commercialization and we have the ability to do that with the steps we've already taken as well as with GM's involvement and I think what you need to really look at that like cruises. The vertical integration with GM is a key differentiator and I believe it's one of the reasons cruises, so well positioned as the only person who has got the permit in San Francisco to actually take the driver out of the vehicle.

We have Bruce well funded so we're executing aggressively to commercialization and we have the ability to do that with the steps we've already taken as well as with Jim's involvement and I think what you need to really look at that like cruises. The vertical integration with G. M is a key differentiator and I believe it's one of the.

Reasons cruises, so well positioned as the only person who has got the permit in south San Francisco to actually take the driver out of the vehicle.

That that seamless integration of the technology.

Along with leveraging LTM as well as our manufacturing capability or are a huge value.

I think the message on cruises, we're well funded and we have rapid commercialization plans in front of us and that's the place. That's the play we're executing and over the longer term, the board will look at what is what best enhances the overall value creation and shareholder value for the GM shareholder.

Okay, well it specifically it seemed like Dan's he was tied to an eventual public offering. Is that a correct reading of the proxy? Does that imply it's a question of when as opposed to ask at least there's a partial offering clears?

Correct reading of the proxy.

Does that imply it's a question of when as opposed to ask at least there's a partial offering clears.

I would say that the board has a flexibility with the way the agreement is for a written to do the right thing for the GM shareholder over the long term.

Okay, and some of the other things in pam's portfolio would the idea be to hit commercialization targets or some of them less tied to the core light vehicle business CG that sell business and might be. You could consider strategic actions earlier on those.

<unk> sell business and might be.

You could consider strategic actions earlier on those.

Again, we'll evaluate each one for what we think creates the most shareholder value from a fuel cell perspective.

From a fuel cell perspective.

Clearly, there's a vehicle application as well as across many different transportation industries, and even stationary power.

We remain open to structure that was in a way that's going to drive the most value.

Okay. Thanks.

Your next question comes from the line of E Tai Mccauley with Citi.

Great. Thank you good morning, everybody. So just two questions from me, what one short term one longer-term. On the short term, maybe going back to the second half-bridge. I think Paul last quarter, you outlined about a one and a half to $2 billion increase in commodity costs H2 versus H1 and a half a billion of investments in growth are those still the right number to think about and do you have kind of a rough split of how that might trend from Q3 to Q4?

So just two questions from me, what one short term one longer term.

Short term, maybe going back to the second half bridge you Paul last quarter, you outlined about a one and a half to $2 billion increase in commodity costs 82 versus H, one and a half a billion of investments in growth are those still the right number to think about and do you have kind of a rough split of how that might trend from Q3 to Q4.

Yes, thanks for that question. Well, what I would say is, it still largely consistent but it's really trending with volume. So I would expect that more of that inflation is going to hit in Q4 than it did in Q3, just sequentially, but that's really because of the volume lift that we see quarter to quarter.

Well, what I would say is it still largely consistent but it's really trending with volume. So I would expect that more of that inflation is going to hit in Q4 than it than it did in Q3, just sequentially, but that's really because of the volume lift that we that we see quarter to quarter.

Got it that's helpful. And then just on a longer term basis I think one of the interesting takeaways on the 2030 revenue target is that you'd be up 90 billion of EV revenue and only maybe a loss of 12 or $13 billion of ice revenue. So that it kind of implies a pretty healthy market share gains there off of the EV business, maybe talk more on popped up more for us around.

What's driving these implied share gains and the $90 billion potentially include new regions, New markets that you don't really operate in today or other types of agreements or something a bit more detail on the thoughts on that split.

So the way I would look at it EPA is that on the forecast that we put together and the plans that underlie it or for our current markets. So I would say.

If we enter into other markets in a broader fashion that growth on top of that.

So that's the way I would look at on the EV margins and again I think it relates to the fact that how quickly we're going to have a full portfolio of vehicles across brands serving value customers luxury customers performance customers with our with our four brands.

Got it that's helpful. Thank you.

Your next question comes from the line of Colin Langan with Wells Fargo.

Oh, great. Thanks for taking my questions.

Wanted to follow up on the magnesium in aluminum question I guess, one I mean, how much visibility do you have them in our history.

Coming from the semi issue there hasn't been much visibility I mean do you is aluminum because it's such a big bulky item that you actually have pretty good line of sight to where your suppliers are getting their aluminum in sourcing the magnesium, which makes it I think it was more complicated and then what about international is there a risk there for those operations. It seems like just magnesium is such a large.

Part of global.

Supply.

Well as it relates specifically to China with our JV, we're working with our partners and our supply base to closely monitor the situation and we will take mitigation actions as required.

Obviously, we're working closely with the suppliers from a North America perspective, as well so our current view again with all of those conversations is that.

We aren't going to see a significant supply risk.

Got it Okay and then just looking at slide 13 in the GM International profits ex China have been pretty weak I mean is it additional restructuring you know needed in those regions and any color now that it's all lumped together how much of South America Korea, I guess, there is a bit rest of world still in there.

Yeah.

Yeah go ahead.

I'll take that one Collin so what I would say that that youre seeing particularly in the third quarter in GMI performance, excluding China is.

It has a lot to do with the way the chips have been allocated so if you look at the market share, particularly in South America, it's been pretty low.

And near Historic lows I would say.

But as you look at sequentially through the quarter and certainly what we're seeing in October as we've been able to turn plants back on that market shares recovering quickly. So I don't think the results that youre seeing ex China is indicative of the run rate capability of the performance in fact, I think it's a testament to the restructuring efforts that have been done and we will.

Look for further improvement in those regions as volume returns back to normal levels.

Okay, alright, thanks for taking my questions.

Sure.

Your next question comes from the line of Daniel Ives with Wedbush.

Yes.

So my question, it's not books in the next 30 or 45 days.

But when you're looking at the EV vision into 2022 can you walk us through the key bogie is obviously it starts off at CES.

Sure the well, we would've viewed almost the timeline and the key events go into 'twenty two when we think about E D.

So I think it really starts at epic.

The end to fall this year with the Hummer EV.

Followed by that lyric and launching in both United States and in China are then.

Well as you said at CES, we're gonna be revealing the Silverado EV and this is really.

Redefinition and taking trucks to I'll say, a new a new level based on what we can do with Altium platform and understanding what truck owners want but also people who are coming in who R&R traditional truck tires.

At CES, we will also share a little bit more detail about the the $30000 Chevy E V. A that will then be reveal later in the year and we'll have more to say with the vehicle, that's even going to be more affordable than that.

And again there we.

We have a number of evs as we've talked about 30 day 25, so there'll be more information, but those are what I can share with you now some pretty significant milestones have not only have any these out we will also and as we take care of our customers with the bolt EV and EV will have an opportunity to.

Really grow the grow that share because of the vehicle was doing quite well on before we took the necessary actions to protect our customers.

So I see a very strong EV in 'twenty any landscape in 'twenty, two but then in 'twenty three it really turns out.

Thanks.

Your next question comes from the line of Adam Jonas with Morgan Stanley.

Thanks, everybody Hi, Mary.

So some area you've talked about taking driver out of cruise vehicles in quarters not years, how confident does GM feel driver out can be achieved in 2022 is that too soon.

I know youre close.

I would say we're pretty confident.

Okay.

That's good enough for me.

Mary just a follow up.

On car rental and fleet support with the.

As your cars become more connected and software designed.

<unk> are kind of moving into like yourself or moving into this recurring revenue.

Network operating model you see that VW bought Europcar Tesla does a major deal with a car rental firm.

I'm just wondering what your 2030 targets are heavily based on software and service revenue, which implies some degree of physical fleet management. So what is <unk> strategy for fleet support.

Do you think in more in house and vertically integrated you work with their franchise dealers are there other alternatives like working with non dealer partners like car rental or other logistics partners along the way. Thanks.

Well I think if you look at how we're structuring bright dropped from a commercial vehicle perspective, and some of the close relationships that we have.

Fedex Express et cetera.

And there we as a part of break drop are going to have a system that kind of holistically helps them manage the whole ecosystem. So I think that points in that direction, having said that though.

With with the launch of V. D's I think in the software services were going up in the vehicle and we're not going to see that to someone else.

I think that revenue and managing that is is very important and none of it starts to accrue until you actually have the vehicle being.

Being driven but having said that I.

I will just say it and there's a lot of conversations going on right now and again, we're going to look at what provides us the biggest growth opportunity not only in EV sales, but also indeed, the whole software system can manage those fleets or provide different services to our customers.

So I don't have anything specific to announce.

Jay, but I can just say theres a lot of conversations underway.

Thanks Mary.

Sure. Thanks, Adam.

Your next question comes from the line of John Murphy with Bank of America.

Good morning, everybody.

But just wanted to ask you about sort of inventory management here in the short run midterm and long term. I think Paul you had mentioned there's about 124000 units in dealer inventory right now. There are some units in work in progress. If you can maybe let us know what that number is then also for both of you know where you think that travelled levels should be in the US.

As things normalize because pre-crisis, you had been running right around 800000 units plus or minus so it indicates that there can be very significant catch up.

But I guess the question is where do you actually land and how much of the price activity that is being really positive to the tight inventory might be maintained so really sort of short term what are we actually looking at a effective inventory and then long term where do you think it each day is hopefully tighter than history, and what does that mean for pricing.

Yes, good morning, John So what I would say is the inventory levels that we see now around the kind of that 125000.

<unk> is expected to remain low probably into and through 2022 to be honest I think as production ramps up in terms of what we're seeing in demand I think the opportunities to build inventory youre going to be somewhat limited, which in the short run I think is a good thing for pricing.

For what we see in terms of the demand environment midterm, we would expect to start building.

Inventories are off of these levels, because it's not it's not healthy where we see our dealers with empty lots et cetera, and when consumers want to buy a vehicle they want to buy a vehicle. They don't want to wait and we're meant to have more inventory and longer term. What I would say is go back to kind of what we've said from the beginning.

Of this that there's a lot of lessons learned and inventory management and certainly what the impact has been on pricing.

This year.

The right answer is certainly a lot more than what we have today, but certainly quite a bit less than what we've carried historically going forward. So as we come through this over the longer term, we will continue to manage that dynamically through the market, but I would expect it to be less than historical levels.

So I'm sorry.

Yes go ahead.

Okay.

No. No go ahead I just have a follow up after that yes.

Yeah I just.

Paul spot on the only thing I would add is we've added a lot of data analytics to better support our dealers to have the right inventory and so I think like Paul said youre going to see something less but I think it's going to be much more efficient from a company and a dealer perspective, so I'm really pleased with how well that's working out with our dealers as well.

Look at getting the right products spec the right way to really serve the customer efficiently.

Okay, that's incredibly helpful.

And then just one question on the Cadillac dealer strategy I mean, it sounds like it was a charge in the quarter as you're transitioning some of the dealerships out is they don't want to tag into or invest into the new EV strategy. I'm just curious how big that is in the base of Cadillac dealerships and if you think about the transition to EV in your entire product portfolio, how big an opportunity is this to maybe streamline and strengthen your dealership base on a stronger core like you have in other parts of the business?

Tagging to we're investing in the new EV strategy I'm, just curious how big.

That is in the base of Cadillac dealerships and if you think about the transition to <unk> in your entire product portfolio, how big an opportunity is this to maybe streamline and strengthen your dealership base on a on a stronger core like you have in other parts of the business.

I think what has been accomplished with the Cadillac dealer basis is very important and it was done the right way.

We were clear with as we transition Cadillac it will be our lead brand moving into all EV and wanted to make sure that the dealers were in partnership with us to make the investments that they needed to make to win selling electric vehicles.

We have a lot of dealers some are very high volume. Some are smaller so you can imagine as they weighed that decision of what's in the best interest for them. And we worked through that so what we have now I think is a very efficient Cadillac dealer base, that's very excited about the electrified our all EV products that are coming and are making the investments to support the customer extremely well. So I think it's gonna be a bottle as we go for it but I'm very pleased with how that has turned out and again, we did it in with our dealers.

Dealer base, that's very excited about the electrified.

<unk> all EV products that are coming and are making the investments to support the customer extremely well. So I think it's gonna be a bottle as we go for it but I'm very pleased with how that has turned out and again, we did it in with our dealers.

And I think that's going to shape up proved to be the right way to do it in very strong from a customer support perspective.

Thank you very much.

Your next question comes from the line of Emmanuel Rosner with Deutsche Bank.

Thank you and good morning, everybody. So one follow up on the short term and one longer-term question. On the short term I'm curious if you could put a finer points around how some of the cost pressure you expect in the fourth quarter? Are good read across the run rates for how to think about 2022?

My name Raimundo.

So one.

Follow up on the short term and one longer term question.

On the short term.

Curious if you could put a finer points around how some of the cost pressure you expect in the fourth quarter are good read across the run rates for how to think about 2022.

And the reason I'm asking is you find this if I understand you will Paul I think you expect Q4 volumes to be about in line. It was Q2, but then at the same time the guidance EBIT for Q4 is probably about half of what you did in Q2 2 billion versus two 4 billion and so when a single but that $2 billion Delta.

It seems like there's commodity issues there and then there's investments in the future. So first is my understanding correct and second of all how do we think about these costs going into next year, you spoke about commodities what about the investments in the future is this the sort of run rate. So that is required for your for your plans.

Yeah. So thanks Emmanuel for that question. In order to go back to Q2, we also have to understand that there were some sort of one time or shorter term impact issues that were affecting that so when you back that out of Q2 and kind of normalize it, you're looking at approximately $1 billion. So GM had true-up of some of its liabilities now that all that caught up to the credit terms and the and the used car prices were kind of on a run-rate basis at GMF that was included in Q2, we had some mark to market.

In order to go back to Q2, we also have to understand that there were some.

Sort of one time or shorter term.

Impact issues that were affecting that so when you back that out of Q2 and kind of normalize it youre looking at approximately $1 billion. So gms had true up of some of its liabilities now that all that caught up to the credit terms and the and the used car prices were kind of on a run rate basis at G. MF that was <unk>.

In Q2, we had some mark to market.

On investments as well so if you take about 1 billion of out and then you look at roughly $1 billion to 1 billion and a half kind of where we were Q4 to Q2. I would break that down into about half of that, so call it in the 700 million dollar range being about the cost inflation, and where we're seeing investment into the business I'm kind of a run rate and then the other half being commodities, which should vary over time.

The cost inflation, and where we see where we're seeing investment into the business I'm kind of a run rate and then the other half being commodities, which should vary over time.

And certainly we've seen some of that pressure coming off of the peaks.

Hope that answered your question.

That's super clear, but the fourth quarter, how do we think about these investments in the business on.

On a go forward basis.

And I think the fourth quarter is kind of indicative of that youll see kind of that and that fixed cost kind of being roughly flat <unk> to <unk> was how we're thinking about it but.

It's going to continue to grow over time as we rollout these products going forward. So you've seen some increase in CIB for the launches of the new Evs, obviously, we're going to be in a pretty sizable launch cadence going forward for the next few years.

We're going to make sure that we invest in that and then we've got engineering going on for multiple projects going forward. So I think we've got good control of that where we where we stand and where we go and stuff that we think is the right investment for the long term.

Great and then on the longer term view I wanted to follow up on the question.

Last year, the capital markets day so.

Vern I was very encouraged to see your bullish long term targets for margin as well as the goal to improve margins in the core automotive business by two that by 2030.

My question is how will you manage profitability in between so between now and sort of that mid decade as some of these EV roll on and ramp up at a lower than average margin.

As well as like some of these investments in the business is sort of like needed how will you sort of ensure that their profitability is on the.

Upward trajectory.

For the 20 <unk> target.

Yeah and Emmanuel.

Well, here's the way I look at it obviously as we get scale, that's going to continue to help the question that was asked before.

From an EV profitability perspective on so that you know, we we get there.

Mid decade, and then just continue to build on that.

But we are also going to be focused on investing in businesses that are going to allow us to create.

Create software businesses that have a very different margin potential overall, that's part of that so as as we said at Investor Day, We said we for the plus.

As we go forward because we think we have the capability to do that but just to be clear. We're also going to make sure that we're doing the right investment, we're not going to constrain investment into future growth opportunities, but the current modeling that we've got in the plan that we're executing and the targets that have been distributed that everybody is being held accountable to we see you know roughly.

At a steady and that improving toward the latter part of the decade and with margins.

Anything that I, Miss no and I think the <unk>.

Additional truck capacity, that's coming on is going to give us an ability to continue to grow the leading truck franchise, which as we've said from day one is funding the journey.

So we expect a little bit of mix uplift from that that's going to help to offset some of that shorter term margin pressure that you might otherwise expect to see so this is going to be a focal point of as we as I talked about in my prepared remarks of making sure that we're bringing transparency on kpis and how we're thinking about the business heads.

Through 'twenty, two and into 2023.

That's great color. Thank you.

Your next question comes from the line of Ryan Brinkman with J P. Morgan.

Hi, Thanks for taking my question, which is on how you are anticipating commercial negotiations with auto parts suppliers might track going forward and the potential impact to margin and I understand there are typically built into contracts agreements for automakers to compensate suppliers for increases in raw material costs, but generally not for other forms of inflation such as freight logistics.

Labor et cetera on some of the earnings calls so far this quarter suppliers have discussed attempting to negotiate for reimbursement for some of these at least non commodity supply chain costs and even for the magnitude and suddenness of order cancellations due to the semiconductor shortage curtailing production, which again I don't think we've historically seen the automakers.

And Seth suppliers for lower volumes stemming from factors outside of their control. So just wanted to check in with you to see how you expect these conversations may proceed and whether we should think about suppliers bearing the brunt of these non commodity costs or if there may be margin implications for Jim.

Ryan I'll take a shot at that and obviously, we're not going to go into any detail on any conversations that we're having across our supply.

My base, but what I would say is the singular focus is making sure that we have consistency and reduce some of the volatility that we've seen in the supply chain, whether it's due to logistics or semiconductors et cetera. So we're working across the board because that's where the real value is working with our suppliers to drive efficiency.

Fees across the business is ultimately what we all have to do to be able to counter inflationary aspects of the business, but right now the here and now is navigating through some of the short term challenges while focusing on operations.

Okay. Thanks, that's helpful. And then my last question is a follow up to Adam's earlier question on fleet sales I recall that pre pandemic you had significantly reduced yourselves to daily rental car companies in particular, how are you feeling or thinking about prioritizing of sales between retail and fleet customers and between the various categories of fleet customer.

With the supply chain, where it is currently and then longer term how do you view the relative attractiveness and profitability of the various different sales channels, such as retail daily rental commercial small and medium sized businesses et cetera.

Well you know in the past and the traditional ice business daily rental wedge, the least profitable business and we had worked to reduce that substantially and.

How disciplined to that.

They're actually though is fleet business that is very good as I mentioned before with what we're entering into bright dropped out only the business itself with the vehicles, but then the services and the.

The first mile last mile solutions that we're gonna be offerings, and we're gonna be aggressive from that perspective, and then again I think there's a new frameworks opening up from what today are what has been in the past from a rental car perspective, So you know.

As I said, there's a lot of conversations going on.

We're going to do what we think is in the long term interest of maximizing our profitability and also reach.

With with Evs, and so more to come.

Thank you.

Your next question comes from the line of Mark Delaney with Goldman Sachs.

Yes, good morning, and thanks very much for taking my questions.

Software and connected services, especially on a subscription basis is a big focus for the auto industry is something that Jim spent a lot of time focusing on at the analyst day.

The company guided for about $2 billion of subscription related revenue this year at over 70% EBIT margin and you talked about that 20 to 25 billion target by 2030 can you can you talk about how you see.

The ramp from where you are this year to do that to 2030 target.

But what sort of increases should we be expecting those investors in the next few years.

Is it a pretty linear increase or is this going to be more of a backend weighted.

Target.

Hi, good.

Good morning, Mark.

As we talked about a lot a lot of that revenue growth is really tied to the <unk> platform and how we're going forward in terms of getting the connected car park out there, which is going to build aggressively over time as we ramp up evs. So by definition, that's going to be a little bit more back loaded we can.

See a little bit of growth on the horizon as we look at at Onstar and some of the connected services, which is really the baseline today going.

Going forward, but certainly we would expect that to tick up as we significantly and the growth rate as we get into the second half of the decade.

Understood from follow up question, it's about end demand wholesales were down and I think a lot of it is on the supply chain challenges, but when you look at some of the macroeconomic indicators and talk to your to your channel and dealer network.

Are you seeing any changes in demand.

Either in the U S or China that we need to be monitoring or is the wholesale decline was really just due to supply. Thanks.

We're selling everything we can sell it is totally due to what we're able to supply it so.

Excited and enthused at a strong rate reaction to all of our products. So I am confident as we build more we will have we will see strong reaction and acceptance of those vehicles.

Thank you.

Our next question comes from the line of.

Matt Portillo.

With Tudor Pickering Holt.

Good morning, and thank you for taking my questions.

I wanted to ask a follow up question on the bright drop business segment. The long term revenue growth outlook provided at CMT.

Quite impressive backed by initial customer orders from Fedex and Verizon.

We were hoping to get a bit more color on is how you are seeing incremental customer demand evolving given benefits highlighted tcl basis for buyers and how we should think about margin progression for the business as vehicle production ramps over the next few years and ancillary revenue streams expand helping to push margins to the low twenty's long term.

Yeah, So Matt I think as you know we shared quite a bit of information our goals there as Paul said as we move forward in the next few months well give you milestones.

To look at and some of those key businesses are light break like bright drop, but I don't have anything more to share today.

Okay. Thank you and then my follow up question I was just hoping to dig a bit around the medium term outlook for ultra cruise. It's an extremely exciting platform. We know Super cruise is currently being rolled out to a wider range of models. This year and scale into 22 vehicles by 2023, just curious if you could provide some guide rails and how we should be thinking about there.

Our rollout of ultra cruise and at what point, we could see that product launched in some of your higher volume vehicle lines.

I think with all the lessons learned that we've had with super cruise that as we get that technology.

<unk> market and that.

That we will scale it quite or make it available on quite rapidly across the portfolio, even faster than what we've done with super cruise.

Thank you.

Thank you I would now like to turn the call over to Mary Barra for her closing remarks.

Great well, hey, thanks, everybody for all of your questions and I do want to end with saying how proud I am of the entire GM team, including our dealers and our suppliers.

And every part of the company I see urgency decisiveness agility creativity.

Just solving issues and finding opportunities and really leveraging them. So they are key our partners are key to our consistent strong performance over the last several years and it's why I'm very confident not only that we're going to see improvements as we move and three or fourth quarter and into 2022 and then beyond.

And we are very committed to the growth strategy that we outlined as part of our Investor day, and looking forward to sharing more not only about the exciting products and businesses that will be offering but also the milestones for you to be able to track our performance. So again I thank you for joining us today and I hope everyone stays safe.

We're very committed to the growth strategy that we outlined as part of our Investor day, and looking forward to sharing more not only about the exciting products and businesses that will be offering but also the milestones for you to be able to track our performance. So again I. Thank you for joining us today and I hope everyone stays safe.

That concludes conference call for today. Thank you for joining you may now disconnect.

Yeah.

Okay.

[music].

Okay.

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