Q1 2022 General Motors Co Earnings Call
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Good afternoon, and welcome to the General Motors Company first quarter 2022 earnings conference call during.
During the opening remarks, all participants will be in a listen only mode. After the opening remarks, we will conduct a question and answer session. We are asking analysts to limit their questions to one and a brief follow up.
Good question Chris.
Then one on your telephone keypad.
To withdraw your question Press Star.
And then too.
As a reminder, this conference call is being recorded Tuesday April 26 2022.
I'd like to turn the conference over to Ashish Kohli Gm's Vice President of Investor Relations. Please go ahead.
Thanks Sue.
Good afternoon, everyone and thank you for joining us as we review Gm's financial results for the first quarter of 2022.
The conference call materials were issued this afternoon.
And are available on <unk> Investor Relations website.
We are also broadcasting this call via webcast.
Joining us today as Mary Barra, Gm's chair, and CEO , and Paul Jacobson, Gm's Executive Vice President and CFO .
In addition, Dan burst president and CEO of GM financial and Cal boat CEO crews will be joining us for the Q&A portion of the call.
Before we begin I would like to direct your attention to the forward looking statements on the first page of our presentation.
The content of our call will be governed by this language.
And with that I'm pleased to turn the call over to Mary.
Thanks, Ashish and welcome to General Motors and good afternoon, everyone.
Today, My remarks will focus on the ways in which the disciplined approach to our transformation is fueling momentum that will establish general motors as an EV and EV leader across our product portfolio, our patented altium platform and our supply chain. In addition to other initiatives, but I want to begin by thanking our employees our dealers are.
Suppliers and our unions for helping us deliver yet another strong quarter, a clear measure of the momentum we have.
Our strong earnings in the first quarter were very similar to a year ago and they show that we deliver on our commitments going forward, we have many revenue and cost opportunities to deliver our full year guidance, which we are affirming today.
Last quarter, we discussed our plans to launch more evs faster because they are catalysts for our growth we have been very deliberate in our approach to get evs right and to get solutions that are scalable and position us for leadership in key segments like pick up luxury and affordable E BS and deliver programs and services that support.
Margin expansion.
This includes the dedicated EV Engineering group, we formed in 2019 to develop the Altium platform.
Our software organization that we brought together and when we created that same year to generate more reoccurring revenue by leveraging connectivity.
And the foundation of that is our vehicle intelligence platform and now up to five.
The EBIT growth organization, we formed in 2020 to focus on the consumer experience and to take out inefficiencies of our distribution system.
Three battery plants, we are opening in the United States between this summer and 2024 with a fourth plant to be announced shortly.
The creation of a sustainable scalable and North America focused EV supply chain to control our own destiny.
And a manufacturing plan that leverages, our talent and our scale, including the existing plants like factory zero, Springhill, Tammy and Oregon.
And also our close partnership with Honda, which includes both Evs and Avs. We are now in a rapid launch cycle because of the investments we've made over the last several years.
Taking these steps has allowed us to establish an unparalleled foundation on which to execute and scale because of this our drive to produce 400000 Evs in North America over the course of 'twenty, two and 'twenty three is underway.
For example in the short span of time, the Chevrolet GMC and Cadillac brands will launch six high volume EV products into luxury SUV and truck segment segments all enabled by Altium.
We are also working on a fully electric corvette as Mark shared yesterday as well as an electrified corvette that will arrive next year and I have to tell you. The response has been overwhelming.
So by the end of 2025, we will and have installed capacity to build 1 million Evs in North America, representing approximately 50 billion in annual revenue and we will have three EV programs in North America.
Each with annual production volumes of more than 125000 units with opportunities to expand.
This is a great start toward delivering our 90 billion of EBIT revenue by 2030.
Cadillac will be our first all electric brand and its journey began last month with the production launch of the lyric.
And like all of our E. D entries to date. The response has been very strong.
We began taking orders for the full we will begin taking orders for the full range of lyric models on may 19th and production and production at Spring Hill will accelerate through the second half of the year and into 2023 and.
And I have to tell you I was at the plant last week and the lyric looks absolutely great.
We will also have more affordable mouse models that will be a major source of growth for Chevrolet and Buick.
We are quickly regaining momentum with the bolt EV and EV now that production has resumed in fact, we plan to produce more than 50000 bolt Evs this year for global markets, including a record 40000 deliveries in the U S.
The first high volume Altium based Suvs for Chevrolet will launch next year.
<unk> has already previewed the all electric blazer S. S. Its first fully electric S. S model will reveal the full vehicle in July and it goes into production mid next year.
And early fall, we will rebuild the equinox CB and the launches scheduled just after the blazer EV.
With a starting price of around 30000, MSRP. The equinox CB is a true white space opportunity for us since most affordable Evs from chevy's competitors start at $40000 or more.
Of course, our biggest growth opportunity in North America is in trucks, we have led the industry in full size pickup sales for the last two years and we will lead in EV pickups as well.
We'll do it by leveraging the capability and flexibility of our purpose built altium platform and decades of truck design and engineering expertise as well as extensive customer insight.
The GMC Hummer EV pickup is just the beginning people who have driven the hummer EV confirm it is a super truck.
One media Influencers said, you somehow mixed of Raptor T Rx Bronco and Wrangler all in one package made at electric and better than all of them.
We agree.
March was our best month for the Hummer EV reservation since we unveiled the SUV a year ago. We now have more than 70000 reservations for the pickup and SUV models, and we are accelerating production through 2022 and into 2023.
You will see many of the Hummer EV is best attribute a bell available and the Chevrolet Silverado EV, including superior range faster fast charging capability four wheel steering super cruise and a larger far more flexible pickup tab and bad compared to our closest competitor.
Just yesterday, we shared that altium vehicles, including the Hummer EV and Silverado.
Heavy new patented energy recovery system that uses heat from the battery packs to optimize range performance charging times and passenger comfort without adding mass or cost. These are the kinds of altium platform innovations that are driving a surgeon silverado EV demand and are example of the benefits of <unk>.
The time to establish a dedicated and scalable platform.
We are now at 140000 reservations and growing including retail customers and nearly 400 fleet operators up from $2 40 last quarter.
Production of the Silverado E V will begin at factor zero in Detroit Hamtramck in just 11 months, followed by Orient Assembly in 2024.
We will begin building preproduction silverado evs in a matter of weeks the supply chain supporting our EV production will also be a competitive advantage for us.
Our strategy is to control our own destiny. So we forged long term strategic relationships, we have invested alongside industry leaders and startups alike, and we are sourcing as much as possible from North America and strong trading partners like Australia.
This includes rare earth materials permanent magnets cathode active material and lithium as well as the cobalt agreement, we announced this month with Glencore. We're also in the process of securing additional long term supply agreements for nickel.
Even as we scale our E V in a b businesses, which currently account for about 80% of our product our capital spend the earnings power of our ice business will grow.
In the first quarter for example, we launched new versions of the Chevrolet Silverado and the GMC Sierra These trucks have new design technology and improved functionality, including a new 13.4 inch infotainment screen on most models Super cruise with hands free trailing and new off road and premium models like the <unk>.
Elver Rado Z are too and the Sierra Denali Ultimate.
To help meet demand, we will add a third shift at our Oshawa Assembly plant during the summer to build both light duty and heavy duty models.
At the same time, we are executing major reductions in complexity and engineering expense across our ice portfolio.
For example, we compressed the footprint for today's equinox and terrain from three to two plants.
Enabling us to create white space capacity for <unk> expansion.
We also achieved about 70% parts part sharing and reuse and these models along with more than a 90% reduction in build combinations, we sharply reduced build combinations of the silverado as well and we're applying these significant cost avoidance strategies across all of our Nextgen ice programs for example, our next.
Generation traverse enclave and Acadia will have one third fewer unique parts and launch with higher EBIT than today's models.
I'd like to wrap up with an update on crews during the quarter, we took the opportunity to increase our ownership position to approximately 80% because we are extremely bullish on the team's rapid progress toward commercialization.
As Kyle shared on our last call cruise continues to make great progress safely and deliberately expanding its full driverless operations in San Francisco.
Cruise is now operating at about 70% of the city and is moving toward operating 24 seven across the entire city by the end of this year.
Already the fleet has traveled about 40 times the distance from San Francisco to New York City, All and driverless mode and all in a highly complex environment.
This includes several hundred rides for members of the public.
We'll have more crews news to share as it completes the permitting process to charge her writes in San Francisco and as the cruise origin launch at factories zero approaches.
And now I'd like to turn the call over to Paul.
Thanks, Mary and good afternoon, everyone and thank you for taking the time to join us today.
We delivered a very strong first quarter, including over 10% year over year revenue growth fueled by robust demand for our products, especially for our full sized trucks and Suvs our plants were largely running regular production as the team worked to overcome semiconductor and other supply constraints.
Strong customer demand for our products has continued into April with most vehicles continuing to turn immediately as they arrive at dealers.
As Mary highlighted we've continued to take strategic actions designed to create long term shareholder value and prioritize investments in evs and avs that will help accelerate our growth.
In the case of crews, we utilized approximately three and a half million dollars in cash to capitalize on an opportunity to increase our ownership percentage from just over 60% to approximately 80% at a very attractive private market valuation.
Our increased ownership percentage in cruise triggered a reconsolidation for income tax purposes, and lowered our expected full year adjusted effective tax rate by three percentage points to approximately 20%.
As a result and to be transparent we increased our full year EPS diluted adjusted guidance by 25 cents to addresses.
This transaction is directly in line with our capital allocation priorities to invest in businesses that drive outsized growth opportunities given the tremendous long term potential we see of crews.
Now, let's turn to Q1 results.
We generated $36 billion in revenue $4 billion in EBIT adjusted of 11, 2% EBIT adjusted margin and $2 90 per share in EPS diluted adjusted these.
These results demonstrate the resiliency of the team and our ability to mitigate the impacts of higher commodity costs as well as investments in our growth in E V transition in fact, our results were similar to the first quarter of last year, Despite two and a half a billion dollars and higher cost highlighting the strength of our products and the demand environment.
Sequentially, we saw growth in total company wholesale volumes of 12% from Q4 2021.
We recognize the consumer is facing inflationary pressures. However, we continue to see ongoing strong customer demand for our vehicles, including our refresh full size pickup trucks as Mary mentioned.
We were able to protect against significant plant downtime and the team worked effectively to minimize the impact of continued short term disruptions from semiconductor and other challenges.
Overall, we see the availability of semiconductors, continuing to improve and are working closely with our supply chain partners to help deliver our full year total company wholesale volume goal of 25% to 30% growth.
Adjusted automotive free cash flow was breakeven for the quarter, an improvement of $1.9 billion year over year, driven by favorable working capital, partially offset by higher capex and non recurrence of a GM financial dividend during the quarter.
Now, let's take a closer look at North America in Q1, North America delivered EBIT adjusted of $3 $1 billion flat year over year, driven by strong pricing on our full sized trucks, and suvs offset by higher commodity costs and investments in growth.
We're also pleased to achieve EBIT adjusted margins in North America of 10, 7% on track with our 2022 full year guidance of 10%.
New vehicles have continued to turn very quickly and U S dealer inventories remain tight at around 270000 units with much of this inventory in transit, but grounded inventory on dealer lots is less than 15 days.
We continued to see a T P increases across our vehicle segments, including year over year increase of 10% for trucks and 20% for crossovers.
While the first quarter presented challenges for commodity and logistics costs. Our teams are working effectively to manage these dynamics, we have contractual protections in place for some commodities to help ensure supply and to provide some protection against cost volatility.
We also made some proactive decisions early in the year to bolster our supply and provide pricing protection. For example, we secured palladium inventory that is sufficient to meet our production needs through the end of this year.
Through these actions, our commodity and logistics headwinds year over year came in line with our expectation at around $1 billion in Q1.
Consistent with prior guidance, we saw increased investments primarily in engineering and software development resources as we continue to vertically integrate to help drive revenue from our new hardware and software platforms.
Now, let's move to GM International GMI delivered first quarter EBIT adjusted of $300 million results consistent with Q1 2021.
This included $200 million of equity income in China down $100 million year over year, driven primarily by recent COVID-19 impacts, partially offset by stabilization in pricing and continued cost actions.
EBIT adjusted in GMI, excluding China was $100 million up $100 million year over year with results driven by both favorable volume pricing and mix, partially offset by commodity and semiconductor impacts.
We continue to see momentum in the international business and I'm really proud of the work that the team has been doing.
A few comments on GM financial and corporate expenses GM financial delivered solid results again, driven by strong used vehicle prices and favorable credit performance with Q1, EBIT adjusted of $1 $3 billion up $100 million year over year.
Used vehicle prices were modestly lower sequentially in Q1 to Q4, but we would not expect to see an impact unless used car values decline another 10% to 15% from current prices.
Corporate expenses were $400 million in the quarter almost exclusively driven by differences in year over year, Mark to market changes, which also.
Includes the full year or the first quarter profitability for the and for the whole company.
Moving to crews as I mentioned earlier, we captured an opportunity in Q1 to acquire additional shares in crews and we also initiated a program to provide an ongoing liquidity opportunity for cruise employees the.
The liquidity opportunity included a modification to existing equity awards to remove the requirement for liquidity event vesting, resulting in cruise recognizing a $1 1 billion dollar compensation expense in Q1 for the awards that would have previously reached their time vesting threshold.
We treated this expensive special for purposes of EBIT adjusted given the expense would have been recognized previously under the modified terms.
Forward future stock compensation expenses of crews will be recognized over the vesting period and earnings <unk>.
<unk> of the incremental stock compensation expenses, we expect full year 2022 expenses of crews to be approximately $2 billion.
Turning to our 2020 to outlook for the calendar year, we have a number of tools at our disposal as we've demonstrated to help offset higher costs and are taking active steps to ensure that we deliver on our full year 2022 guidance range of EBIT adjusted of $13 billion to $15 billion and North American margins of 10%.
We're utilizing similar strategies as we have in the past to offset these commodity and logistics costs, which are currently projected to be approximately $2 $5 billion higher than the $2 $5 billion included in our original guidance earlier this year.
These strategies include pricing actions as well as holding additional inventory of key commodities to manage price and global trade volatility.
And as Mary mentioned, we're also being proactive in finding cost efficiencies throughout the company.
In summary, we're off to a good start to the year and the team is laser focused in a dynamic environment.
While at the same time executing on the launch of the Cadillac lyric accelerating production of the GMC Hummer, EV and preparing for our future mass market EV product launches.
We are making the right long term strategic decisions for the business executing on our transformation that will support the long term earnings power of the company and creating significant value for the shareholders. We.
We are very optimistic about the future of the company and our vision of an all electric future I will now turn it back over to Mary for one last comment.
Thanks, Paul.
Said, many times that the resiliency and creativity are drivers for our success so as accountability.
One reason why cruise has accomplished so much. So quickly is that the team is inspired by our mission and everyone has a financial stake in the Companys success than.
The new equity compensation program crews created is giant to reinforce its culture and to help to continue to attract the best and the brightest talent.
So that has been very well received and it will help keep everyone focused on the mission at hand.
At G M. Our compensation has always been driven by the company's success and no one should doubt our commitment to lead in evs or the passion. Our team has for that mission. That's why this is the right time to directly link a significant part of the long term compensation for me and every other GM executive meeting our goals.
Starting this year, we have added metrics for E. B volumes in North America E V launch timing and EV launch quality to our existing EBIT margin and total shareholder return measures.
The metrics are in place now and they will appear in our proxy statement, which will file on April 29, but I wanted to share the news today to underscore our commitment to our <unk> future now Paul and I are happy to take your questions.
A reminder to analysts we are asking to limit your questions to one and a brief follow up so that we may get to everyone on the call.
Our first question comes from Joe Spak with RBC capital markets. You May go ahead.
Ah Thanks for the for the time Mary in your letter you astutely highlighted that.
EV supply chains are important to us.
To control your own destiny and you've made.
Some important announcements here in lithium cobalt sounds like somebody's coming on nickel. So can you help us a little bit though on like the timing for when those agreements and you know assuming all goes to plan like how much raw input.
Is already secured for that 400000 units over that 'twenty, two 'twenty three time frame.
So Joe I'm, I'm, I'm, not going to get into specific quantities, but what I would say is you know with all the work that we're doing we feel very confident that we're gonna be able to hit the 400000 between 'twenty, two and 'twenty three and get to a million units in North America and a you know an additional million units in China by 2025, and we're even working on the 26.
To 30 timeframe as you know we have pretty aggressive targets for our EV growth during that time. So again, there's tremendous work that has gone on it's been going on for well over a year and we will continue to announce things not when we start working on them, but when we have signed agreements so again I.
This will be a competitive advantage for general motors.
On pricing you know you talked about the strong pricing opportunity I guess I want to talk about pricing a little bit in context of two.
Two different realms of your EV portfolio first is there scope and you know do you need to rethink pricing on the Silverado given what we've seen on an input cost and then second is the 30, K equinox PV and I understand that's sort of an entry point.
Low end trim, but does that even still possible in today's cost environment.
I you know I I think it is Joe I mean, we understand the affordability for for those customers and we're going to work to work. The equation work. The advantages that we have because of the scale that we're going to have the continued work, we do and on improving the next generation Chemistries for Altium. So you know we're not.
We're not walking those prices back.
Our up I should say I guess.
Thanks.
The next question is from Rod Lache with Wolfe Research you May go ahead.
Hi, everybody.
Thanks for taking my question.
I wanted to just ask.
How about inflation and in North America, we're seeing levels of inflation that we haven't seen for decades, and I was hoping you might be able to just talk to us high level about how that affects GM strategy over the intermediate term.
I see that you're expecting a 10% margin this year is.
Is this kind of evolves in inventories normalize rates go up it does does this inflationary cost environment.
Affect your ability to sustain this or maybe just talk to us about how you're thinking about that.
Yeah, Hey, good evening Raj. Thanks for the question you know I think when you look at the track record of the company over the last couple of years, we've been able to pass through the inflationary pressures that we've seen to the customer and that's you know really I think on the backs and the strength of the products that we've offered certainly low.
Inventory levels have helped that in the short run. So you know I think it's been a very good tool for us I think the one.
Billion dollar question is what happens when inflation is too much and you know the the thing we have to remember is these variables don't move independently. So you know in a world, where we start to see inflation, taking a toll on our consumer you'd also expect there to be some reduction in commodity prices et cetera.
Afflicting macro demand trends. So I think we're watching it very closely and I think the message to take away from our first quarter performance as well as going back through 2021 is the team has been very nimble and adept at managing through this and that's the confidence that we have today at least as we've given our guidance review.
<unk> or our guidance reaffirmation sorry.
So just to clarify is there any change going forward.
And in the company's strategy as you you sort of.
Anticipate that those affect some on the consumer and rates going higher and just as a follow up you had $2 2 billion of higher cost in North America in the quarter.
Can you just give us a little bit more color on what within that it sounds like you had a $1 billion of commodity and now it's 5 billion for the year are you seeing similar increases over the course of the year from supplier content costs.
Yeah. I mean this is all based on sort of current forward curves in our expectations on on what we know today and you know I'm not trying to evade your question I'm, just trying to simply state that.
The World is very dynamic right now right. So you know what we don't want to do is overreact to something that might not be here in six months or 12 months from now so I think what we're doing and what the team has demonstrated whether it's commercially or on the cost front is we're doing the things necessary to hold the line in face of the pressure that.
We're seeing so as long as we continue to do that you know I don't think there's any change in the strategy of how we're executing that and we feel comfortable with where we are right now.
Rob the only other thing I would add too is we are seeing.
Very strong demand for general Motors products. I mean, you know, we have a and a new silver Chevrolet Silverado and GMC Sierra coming out are very focused with what the customers. Looking for are we think that's going to continue to drive a strong demand and really across all of our products, whether it's the the trailblazer.
All the way up to that full size pickups in our mid mid size users as well. So I think we're going to continue to see.
From a G M perspective, our product portfolio is very strong.
Okay. Thank you.
Any color on just the supplier costs and whether those continue to.
Increase from here.
So from a from a supply base perspective, we continue to work with them.
Have we understand that the supply base is being impacted by the current environment and we're working with them in a very transparent manner to understand the specific impacts to their business and then are working together to identify efficiencies to help mitigate the headwinds are other measures that we have that we can take two.
<unk> to make sure you know we need to make sure we keep a healthy and resilient supply base. So that's.
And that's the work they would have been frankly, we do all the time and we'll continue to do that with our suppliers.
Okay. Thank you.
Thank you next we have Dan Levy with credit Suisse. You May go ahead.
Hi.
Good evening, Thank you for taking the questions.
Hum.
Gary I wanted to just.
Pick up on that last question and this is just on the supply side, maybe you could just walk us through the supply constraints and give us a sense of how how to look at the different constraints out. There I think you mentioned semi as you know that's going to ease in the second half you know where are we on Sundays.
You know and then as far as the tier twos.
Periodically have some challenges on the tier two so maybe you can just talk through.
Where the supply side is right now and at what point, we can expect for you to return to full run rate production I think in the 10.
On the prior call you mentioned that you'd be at full run rate production in the back half of the year and also if you could address if Europe poses a supply risk to you in anyway.
Yeah. So let me start with the last question because we don't have a presence in Europe , although we do see that as a tremendous growth opportunity for our EV portfolio. As we go forward and we arent really seeing a lot of impact them. We've worked with our suppliers and understanding you know their tiers to make sure. So our R. R.
Apply chain exposure from a European perspective, due to the tragic situation in the Ukraine is it's fairly limited and we work to mitigate any of those risks and so so that's from a Europe perspective from a semi conductor you know we are on track and we think we're going to see that 25% to 30% wholesale volume increase.
From last year to this year and you know that will continue it will continue to get better at H, two being better than H. One I'll do I do see a trail into 2023 with with semis, but I think we will continue to mitigate that you know there are there's other risks you know that we have.
Based on a almost daily or weekly basis with the supply chain that our team you know just continues to work and find solutions find other sources and couldn't be more pleased with the work that they're doing so we'll continue that focus and you know from a China perspective, you know we are seeing some what we think are green shoots with the the Gulf.
Looking first of all do you mean automotive in the supply base to be essential and helping us find ways to keep our production moving and so with that we think will be a current look if that is executed as it's been discussed we think there's.
And the opportunity that will mitigate those lockdowns, because we've really or mitigate the effects from the lockdowns because it's been a minimal impact so far we recognize the situation is dynamic, though so we continue to monitor on a daily basis. So I guess, Dan you know as I look overall, it's a very dynamic situation. There is some volatility with everything that's happening in the world.
But we just try to get in front of it as quickly as we can to find solutions, which are you know I think a proof point of us being able to do that is the strong results we had in Q1.
Great. Thank you and then Hum.
The second question.
I wanted to go back to one of your.
Presentations from one of the conferences a couple of years ago and I think you you know did at that conference that you you were on track for.
The vehicle development process to essentially be cut in half going from call it too.
Four years to two years.
I just wanted to ask if the E V that you have in your portfolio and that are in your pipeline are tracking to this development pace and to what extent, we could potentially see accelerated timelines versus what you've announced or.
Is there just a simple reality that you know some of the supply constraints of the supply chain dynamics.
Still limiting the development.
Development time to time from which you can see the product at the time that it's.
Are you ready to start to ramp.
Ramp on production.
So we delivered the hammer on time to what we said and there were tremendous tremendous lessons learned and I think this is the you know one of the benefits coming from having a common you know a dedicated EV platform and our the way that it's a modular plug and play in the wire wireless battery control system.
That we are able to take time out of the V. D. P. R. R vehicle development process are to use the acronym and so you know that well we were able to looking at that pull the the lyric ahead nine months and so we're.
Definitely are looking at every learning that we have from that and so it gives me confidence that we have shorten the time now you don't take go into from taking almost half the time out and I'm not ready to sign up that we're gonna go even quicker than that and I'm not going to say that the supply base issue you know when you're developing an all new vehicle and making sure. It has.
Technology in it that customers expect whether it's super cruise are everything from a connectivity and the upgrade ability that ultra Fi will enable I think you know as we can.
<unk> with.
The timing that we've demonstrated on hummer in the lyric and it Ah I think that's you know that we're gonna be focus, but that's going to allow us to have a pretty rapid clip of product launches you know as you look at the Hummer SUV is coming the Silverado E V. The equinox, the blazer and Ah the electrified corvette.
And I would say another enabler that is is our manufacturing transition and the ability that we're not starting from ground.
Looking for a piece of property and then looking through the whole permitting process, where we're transitioning our manufacturing footprint and not only does that give us a timing advantage and turning the facility over which we've now demonstrated with factories zero and with spring Hell.
But also we have a trained talented workforce that we're leveraging and is again based on my trip, but I've been in a couple of our plants lately and they're super excited with the new products, they're rolling out. So I think that the speed that we've been able to bring E vs. On is something that will continue.
Great. Thank you very much.
Thank you next we have Mark Delaney with Goldman Sachs. You May go ahead.
Yeah. Thank you very much for taking the question.
The auto industry has been very successful at raising price in North America and in at least if not more than offsetting some of the cost pressures you mentioned in the call today are price being a potential tool to continue to offset.
The increasing.
Cost pressures that you're seeing this year can you talk about your confidence in being able to pass on higher prices to consumers given some of the signs of weakness in consumer spending of late.
Yeah, Hey, Mark Thanks for the question you know I think.
As we've talked about the demand that we see for our vehicles is quite strong with most vehicles essentially being spoken for as soon as they deliver to.
To the dealerships are and you see that in the fact that while production is up grounded inventory remains quite low.
So we've got really strong demand I think the new the new pickups are also a big piece of that going forward. So you know whether the confidence is in the data, we see and whether that's unique to G. M. Because of the high quality of our products. We haven't seen any demonstrated weakness from that perspective going forward, we have to be nimble, though.
And you know as I mentioned to an earlier question you know we have to watch that balance between that and the strength of the consumer as well as what we see in the input costs et cetera, and making sure that we've got alignment on that but as what the team has done as you know we look at both go to market strategies as well as cost reductions.
And we've been targeting that I think the team has done a really good job. So we've got to be nimble and flexible, but right now we see nothing but strengthen the consumer and the demand for our G M products.
That's helpful. Paul Thank you and my other question was a follow up on some of the comments you made about cruise and the ability for employees to be able to monetize their holdings, even wall crews as private do you have any more details you can share on that are you in any any data points in terms of employee retention or recruiting given this the ability for.
Them to monetize their stakes. Thank you.
Yeah, you know I'm Kyle Vogt he's on the phone so I think kal if you'd like to take that question.
Sure. Thanks, Barry and thanks, Mark for the question. So I guess, the what Youre getting at is did this work and the answer is unequivocally, yes, we've seen attrition go down substantially even early this year to pre COVID-19 levels, which is really good. We also ran an engagement survey and our engagement is up substantially.
Compared to Q3 2021, the last time, we measured it and it was actually our largest jump ever.
Career page visits are up substantially and we have really favorable comments from existing employees and perhaps more importantly candidates that are in the pipeline.
So you know the reactions, we exceeded our expectations and that's really what we hoped for given that this was specifically targeted to help us attract the world's best talents can work on a beach, but also retain the great talent that we have.
Alright, Thanks Kyle.
Thank you. The next question is from E time of Kelly with Citi. You May go ahead.
Great. Thanks, good evening everybody.
So go back to the pricing maybe for Paul I was hoping you can maybe help us dimension, how much incremental pricing, you're you're kind of modeling for the rest of the year relative to Q1 and it was in that.
How much do you or is it sort of industry pricing spring just from a supply demand tightness he talked about relative to GM specific question the opportunities from some of your new products like the all the new trucks did that you're rolling out because it does seem like you have some opportunity at <unk>.
Aero pricing gaps relative to segment averages just curious how much of that is playing into the outlook for the rest of the year.
Yeah. Thanks for your time, well I won't get into any specific pricing strategies about the future and what we're doing I think you know at the end of the day as we said the the consumers as demand for our products was quite strong. So when you look at the ability to capture price and demand from the content additions in the.
The upgrades that we've made to the to the new models pickup trucks, that's well within the strategy and and certainly what we've seen going forward. So you know I think there's an industry component as we said at the beginning of the year, we don't expect industry inventories to increase substantially this year, even in the face of our own higher.
<unk>, which I think has been a little bit more robust than what we've heard from some of our competitors going forward. So we think the supply demand construct across the industry is good and when you look at the combination of that with our products and what we've seen from Arkansas. That's what gives us some of that confidence going forward in terms of our ability to.
Maintain where we are.
That's helpful. And then just a follow up on uneasy and thank you for the updated disclosures on the reservations curious if you can kind of share where you're seeing these reservations from a regional perspective, and particularly around the coastal markets in the U S beer market share historically has been lower.
But you can maybe talk a little about the regional splits and the easy reservations.
Yeah I'm, we we definitely are seeing not only new new customers to general motors, but we are seeing our focus from both the east and the West Coast, where there already is a stronger demand. So what we predicted that we would see is because we tend to under under <unk>.
Reform from a what I call our fair share perspective on the coast. We are seeing exactly what we said that that was an opportunity for us to see we're seeing that in the reservations and also bringing new people to the company.
That's very helpful. Thank you.
Thank you next is John Murphy with Bank of America, You May go ahead.
Good evening everybody.
And I apologize in advance, but I'm going to sneak one on pricing for a second there there are many layers of pricing reduced the actual or the transaction price to the consumer pays theres. The MSRP then theres. The invoice that you get paid buying from the dealer and then there's other things on dealer holdback and Floorplan assistance did.
Yeah. Thanks for the net price that you realized from the vehicles front from your dealers. So as you look at these you're benefiting from strong price, but your dealers are actually benefiting even more so with gpus it or.
Almost astronomical.
At the moment I am just curious if theres any.
No change in the way that you're looking at the relationship.
We eat in pricing to the dealers, maybe be maybe increasing invoice more than you're increasing MSRP or changing floorplan terms or anything like that because there's sort of a.
Arguably egregious grosses on the dealer side that might be earned that might.
It might be better deserved by the folks at deploy billions of dollars of capital to generate it.
So I appreciate the question and first of all you know we do believe over the long capable people will see that our dealer network is a competitive advantage, they're highly experienced we have not only the ability to meet the customer where they want whether they want to do something completely online or actually go to the store which cause.
A lot of the customers and as we look at them. They they still want to go in and literally kicked the tires, but what we have been doing is working together to unlock our efficiencies to find a better way to serve the customers and two leverages efficiencies. So we both reduce the overall cost of sale as opposed to looking at.
What how the pie is divided and we've been very successful at doing that and as we rollout the new digital retail platform that we showed at Investor day, I think that is going to be something that is going to be and a huge enabler to reduce the cost of the sale and again, we will share in that and that a piece of that.
Our confidence in our plans and we have the support of our network, we have over 95% of our Chevrolet EV dealers signing up to the platform and preparing for a phase rollout yet this year and that's going to give customers the opportunity. They can expect to have accurate transparent crazy pricing.
And they also will be able to compare across dealers. So we think that the work that we're doing with our dealers because we see them as in it as a as a partner and making sure the customer has a overall.
Our exceptional customer ownership experience is gonna be a distinguish or.
But maybe I'm sorry.
As we think about the MSRP increases that may be announced should we think about the invoice going up in a linear fashion with those MSR Srp's I'm just curious because the English is obviously a lot different than MSRP.
Well you know as we look at MSRP is if we see you know there's a small handful of dealers that are or are not behaving consistent with the agreement we have with them and we deal with them and they lose allocation for the most part I've I you know our dealers are respecting the MSRP I have actually had dealer send me letters committing to me that they're doing.
That so you know, we we address those handful of exceptions, but for the most part I think that's what customers will see.
And then just a quick follow up I apologize I might've missed this the wholesale volume assumption that goes into the FY 'twenty two guidance I havent seen it maybe I missed it in the press release or something but I think he was just talking about 25% to 30% before is that something that's still being reiterated or is that has.
Has that changed.
Has that changed yes.
Great. Thank you very much.
And before we go to the next question, let me I think in answer to <unk> question I found the information for example in the Silverado E. B, 60% of the reservations are new to G M, 70% of the reservations or from eastern West Coast. So that was I didn't want to quote the numbers without confirming.
But E T. That's the the numbers behind my answer to your question.
Operator, we can move on thank you and next we have Adam Jonas with Morgan Stanley You May go ahead.
Thanks, everyone Hi, Mary.
Yeah.
You said, there's a handful of your dealers that are charging over MSRP could you be specific would give us the percentage of your volume that is transacting over MSRP in real time in North America.
Adam It's if it is small and like I said, we address it and especially those that you know, it's it's a high high number.
So I don't have a percent off the top of my head, but again.
Our dealers and you know we've done a lot of work with our dealers over the last couple of years, especially as they sign into our agreements and make the investments necessary necessary to sell evs. So I'm very confident we have will continue to work with our dealers to serve the customer well and provide a great customer experience.
Okay married and then there are some easy peers of yours that are.
He is a citing concerns that there will be that there is an emerging battery shorted, okay or at least.
Bottlenecks in the supply chain that could really limit the.
The point.
And some of your remarks already but I just want to.
Ask it this way is there any part of.
Yeah.
Hey, Adam you're fading out I heard you say is there any part of your battery supply chain and then you faded out.
Sorry is there any part of your battery supply chain that does present that you think presents a risk to your volume targets at this point I understand the situation is fluid, but wanted to give you a chance to flag any area, that's getting a little extra attention from you.
For the numbers that we put out that the 100000 in 'twenty, two and 'twenty three in the million by 'twenty twenty-five barring something completely unforeseen I think you know that's where we are and we're working to define upside opportunity.
Thanks Mary.
Next we think that Emmanuel.
Thank you next we have Emmanuel Rosner with Deutsche Bank you May go ahead.
Oh. Thank you very much I was hoping you could help me better understand the.
So for this year the way you see now versus maybe two or three months or so ago.
So it seems on the cost side at least.
The commodities, all maybe two and a half a billion dollars a larger headwind than your thoughts you know a few months ago.
What are the offsets here I you know I think at the time, you were thinking pricing would remain strong, but not necessarily up year over year. How are you thinking now pricing could actually be up and then on the cost efficiency side.
Can you maybe talk about some of the opportunities that you have to create some of these offsets and then just one more on this easy.
Is it also a function of where within the guidance E. Surveying. Your your base case, obviously, it's a $2 billion wide EBIT guidance. So is it also the case that you may have thought it would be at the higher end and I used to be at the lower end or is that not the case at all.
Emmanuel Thanks for the question. So you know I think it's a combination of things, yes, we've talked about the two and a half a billion dollars of incremental pressure. We hadn't commented specifically about the assumptions in terms of pricing, but I think what you've heard from US today is that you know where we're reasonably confident about the <unk>.
Pricing environment and the demand that we see for G M vehicles, and what we've been able to achieve.
Achieve and you know we talked about in the in their prepared remarks about the price increases we've seen year over year from that perspective.
The second piece of it is as you know going back to what we said about the full year, we talked about a couple of billion dollars of discretionary cost increases related to you know putting in the foundation for future growth. There is room to prioritize within that in terms of understanding what's converting to revenue sooner.
Or rather than later and making sure that we maintain flexibility I think if you go back to our remarks, we talked about we were putting that cost inflation in because we had the comfort around.
The environment at the time and while we've seen cost pressures on inflation and that allows us to go in and and continue to manage that going forward. So between you know using that discretion.
Prioritizing new ads as well as looking at core cost improvement in the business as we've done I think the track record of the company is really really strong you know go back to.
The programs that we did the four to $4 5 billion that we said was done by 2020. The work that we've done in G. M I by improving profitability almost $2 billion over where it was in 2018 points to the team's ability to do that so while we haven't done in the aggregate number that some of our competitors have.
I think when you look at the ability of the team to execute in the results that we've posted over the last several quarters in the face of this adversity you know I think the team should get some credit for that.
Understood and then just quickly the second part about.
In the world, where in the guidance you sort of feel more comfortable and then.
A follow up question I was hoping to ask on.
On the cruise recurring liquidity program are you able to give us some early data on Hum.
How popular that has been who as you know how.
How much or how many employees have availed themselves of the opportunity and what is the expected I guess liquidity costs two G. M. This year.
Yeah, I'll I'll take the I'll take the first part which is actually the second part of your first question.
But you know I think.
We're just we're comfortable with the 13 to 15 as we've said that from the beginning and there's a lot moving around as as we've said from the from the beginning of the year and nothing has changed from that perspective. So you know I would say that we're in a very similar spot to where we are where we were in an earlier quarter you know the inputs and the outputs mate.
Change considerably, but I think we're pretty consistent with where we've been and on the cruise question. It's just it's really too early in the first tender offer to start giving any of those numbers. So I'm just it's too early it's too Larry is here to share anything there.
Understood. Thank you.
Thank you next is Ryan Brinkman with J P. Morgan you May go ahead.
Hi, Thanks for taking my question, which is another one on battery metals relative to the upcoming long term supply contract for nickel and the one that you recently secured for cobalt can you confirm if these agreements are to ensure the supply of only a certain quantity of material whether there was also any ability to somehow ensure a certain price.
Also our health insurer, which I think is a lot harder and then in light of the answer to that question. You know how do you think about the risk of taking orders for battery electric vehicles at a certain MSRP only for battery metal prices to change significantly in the time between the order intake and production, which I'm estimating for some vehicles like the silverado.
It could be you know more than a year.
When the metals prices are gyrating, so much month to month or even day to day.
Is there any way to hedge this exposure or might as crazy as it sounds even vertical integration of the supply the mining I don't know somehow.
Somehow even makes sense just curious how youre thinking about this a complicated issue.
Hey, Ryan Thanks for that I'll I'll start in a very of course can add to the you know what I would say as we've talked about the supply agreements being a mix of a lot of different structures right. We've talked about where we're funding some capital where we're doing preorders take or pay where we are.
Partnering with people on strategic ventures et cetera, So there's quite a wide variety of mix of pricing mechanisms depending on how those structures work. So to the extent that we do have some pricing exposure. We of course have the ability to hedge some of that in the markets going forward. So you know we're not we're trying not to.
Overreact in the short run, but rather strike the right light right long run balance.
Or where we want to end up and I think the team has executed that very very well so far.
Very helpful. Thank you.
Thank you next is Brian Johnson with Barclays. You May go ahead.
Hi, Marion Paul Thanks.
Want to step back and ask kind of a broader strategic slash organizational question, which.
Which you know as I talked about with people could make a great business School case study.
Your principal crosstown competitors chosen a very different approach to E vs. Both in terms of the level of preplanning and the organization that is kind of rushing to market with a minimal viable product and then backfill it.
And creating a separate Dev organization from the ice organization.
How have you thought about it at G M, where youre not pursuing.
Similar newco old co type of organizational strategy.
So you know I I think I I appreciate that you recognize that we made the investment you know a handful of years ago that gives us the altium platform, where we really can do products like the Silverado E V that don't have any compromises with you know higher higher range faster fast.
Charging you know things like four wheel steer them all because of a ground up design and I think everybody needs to also recognize that this platform is going to give us scalability that will lead to a cost advantage and a high degree of reuse. So I definitely think I'm I'm very happy that we made those changes and.
You know when you really get in and look at the organizational structure, we already have a dedicated team that works on the whole.
E V propulsion system, we have a dedicated vice president where all of the EV programs, all the Chief Engineers and all the EV programs report, we have EV grow that looks at how we're going to go to market and has led to the creation of the digital retail platform that we shared last year, we in part.
The 2018.
Our transformation that we did we pulled all the software together and since that point in time. So since 'twenty. You know 18 early 19, we have been had all that software together and I think that's what's allowed us allowed us to accelerate and we started rolling out the vehicle intelligence platform, which gives US you know.
Pretty much over the air capability across the whole vehicle in 2019, and it's come out in every vehicle and now you know where they are taking that to the next level with Alta five so when you look at the structure of our company a lot of the key work that needs to be done to enable R. E. V success was put in place an 18, 19th and <unk>.
<unk> and you know as we look across and I spent a lot of time talking to our employees across the whole organization and no matter, what they're working on and they're excited to be a part of our all EV future, let's remember at general Motors over 40% of our of our salaried employees and even higher percent of our technical talent.
Has been with the company five years or less and so they're here because of the mission for Evs and we believe every single one of them is valuable and has an important role to play in our future E V. Whether they're working on evs today or are they work on seats or they work on software design or interior design, all those things exist.
And any V as well so you know I think the the way we've really focused on what organizations need to to be there. So we lead in EV execution with the scale and the that high reuse that enables us to take time out or of Edp is where we're focused.
And just a quick follow on on those EV product architecture battery et cetera motor decisions again competitors will talk about rapid cycle decision, making mid model year not not just mid platform refreshes changes of technology. So how do you make sure that that part of the organization remains.
Joe as opposed to plans late in 2017, 2018, 19 that might you know frankly not be the right given current market conditions, our new technology as well.
So two components of that first from a software perspective, you know and we've already rolled out VIP and we're already taking it to the next level with Ulta, five which is going to really improve the speed at which we can make changes and make your product better as after you buy it you can download over the air updates of features that didn't even exist. When you bought the vehicles. So I.
Thank the mindset of agile quick in the vehicle just keeps getting better is well rooted in our software organization and then when you look from an Ulta Altium perspective are you know remember LTM as chemistry agnostic, we're working with many other companies and doing internal research that we will have you know.
To have the best battery chemistry, and the Altium platform allows for that it's Upgradable. Even reads. You know you can have variation within the within the platform. So I you know I think there was a lot of work that went into how all Tam was designed to give it the plug and play and knowing that the chemistry was gonna keep.
<unk> and we needed to be agile because we can continue to work on taking cost out and improving energy density.
Okay. Thanks.
Thank you our last question comes from Felipe who Schwab with Jefferies. You May go ahead.
Yes, good afternoon, and thank you too.
Two quick questions, maybe more housekeeping, but the first one is.
Earlier this year like many other comic or you guided to financial services, having lower contribution in 2022 compared to last year and look at your Q1 Q1 is actually better than last year, you didn't have as much of a spike in contribution from central services last year and some of your peers quarter by quarter and I'm just wondering do we still.
Should we still think of an easing of that contribution or is the tightness in the market.
Personal but you need to maybe have similar earnings in 2022.
And the other question was I think at some point in the remarks, you made a comment about cruise costs of about $2 billion do you have in your revenue guidance to put against that as you launched a commercial service where should we consider that the 2 billion of policies basically your EBIT for the year.
<unk>.
So on the first question dam burst is on the line for Dan do you want to take that one yeah sure Mary.
We earned 5 billion pre tax last year.
Our guide for 2022 is three five to 4 billion. So we do see.
A tail off in earnings the first quarter was quite strong but in the rest of the year.
Two really good things to consider number one our.
Residual gains will be less primarily because of lower off lease volume.
And gains per unit will be less because we've slowed depreciation.
<unk> book value. So even if we get the selling prices that were seeing in the used car market today. The book value is higher so the gains that are lower and then.
The other factor on residuals is.
As we go out too.
Lease terminations and 23 and 'twenty four we've really been quite conservative in our marks for those years.
22 maturities, yes, we're taking full advantage of them.
<unk> strength, but as we go into 'twenty three 'twenty four we have not slowed depreciation as much and then the other factor is on the credit side.
We do expect normalization of credit as we go through 'twenty two both from a frequency standpoint in a recovery rate standpoint. So those two factors would be the difference between the 5 billion in our guide of three five to four for the year.
Okay.
And Felipe it's Paul you know with respect to the cruise question. What I'll say is we haven't given any revenue guidance at all specifically as it relates to crews and I'll ask I'll offer call. The opportunity if he wants to talk about anything in terms of the commercial migration and where we are to the extent.
You haven't already done at cost if you want.
Sure Paul Real briefly I mean, just as a reminder, we're one permit away from being able to charge for rides, which would be the beginning of a generation of significant revenue.
With only 80 company in California to have applied for that permit and the only AG company caring.
Members of the public in an urban market, which is the only kind of place where early 80 robo taxi fleets are going to be a viable business, but you know we're on track. This year, we didn't really well we've expanded our geofence from 30% of San Francisco to over 70% increases the size of our fleet.
Expanded the hours of operation once and we're progressing as mayor said towards that full 24 seven operation.
We do believe that this is going to be highly disruptive.
And the long term for personal car ownership in the short term for ride hailing type businesses based on early customer feedback and right now we're maniacally focused on making sure that we delight our early customers and build a foundation for a really strong business down the road.
Thanks very much.
Yeah.
I'd now like to turn the call over to Mary Barra for her closing comments.
Well, great well, thanks, everybody, Paul and I, and Kyle and Dan really appreciate all of your questions.
As we move through this year I I want to read it. We're now in execution mode. Because we are we are building on the investments we made over the last several years with with all Tam and with the products that we put together with the shortening of the V. D. P and when we look going forward, we have incredible momentum with the three battery plant.
Between now and 'twenty four and it's another to be announced shortly as well as the conversion of four of our plants I'm happy either happened or are happening in this timeframe.
So we're just going to keep keep executing and keep working toward our EV leadership goal and you know I think we have a team that has demonstrated that we're going to capitalize on opportunities, we're going to solve challenges and work with our stakeholders across the company to do just that that's our commitment to you and that's our commitment to our investors.
To really create value over the long term and so appreciate your commitment and thanks I hope everybody has a great evening.
Thank you that concludes the conference call for today. Thank you for joining.