Q2 2022 General Motors Co Earnings Call
Good morning, and welcome to the General Motors Company second quarter 2022 earnings Conference call.
During the opening remarks, all participants will be in a listen only mode.
After opening remarks, we will conduct a question and answer session.
We're asking analysts to limit their questions to one and a brief follow up to ask a question Press Star then one on your telephone keypad.
To withdraw your question Press Star then two.
A reminder, this conference call is being recorded Tuesday July 26 2022.
I would now like to turn the conference over to Ashish Kohli Gm's, Vice President of Investor Relations.
Thanks, Brad Good morning, everyone and thank you for joining us as we review Gm's financial results for the second quarter of 2022.
Our conference call materials were issued earlier today and are available on the GM Investor Relations website.
We're also broadcasting this call via webcast.
Joining us today as Mary Barra, Gm's chair and CEO .
Paul Jacobson, Gm's executive Vice President and CFO .
<unk>, President and CEO of GM financial and Kyle Voigt CEO of cruise will also 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.
The contents of our call will be governed by this language.
And with that I'm happy to turn the call over to Mary Thanks, Ashish and good morning, everyone. Thanks for joining the call today as you have seen in our press release and other materials GM delivered $2 3 billion of EBIT adjusted in the second quarter, which is in line with the update we shared on July one. We also remain on track to deliver our full year guidance, which includes.
EBIT adjusted of between 13 billion and 15 billion.
This is a truly unique and dynamic market that presents both challenges and opportunities for geography.
Overall GM production continues to improve year over year. Despite some short term challenges and we are on track to increase our wholesales by 25% to 30% in line with our expectations for the year.
This is helped us extend our U S truck leadership, where demand is the strongest and supplies are well below optimal.
The Chevrolet Silverado and GMC Sierra led the industry in total full size pickup sales in 2020 and in 2021, we continue to lead in 2022 by a wide margin in fact, our retail market share in the first half is up two percentage points to 40%.
But even as we operate our truck plants at near full capacity or inventory has remained extremely low due to continued strong demand.
The stock on the ground for GM full size pickups has been in the mid teens in terms of days supply for more than 90 days for full size Suvs, it's below 10.
This helps explains why we continued building trucks in June even though we couldn't ship everything right away due to supply chain issues.
The facts are the customers are there for our vehicles they've been waiting and all indications are they remain ready to buy.
While demand remains strong there are growing concerns about the economy to be sure. That's why we're already taking proactive steps to manage costs and cash flows, including reducing some discretionary spending and limiting hiring to critical needs and positions that support growth.
In addition, we have modeled several downturn scenarios and we are prepared to take more deliberate action when and if necessary.
Regardless of the circumstances, we continue to move forward from a position of strength, we have a foundation of strong earnings and cash flow and investment grade credit rating, historically, low pension obligation and outstanding vehicles services and pricing.
I like our position and I wouldn't trade it with anyone in our industry.
All of this will help us continue to execute our growth strategy and insulated from short term market challenges.
Cruise as an example without question the cruise teams launch a fully driverless commercial operations in San Francisco in June was historic.
The next steps for crews in the second half include working with regulators to increase their hours of operation and service area expanding their fleet of bold, a b's and testing the cruise origin and as always we are committed to safety as crews expands.
Carla and I will have much more to share about crews on September 12 at the Goldman Sachs Technology Conference in San Francisco we.
We will also host our own event later that day for investors and analysts, including an opportunity to experience a fully driverless right.
Another major highlight was the first customer deliveries of the Cadillac lyric earlier. This month, we are extremely proud of the lyric and he has received almost universal praise from the media who says it stands with the escalator is one of the best Cadillac's, we've ever done I can't wait until everyone sees the celestica persists.
Nearly 70% of the lyric reservation holders are new to Cadillac and 30% are from the West Coast. This is very similar to what we're seeing with the Hummer EV, where 75% of reservation holders are new to GNC with a very heavy concentration in California, Texas and Florida.
Looking ahead to early spring 2023 anticipation for the Chevrolet Silverado E. V continues to build we now have more than 150000 reservations and the average fleet customer is requesting more than 200 trucks.
Reaction to the Chevrolet Blazer <unk> has also been very enthusiastic.
The media, who says it's going to shake up the electric SUV market. Thanks to its design technology range and pricing are spot on.
Separately, we will follow it up in September when it reveals even more affordable equinox EV.
And the ownership experience for all of our EV customers will be enhanced by agreements like the one we just signed with the pilot company to expand our LTM 360 charging network to facilitate Interstate travel together with E. V. Go Jamon pilot pilot plan to install 2000, DC fast Chargers installed at 50 mile intervals along.
U S. Interstate highways with special benefits for G M owners like exclusive reservations and discounts on charging.
With pilot investing $1 billion to upgrade their customer service. We are confident that this will be a very good solution for our customers.
And as our EV strategy scales. The key question investors frequently ask is how will you build enough batteries when competition for raw materials is intensifying.
And as I've said, our strategy is to control our own destiny and that includes building sells in partnership with LG energy solution.
We are just weeks away from the launch of the seven day operations at the first LTM sells JV plant in Ohio that each quarter, the plant will add 20% to its capacity, reaching the full 35 gigawatt.
For our capacity in Q4 of 2023.
Securing cells from this plant are key to significantly ramping up production of the GMC Hummer EV and the Cadillac lyric to be pent up demand.
The second cell plant, which is under construction in Tennessee is on track to open next year and just last month iron workers and our construction partners installed the final beam and a topping out ceremony in.
In Lansing, Michigan the site of the third sell plant. The foundation work is underway and still work will begin in August and that plant opens in 2024.
And the team is also making good progress towards selecting the site for the fourth U S L, which I'll take our projected total battery capacity to 160 Gigawatts.
What's happening upstream with these plants is just as critical to our long term success on.
On previous calls we had talked about all of the fully executed supply agreements GM has secured for E V raw materials and components.
Today, we are announcing three more binding supply agreements. The first is with LG Chem, who will supply us with approximately a million tons of cathode material between now and 2030 we.
We've also reached agreement with Posco chemical chemical to supply us with Cam from their Korean operations from 'twenty to 'twenty three to 2025.
The third is a multi year supply agreement with live event to secure significant quantities of lithium.
What this means is G. M. Now has binding agreements securing all battery raw materials supporting our goal of a million units in annual capacity in North America. In 2025. This includes lithium nickel cobalt and the full cam supply.
As we move forward, we will increasingly localize our supply chain just as we have localized battery cell production. For example, due diligence is already underway to further expand capacity at the J P Cam and Cam precursor facility, Jim and Posco chemical our building in Quebec.
Jim and LG Chem will explore the localization of our Cam production facility in North America by the end of 2025 and leave it and has a goal to transition 100% of the lithium hydroxide. They are processing for GM to the U S.
I want to thank the team for their hard work to deliver this critical milestone which includes close to 20 individuals' supply agreements and I also want to thank our supplier partners.
I use the word milestone deliberately because we are planning significant volume growth to meet our investor day commitment of $90 billion in annual EV revenue by 2030 that means our supply chain must be even more scalable sustainable and resilient.
To that end the team is building an existing supplier relationships and forging new ones and for certain commodities, we will direct source up to 70% of our needs through 2030 with a focus on North America. We think this strategy will mitigate risk drive down costs and help us deliver upside volume opportunities.
As you can see from these examples every part of the company is rising to meet today's challenges and we are adapting changing and innovating to execute our pivot to evs.
We're being thorough collaborative and leaving nothing to chance.
And that's how we have made such huge strides and why we are so confident in our future. So thank you and now I'll turn it over to Paul.
Thanks, Mary and good morning, everyone I'm extremely proud of the team's execution in Q2 and remain excited about our future. We were at the beginning of an accelerating EV product ramp that we believe will drive a continuous increase in revenue as we transition to an all electric future.
And as Mary highlighted we're making significant progress on several fronts, including cruise commercialization and our battery supply chain.
Yesterday, the department of energy announced a conditional commitment to Altium sells LLC. Our 50 50 joint venture to manufacture battery cells for a $2 5 billion dollar loan to help fund the construction of a battery cell manufacturing facilities in Ohio, Tennessee, and Michigan supporting our goal of the secure battery materials and technology.
Apply chain here in North America.
We're also finalizing the deals of Gm's sustainable finance framework, which will unlock options to help us align our balance sheet with our ESG strategy.
Now, let's get into the Q2 results, we generated $35 $8 billion in revenue up $1 $6 billion year over year, driven by strong pricing and slightly higher volume.
We generated $2 $3 billion in EBIT, adjusted six 6% EBIT adjusted margin and $1 14 per share in EPS EPS diluted adjusted all within the $2 3 million to $2 6 billion dollar EBIT adjusted range laid out earlier this month.
Our results were impacted by the short term tactical decision to build more than 90000, North American vehicles without certain components with revenue re time from Q2 into the second half of 2022.
The supply chain challenges, causing the company vehicle inventory buildup, primarily occurred in June and have continued in July affecting some of our plans. While this is frustrating we built some of this uncertainty into our full year guidance.
Some of these vehicles will be quick to complete in fact, we've already wholesale at about 15000 vehicles with the expectation to get through substantially all of the vehicles by the end of the year with about 50% in Q3 and 50% in Q4 <unk>.
Despite these challenges we have seen a continuous year over year volume improvement Q1 up 1% Q2 up 7% and we expect Q3 to be up 90% to 100% year over year as we lapped a significant impacts experienced in Q3 21, and the re time vehicles in Q4 to be up 20% to 30% remaining on track.
To increase our 2022 wholesales by 25% to 30% year over year as we guided to at the beginning of the year.
Adjusted automotive free cash flow was $1 $4 billion for the quarter down $1 $1 billion year over year, driven primarily by higher capex related to EV investments and the impact of holding these vehicles built without for certain components in the company inventory.
Let's take a closer look at North America in Q2, North America delivered EBIT adjusted of $2 $3 billion down $600 million year over year, and EBIT adjusted margins of 8% driven by higher commodity costs and investments in growth, partially offset by strong pricing across our portfolio, but especially on a full sized trucks.
And Suvs and the non recurrence of 2021 recall cloth cost.
Our mix was primarily impacted by the more than 90000 vehicles built without certain components about 75% of these being full sized trucks and Suvs.
As Mary mentioned, new vehicles have continued to turn very quickly and U S dealer inventory remains at around 250000 units with much of this inventory in transit inventory on dealer lots continues to be only 10 to 15 days.
We continue to watch this very closely but the consistently tight inventory on dealer lots over the last several quarters and months demonstrates the strong demand for our vehicles.
Truck <unk> have continued to be very strong at over $60000 and Denali continues to be a strength for GMC accounting for nearly half of the total Yukon sales this year.
Our truck and SUV customers have been asking for a broader range of choices, including premium options, which we are delivering on with the GMC Denali ultimate the GMC 84 X and the Cadillac Escalade V series.
The investments we have made in these vehicles over the last couple of years, including the significant refresh to our full size light duty trucks earlier this year provide a strong bridge to our all electric future.
Now, let's move on to GM International.
<unk> delivered second quarter EBIT adjusted of $200 million. This included a $100 million of equity loss in China down $350 million year over year, driven primarily by their COVID-19 related impacts. However, we saw an improvement starting in June with production levels beginning to recover.
The China team continues to navigate a very dynamic and difficult environment, both personally and professionally I can't thank them enough for their efforts this quarter.
EBIT adjusted in GMI, excluding China equity income was $300 million up over $500 million year over year with results driven by favorable pricing volume and mix, partially offset by commodity logistics and semiconductor impacts. These results also include a mark to market gain of around $150 million.
The GMI results, excluding China equity income and Mark to market gain was a record Q2 and first half the progress. The team has made over the last couple of years has been impressive and I look forward to the team continuing to build upon that momentum.
A few comments on GM financial and corporate expenses, Jim financial once again delivered solid results driven by strong used vehicle prices with Q2 EBT adjusted of $1 1 billion down $500 million year over year, primarily due to the reserve adjustments made last year court.
Corporate expenses were $700 million in the quarter up $700 million year over year, driven primarily by differences in year over year Mark to market changes in the portfolio.
Moving to cruise, which we're very excited about we believe the autonomous opportunities go well beyond the robo taxi business, including delivery personal vehicles and a commercial application with bright job cruise expenses of $550 million for the quarter are consistent with the run rate, we would expect for the remainder of the year.
Now, let's turn to our second half outlook as we indicated earlier in the month, we're confident in achieving our full year 2022 guidance range metrics, including EBIT adjusted in the range of 13% to $15 billion in North America margins of 10%.
We see a tailwind with volume and including completing the vehicles and company inventory.
<unk> remains strong and has held up more than we estimated at the beginning of the year, helping partially offset the incremental commodity costs.
We are encouraged to see some moderation in the spot prices of certain raw materials, but the timing of the flow through of this benefit into earnings varies by commodity and typically lags, we would not expect to see a meaningful impact until later in the year and into 2023.
We're also incurring significantly higher logistics costs, including premium freight to overcome some of the supply chain shortage challenges, which is offsetting some of the moderation in raw material costs.
With these puts and takes in commodity and logistics costs, we still expect about a $5 billion year over year headwind impacting our global operations with the expectation to offset with cost and pricing actions.
GM financial is currently trending towards the high end of the expected three 5% to $4 billion full year EBT range with some moderation anticipated in the second half as credit in used vehicle prices are expected to normalize somewhat.
There are also other cost headwinds in the back half of the year, including some seasonality growth investments and initiatives to drive EV adoption and expand charging infrastructure. However, we will be nimble and bringing on these costs at the appropriate time and remain prudent in our spending to ensure we meet our growth commitments.
In summary, the first half of the year, we've seen strong pricing and continued to see a recovery in volumes, we've actually Q did well on the things we can control and we remain focused on our growth opportunities.
We're starting to see the benefits of the EV battery investments made over the last several years and vehicles such as the Cadillac lyric the GMC Hummer EV pickup validate that we have transitioned our engineering and manufacturing expertise to evs.
We're laser focused on execution and what you've seen is just the start of a transformative period for G. M. We are strategically building an EV portfolio in the luxury SUV and truck segments to produce vehicles with great design at the right price points for customers and at the margins. We come to expect this concludes our opening comments, we'll now.
Move to the Q&A portion of the call.
As a reminder to analysts we ask that you limit your questions to one and a brief follow up so that when we may get to everyone on the call. Our first question comes from the line of <unk> <unk> of Citi. Your line is open Sir.
Great. Thanks, Good morning, everyone. Good morning, good morning.
Good morning, Jim.
Just two questions from me just first I was hoping we could get delayed.
A little bit deeper into the price mix assumptions you have in the second half of the year.
Maybe also if you could quantify that.
Headwinds just with reference and second question.
The shareholder letter you mentioned, a balding in number of downturn scenarios and what actions you can take just hoping we could expand a bit more about how you're thinking about failures gilbarco scenarios and options that you have and maybe give us a range on the earnings and free cash outcomes, we should think about under kind of reasonable downside scenarios.
Yeah. So.
I'll start on the inflation pieces and in the <unk>.
The mix side. So if you look at the inflation that we saw in the quarter I would say about half of it is commodity driven and then about the other half is split between logistics and other supply chain challenges that we've seen before I think you know the the thing I'm excited about in the quarter is that when you look at inflation, the the pricing and the mix.
Was able to offset largely all of that inflation as we expected it to do I think where the second quarter challenges manifest. It is obviously, we were expecting higher volumes.
Been dealing with some of these chip issues for the last couple of years. This one was a little bit late breaking which affected the volume and the mix on the quarter otherwise I think it was a really good quarter and we feel good about making up all that volume in the back half of the year as we've outlined so you know I think with the with the via.
Calls being completed out of that inventory, we should see a little bit of a richer mix in Q3, and Q4, largely because of the truck side of it but that's going to help us keep us on track to the 13% to $15 billion.
And from a from a downturn perspective, you know we're looking at.
I'll say moderate downturn and a more severe and we know the actions that we would take them you know as I mentioned we've already.
Started to reduce discretionary spending, but we are doing critical skill hires because you know we feel we're positioned right now to continue executing our EV strategy, even with some of the different things that might hurt us and it's a it's a really unique.
Unique time, because there's so many factors that are very positive as I mentioned, we're still seeing strong demand, but there are some indicators that.
But great uncertainty for the future. So we've done a lot in preparation if you go back to the transformation that we did in 2018 in 2019 that we can completed in 2020 that took out about four to four 5 billion.
Of course, we also have systematically reduced vehicles and exited unproper profitable segments and regions you've seen about a 2 billion dollar improvement in GMI versus 2018, and we've done significant restructuring in India, Southeast Asia, and Russia as well as retiring the Holden brand in Australia.
So you know that the steps that we're taking right now is continue to focus on eliminating complexity reduction not only in our ice lineup, but also in our EV lineup to be very customer focus we've done a lot as it relates to reuse driving manufacturing efficiencies our go to market, where we're finding efficiencies that we can actually reduce the cost of selling it.
Nickel and then our overall fixed cost and so do we.
Again, it's hard to predict exactly what the margins would be depending on what happens where is demand. What we're seeing right now we're still seeing strong demand for our products and frankly as Paul said, even going into the second half of year, a higher mix, but believe me we've run many different scenarios and we know the steps we've taken a lot of steps already but we know the steps we would take.
If the situation I went in a different direction.
Great. That's all very helpful. Thanks for all that detail.
Thanks Peter.
Thank you. The next question will come from John Murphy of Bank of America. Your line is open.
Hi, good morning, everybody.
Just wanted to ask first on the supply chain.
Dino is from sort of a chip side and also from other suppliers I mean, Mary do you think about this I mean, if we have like a 20% improvement.
Chip supply what would that mean for volume I would imagine just given what's going on with content and mix that it wouldnt sort of resulted in a 20% improvement.
Unit volumes, just trying to understand that and then also on the supply chain readiness. We are hearing lots of anecdotal stories about suppliers, having a hard time getting human capital or labor and being concerned about the working capital rewind as why it's ultimately recover.
Yeah, you know each supplier, depending on where they're located I think is facing a different set of different circumstances and situation and we have a team and our supply chain group that works with each of these suppliers first of all we do is we go in and try to help them address their cost you know figure out what we need to do to get the right resources.
And so it's it's a very active you know group right now as we work across the supply chain, because we know we need to have suppliers, who are healthy Ah can get and hire the people that they need that theyre trained and that they can deliver high quality parts to watch so I would say there's ongoing work and there are a lot of anika.
All the stories, but we just work each and every one of you know when it as it relates to the semiconductors, we do see impact from semis into next year.
And you know, but I think.
Depending on where we're at with demand right now.
It's hard to exactly forecast what will happen because we're selling every vehicle we can make right now and we think there's an opportunity you know where we're at suboptimal levels from an inventory days days on on the field will never go back to where we were before the pandemic, but right now it's a little too lean so even as a.
We are hoping and what we see now is that we have strong demand you know, let's remember we have new refresh full sized trucks or Suvs.
Again, very strong with the enhancements that we made and so if that even as our or if I should say, if we get to a more normalized level that we are don't have pent up demand for full size trucks, Suvs and midsize crossovers, we still have some work to do to get a healthy level of inventory very lean, but healthy level of inventory.
So that's what we're focused on and frankly, we need more chips to do that and and as we move out and continuing to put more technology in vehicles, we need even more semiconductors. That's why the strategy that we're putting in place for the the 2020.
26 timeframe to have three families of surmise that we leverage across our vehicles will give us a much more stability resilience and ability to transfer the semis to the segments that are most in demand.
I guess, maybe just to follow up on the agents is it more succinctly maybe to get volume up 5% to 10% would you need like a 10% to 15%.
<unk> and chip supply or content I'm, just trying to understand I mean, there is a very good I mean, there's the question of the shortage and then there's the question of the growing content and mix I mean is there sort of like a 5% to 10% Delta all content and mix that we should be thinking about roughly John it's so depends on what vehicles segments. I mean, we do know trucks used.
More semiconductors full sized utilities use more semiconductors than a sedan a lot of it depends on how much technology on the vehicle you know for instance crews or you know all of the power features so it's really hard to make a just a.
You know a swag of what that would be.
But what we say is if you get 20% more it's not 20% more vehicles that that's for sure.
Okay, I'm, sorry, I just as my follow up when you said the severe and mild recession scenario planning I mean, we've been in a recession level widens for autos and certainly are this year in the U S and globally. When you think about miles and severe I mean, how much downside do you.
Are you guys kind of model yet because it's kind of hard to believe there is really significant unified downside from where you've been traveling at least for the last six months for sure.
Hey, John It's Paul I think as we look at that it becomes less of a question about volume and more question about pricing. So what do you have to do to stimulate the same volumes that we've seen it's it's a rather unique circumstance because I don't think we've ever gone into the economic noise with as low Sars as we're seeing but a lot of that has been pre.
<unk> I think that's led to some of the pent up demand that gives us confidence at least in the near term and the midterm to continue to produce these vehicles in and take the type of position that we took with the vehicles built without certain components. So.
Yeah, I think it really comes down to more on the pricing on the consumer side and all the data that we're seeing continues to give.
Give rise to strong demand for our products.
Okay. Thank you very much guys. Thanks.
Thanks, Dan.
The next question comes from Rod Lache of Wolfe Research. Your line is open Sir.
Hi, everybody.
So.
Until now.
On John's question, North American sales have been.
Trained by supply and they still are as you said the demand still feels very strong, but if you clear out that extra 90000 units in the back half it looks like inventories could recover.
It depends on what sales do obviously, but they could recover to the four or 500000 unit range pretty easily in North America. So maybe 50 60 days just from your last comment Paul do you think you may need to make some adjustments to address affordability.
<unk> of vehicles, just given the magnitude of changes that we've seen over the past two years or are you kind of more inclined to throttle production in order to sort of keep the inventory in that.
50, or 60 day range.
Yeah, good morning Rod.
It's a fair question I think when you look at the inventory levels as they sit right now the overwhelming majority of the inventory is actually in transit it's not on the dealer lots, which I think is very different than what we've seen in the past and as others have talked about the logistics of getting vehicles to the dealers has been a little bit slower than.
Normal so I think as vehicles are getting to the dealers there theyre continuing to turn very fast where we're watching that closely that's probably one of the key data points that I spend the most time thinking about is as the turn times once the vehicles come so I think the pricing environment that we're in right. Now is has been very good very robust.
And it I think it demonstrates the demand for our products. So we've got to continue to monitor that and continue to watch it because the cash flow that we've got them running the business for cash flow is critical to help fund our journey in the EV transformation.
Okay. Thanks.
Switching gears to these binding agreements on battery feedstocks can you just give us a little bit of color on.
Since they are binding.
You've made commitments here have you been able to maybe insulate yourselves of that.
Going forward from some of the pricing volatility on these feedstocks and just any color on you said <unk>.
You've struck these deals what that what that tells you about prospects for for E D profitability.
Yeah, So rod I would say two things to that number one we've talked about taking a portfolio approach to these commodities, meaning that you know will take some index pricing will take some fixed pricing will take some discounted pricing, we're willing to invest in and prepay and just be very flexible as it relates to the suppliers and two.
I would say we're focused on long term partnerships. These arent just contracts that we're looking to say give me this volume of material, it's about helping our suppliers those producers expand their operations and doing in a way that is focused on creating efficiencies within the entire supply chain. So these would.
<unk> today represent I think what is the best of the best out there in terms of creating these partnerships for the mutual interest of of our suppliers and ourselves.
Okay. Thank you.
Thank you. The next question will come from Joe Spak of RBC capital markets. Your line is open.
Thanks, Good morning, everyone. Paul just on the thanks for the color on how you expect those 90 plus co units to to come back, but I am wondering, especially given some of the comments on.
Semiconductors like does that like you could make those up but does it at all impact your ability to you know.
Wholesale what you thought prior like before you had this issue because if you still have some of it.
Semiconductor availability issues like I'm, just wondering if if that at all impacts of where you think you fall in that in that 25% to 30% range for the year.
Yeah, So Joe I would say that you know based on what we what we can see and as we've talked about before we get together weekly with the supply chain Dream.
Talk about this and what we see out on the horizon gives us comfort in hitting that 25% to 30% goal.
While the while the year over year increases have been lower than that in the first half remember how challenged we were in the third quarter of last year with Malaysia that seem to impact us somewhat uniquely so that's where we get a lot of confidence and we're already essentially one month through the quarter and that's given us more confidence in terms of hitting those numbers.
And what the team has been able to do both with production as well as well as completing those vehicles. So.
No no concern yet, but as you know this quarter indicated things things, sometimes happen, but that's what we've got to do to be able to manage tactically. It was unfortunate that it happened at the end of the quarter because it crosses that quarter end, but the result is you know, we'll we'll have that mitigated within that sort of four to six month time horizon and we.
Feel good about that based on our forward.
Forward projections.
Okay, and then switching gears to the EV side.
I'm glad to see the Altium cells are starting production. This coming months can you give us an idea of how that ramps because you know you stuck to your 400 K EV.
E vs over the next two years you know it looks like maybe you'll do 50 or 50 care. So this year, so a significant ramp.
Ramp next year and I'm curious like of that let's call. It $3 50, K or so how much do you think will be supplied by that joint venture versus versus third parties.
Well, you know well as I said in my remarks, we need the sales coming from our Ohio joint venture plant to really ramp the existing products, we have both the lyric and the hummer.
And you know we're weeks away from that plant starting up it will grow so clearly the bulk of the volume start to add in Q4, and then you know much more rapid a increase because of that plant through next year. So and we will be at full capacity you can almost do the math and look at it with the guidance, we gave up 20% by <unk>.
Order between now and then.
And so the plan is very significant in helping us achieve the plan that we had to get to 400.
And Joe that that ramp to is I think pretty consistent if you just look linearly to 2025 getting to $1 billion from where we are right. Now. So I think this shows how far ahead of this we are because cell plant two is coming on in 'twenty three cell plant three and 'twenty four and so on so we really we really see this as a very thoughtful.
Methodical approach of of ramping up that volume, but that's I think you pointed out why we're so excited about the trajectory of where we sit right now.
Thank you.
Thank you. The next question will come from Adam Jonas of Morgan Stanley . Your line is open.
Thanks, everybody I wanted to follow up on Rob's question about the inflationary cost environment on metals.
And your long term profitability assumptions every E business given.
How much the market has changed upstream and in battery materials, specifically notwithstanding your your efforts to mitigate and control your destiny.
Does that change your long term view of of profitability or returns on the EV business.
Yeah, So Adam overall, we're still targeting the 10% margins as we as we go through this decade.
Of course, when you see some of the increases right now they're going to have an impact you know broadly not only the EV materials better cross.
Across all commodities, but no one knows exactly where there'll be and two for six years as we go through that you know what we're doing is we're continuing to drive efficiencies and you know that's what engineers do we solve problems. We take cost out we find technology solutions, you know where were working with not only internally, but with LG, but with several.
Are there EV.
People involved in the battery chemistry and in different parts of it to take cost out that's why we have the Wallace.
R&D center for manufacturing starting up this fall if we look at a lot of promising battery technologies, where people struggle is to scale at automotive grade and have the manufacturing consistency, we know how to do that and that's why we will have a R&D operations working with many of these companies to do that so I'm confident.
As we continue to progress we're going to find ways to take cost out and drive efficiencies that we're going to achieve the goals that we had from a margin perspective.
Thanks, Mary can I just follow up on G. M. Financial obviously gives you really unique insight into the health of the consumer and given the deteriorating environment facing the consumer and you see walmart's a warning overnight what changes are you, making in either the originations or provisioning or other aspects of G. M finance.
To help protect the business in a deteriorating environment.
Yes, Adam Adam This is Dan Bruce I'll take that thanks.
So really on a regular basis, we take a granular approach to analyzing our portfolio.
Byproduct term credit tiers structure restructure meaning payment.
Payment income LTV.
And many of their views and based on these views, we make decisions constantly whether to tightened.
<unk> tightened our ease credit.
What we're seeing now in our GM new car portfolio, we're seeing extremely strong performance.
Regardless of credit tier.
On the used side.
Theres probably places that.
Segments that were a bit more concerned about and that we would look to tighten.
The new car portfolio as the vast majority of our portfolio is performing very very well.
So it really no view to tighten there at this point.
As far as reserve levels, we've been expecting credit normalization.
All along and so normalization is built into our reserves and provisioning already.
And in this quarter in particular, we are economic overlay that we have to apply under the seasonal methodology.
We've taken a.
View to a weaker economic environment going forward, so that economic overlay.
Which served to increase our reserves.
That we took this quarter.
Thanks, so much.
Thanks, Adam.
The next question will come from Ryan Brinkman of Jpmorgan. Your line is open.
Hi, Thanks for taking my question I see you're continuing to guide to full year EBIT of 13 to 15 billion, which is far above consensus for less than 12 billion. If I had the gas probably the difference relates to skepticism regarding the sustainability of record pricing as the economy softens and maybe.
Maybe you know likely the sequential deliveries ramp from the first half to the second given continued issues with chip availability are you able to update on what you know the very latest might be in terms of pricing maybe what gives you the confidence that pricing will hold in his inventory normalizes are there any examples in your portfolio you can point to where maybe inventory for select vehicles hasnt.
Proved yet the pricing did hold in and with regard to the chip availability to support the 25% to 30% growth in wholesales for the full year, what visibility do you have to being able to secure those chips could maybe a cooling of economic conditions, Ironically helped chip availability by reducing demand.
We're in the industry or even maybe outside the auto industry. You know how are you thinking about pricing.
Pricing and chips tracking in the back half of the year in order to make that above consensus guidance.
Yeah. Thanks, Ryan So I would say that at the at the end of the day all the data that we've seen to date on vehicle pricing and demand remains strong I think that I alluded to turn times earlier.
You know, what we see with Dan's data from GM financial but also importantly, the fact that while we've increased production to date inventories on the ground are dealers hasn't changed and really about six quarters even.
Even as production has gone up so we still think that there's a big pocket of demand that hasnt been met yet and and we continue to meet that will will respond, but we if we need to but we feel we feel good about where that sits which is why we had the confidence to build those vehicles without without fully completing them.
And I'd be able to work through those.
As it relates to the chips.
Again, we had a level of confidence about the chip supply.
As we gave our guidance for 2022, it didn't mean that it was over in fact, we highlighted that we would still see some challenges and we have seen challenges, but largely been in line with our expectations for the year. So there hasn't been anything in the first six months or even the last couple of months that has deteriorated our.
And being able to hit that full year goal and you know in some cases pricing has been.
More resilient for longer than we expected going into the year. So.
That's kind of what's giving us the confidence around that 13% to $15 billion guide and and we continue to remain focused on it.
Okay. Thanks, maybe just a quick follow up on the trajectory for cruise EBIT.
Losses seem to pick up there a little bit as you commence more commercial operations, maybe you have more people on the ground and what's the way to think about that.
The losses do pick up as you launch operations or maybe as you launch operations begin to generate some revenue you can amortize some of the more fixed cost how should we think about EBIT. There are tracking over the next year or so.
Uh huh.
I'll, let Kyle comment, but I would say you know first of all we are very confident and excited about cruises opportunities of scale.
With what they're demonstrating and and you know in 30% of the San Francisco area, having the ability to charge for rides and you know with the plans we have for this year and next we're going to make sure that we have on all of.
Resources available to scale that business quickly because we do think a there's a first mover advantage and so you know one of the strengths and the work that cruise and GM do together is make sure that we have a plan and we have the funding available to support our rapid growth strategy I don't know Paul if you have any specifics on the amortization.
Hum.
The investment.
So you know I think at the end of the day, it's it's continuing to.
Perform at or faster than we expected going forward.
The increase in costs as both head count, but it's also a change in the compensation expense given what we've seen with the <unk>.
Liquidity option that we've provided that's all built into our cash expectations for.
For the year, so there haven't really been any surprises for crews going forward.
And I don't know Kyle if you have anything that you want to add just overall related to Chris.
Yeah sure. Thanks Mary.
When you've got the opportunity to go after a trillion dollar market, where you can have a highly differentiated technology and product.
Casualty weight into that when you're talking aggressively and given our strong cash position and crews are able to do this and aggressively.
We're seeing the market I think is a competitive advantage and given our position right now I think the results speak for themselves but.
You know what you're seeing right now is the early commercialization, where we're just have that first.
Initial revenue coming in our first driverless ride was just November last year and since then you know we're doing over a quarter million dollars, we've done over a quarter million driverless rides.
Thousands of customer adds and.
Covering 70% of one of the top rideshare markets in the world. So we're scaling that up very rapidly it's exponential.
It's gotta catch people by surprise, but certainly you know at our on our initial scale. We are that there's quite a bit of cash spending but that's.
In preparation for the ramp that we expected yogurt over the next year or so.
Helpful. Thank you.
Thank you. The next question will come from Mark Delaney with Goldman Sachs. Your line is open.
Yes, and good morning, and thank you very much for taking the questions first one is on China. Maybe you can talk about both in terms of your ability to operate as the Shanghai region has reopened and yeah theres still constraints on your ability to operate in China, but also what youre seeing in terms of demand in the China region.
I think theres been some stimulus that's perhaps helped our demand recover or do you think that's sustainable in the China region.
So you know clearly during the shutdown phase and specifically with a lot of our operations in Shanghai, We saw a drop in that the Q2 timeframe. When some of those restrictions started to open we already saw improvements in the June time frame and we're very optimistic.
That we can regain share and also be very significant very significant player from an EV perspective.
You know we have the the lyric launch that's coming very shortly and we have our plans are to convert more than 50% of our manufacturing footprint in China to EV production by 2030. We also have the strong performance and a leader sales leadership that we have with S. T M. W. With a hunger on many so we're expecting a ric.
Capri it might be slowed as China ramps, we're encouraged by some of the stimulus that the government has put in but we do feel with our lineup coming in China will have a strong recovery.
My second question was a follow up on the battery raw materials agreement and now that you have some added visibility on the raw materials front into your battery.
Cost structure can you talk about whether or not you still think GM is tracking at the battery pack.
Pac level for our cost to be under $100 per kilowatt hour of mid decade. Thank you.
So that's the that's what we're continuing to work to make sure that we hit those end and go well below 100, because we need to do that from an affordability perspective, and again as I mentioned before it will be by manufacturing efficiencies by scaling the operations, we have an advantage with the Altium platform.
Because we can scale, we don't have a lot of unique unique configuration, that's going to help us take cost out as well overall.
Overall, so we'll get the total cost of the vehicle I mean in some of the cases, the raw material prices will be what they are but.
But we think we'll.
Have a differential advantage.
Two to our competitors because of the strategy that we're executing.
We'll move on to the next question.
Emmanuel Rosner with Deutsche Bank. Your line is open.
Hello, Thank you very much.
One of the harvest things for us and I think investors to assess is.
What is the pricing downside risk vehicle pricing risk as we move into <unk>.
Potential downturn or a recession. So it was very encouraged to see you've been sort of like refreshing. Some of these downturn scenarios and I was wondering useful.
Are you willing to share some of your framework there I'm sneaking a few years ago, you used to host D. G M office hours with ease.
Historical framework around potential pricing pressure just curious if you can help us with how do we think about it.
Well good morning, Emmanuel I think two things to that number one we're going through our long term planning process with the board and you will have more to share in the fall just generally about the multi year forecast and kind of how we're trending towards investor day goals et cetera.
Second you know I think the theres a level of sort of normalization and there's a level of recession across the board so as Mary articulated.
Looking at moderate and severe it's kind of what dictates that so you know I think when we look at pricing.
Certainly in a down demand world, we would expect to see potentially some significant moves in pricing, but I think as we model out. The recession, then we've got to figure out what what happens to commodities, what happens to logistics et cetera, where we would expect a lot of the air to come out of that balloon. So I think we've got a decent Nora.
Sort of a natural hedge to some of that in the event of a downturn.
But no comments on any specific pricing variables that we're putting into it.
Okay.
And then.
I guess one of the.
Essentially growing.
I'm thinking about the puts and takes for the next year.
Monster, So I think one of the ones that could become more and more important as the near term profitability of some of the electric vehicles, obviously with a goal to produce 400000, new state of the industry. This year and next this is.
Meaningful volume contributor next year.
So I know you know forecasting mid and long term is just beginning.
The difficult first of all.
As we think about it maybe going into next year with these volume ramping up how should we think about it as.
Is it a factor what sort of contribution margin are you.
I think in the near term.
So you know as we've talked about before Emmanuel I think you know our goal here is to get.
E vs. The ice parity by mid to late part of the decade.
Going forward. So you know I think we haven't talked specifically about vehicle profitability and we don't but I think generally with E vs. I think you're going to see some rapid improvement in profitability on an every model as we scale it up and as we get the.
Altium battery plants flowing in and increased capacity, that's a key driver of our strategy going forward. So in the short run there, there's some pressure, but I'm not sure that it's all that meaningful against where we are as we get to getting to the 1 million vehicles and beyond we should expect some pretty.
Steady year over year improvements as we ramp up production.
Okay, great. Thank you.
Thanks Amanda.
The next question comes from Chris Mcnally of Evercore. Your line is open.
Good morning team.
Just a follow up to Ryan's question on cruise I guess is it fair to say, you're just maybe don't want to comment on the shape of the EBIT burn rates, specifically for 23, right now or Youre holding off until the September event. You know the reason I ask is I think investors are just going to assume in the absence of the losses may accelerate materially next year at San Francisco ramps more car.
As more rides, but also new cities or our launch.
So even if not quantified are we thinking about the shape of that EBIT burn going up next year correctly.
I you know first of I think Chris you know kind of where are we gonna be speaking in September on at the conference and Goldman Sachs Conference. There and then we'll be providing more input.
From a.
Forecast for 2023, when we give guidance.
So I would say.
We are going to make sure we find crews and the spending is done in such a way that we can.
Again gained share and have a leadership position as well as you know we have plans that we're taking cost out is as well.
We as the technology matures, obviously, the origin will be an important part of that as well. So what I'd ask is your stay tuned until we talk in September and then we will give further guidance as we give overall guidance for 2023.
Okay, Great. That's very helpful. And then just maybe you could remind us.
Kyle just the comments.
You guys have made publicly about what cities, maybe next I know, Arizona Theres a lot of testing, there's Dubai referenced in.
In the media and then anything around the timing or what a 100% launch may look like in early 2023 and will there'll be a ride hailing app open to the public in 2023.
Anything that you can comment on.
Yeah, So we haven't announced our next studies yet for obvious.
For obvious reasons, but.
Mainly that.
We don't want to give everyone a heads up where we're going and when but.
But we have very aggressive to get ceiling plans for future years, we've done substantial work to Derisk E. Technical approach is taking what works well in San Francisco and deployed.
Deployed in other similar.
And an attractive rideshare market.
And then on the voucher we.
We do have enough now that is open to the public.
Thousands of members of the public have used it in San Francisco, and we're able to charge theres. So much majority of those rights. So that it's early stages, that's pretty fresh off the press just in the last couple of months, but that was a big step for us going from essentially a pre revenue company to.
At the beginning of our you know our first revenue coming in and you know at the beginning of that rapid scaling trajectory.
Okay. Thanks, so much look forward to September .
Thanks, Chris.
The next question will come from James Pickerel rollout of BNP Paribas Exane. Your line is open.
Hey, good morning, guys.
Just on commodities and freight so I mean at current spot rates today.
And the timing of your contracts.
Is there any way to be thinking about based.
Based on the lag in your P&L flow through.
What next year could look like again using the.
The hypothetical exercise of current spot rates or spot rates as the baseline.
Yeah, I would say James it's it it's premature to be giving any 2023 guidance from that standpoint, certainly it would be better as evidenced by the fact that you look in 2021.
We had a lag benefit as commodity prices were going up so we have about a third of our commodities that are kind of an index pricing and about two thirds that are on sort of multi year agreements going forward. So I would say stay tuned for that the commodities environment is obviously going to change quite a bit from from here to there.
But.
There are some savings there certainly as it sits right now.
Savings for next year Okay.
And then any color on the timing of the announced a fourth battery plant I thought the company was hoping to make an announcement.
Sometime in the first half so just curious what you're hearing from US there and then.
Can you provide any details on the on the timing and the terms.
The $2 5 billion U S government loan announced today through the ATM.
At TVN program. Thanks.
And the announcement for the fourth battery plant will be and in the not too distant future.
It will definitely be this year, so just stay tuned on that obviously.
There's a lot of the team has done a tremendous amount of work. So we're we're approaching announcement there are and then I'll, let you talk about the tariffs yeah. So on the on the department of energy loan. We obviously are still need to close that loan so as we as we close it.
We'll have more details on it but it is a loan to opium sells LLC. So it benefits both us and the L. G energy solution and it is non recourse to <unk>.
Beyond that we'll we'll disclose more clothing.
Thanks.
The next question will come from Colin Langan of Wells Fargo. Your line is open.
Oh, great. Thanks for taking my questions.
Battery raw material costs don't fall what are the cost opportunities to offset the pretty big increase I mean I'm.
I'm estimating right now the T V's are probably possibly $7000 more costly than an internal combustion engine, which is a pretty large gap. So how can you fill that gap going forward, particularly as we go into next year with the big ramp I mean, it seems like your margin targets haven't changed really in the spike it seems to be a pretty material headwind.
Yeah.
Well I think as we ramp up scale is going to be a very important piece of it I would also say you know the team continues to find opportunities to take cost out of our you know battery cell manufacturing finding manufacturing efficiencies AR.
We have found opportunities in purchasing a weekend and over the I'll say the mid to a little bit longer term. We'll we'll continue to look at what Chemistries. We can use that improved costs are also chemistries that use less of the more expensive material. So Colin really we look at every single element to take.
Cost out you know our number one goal right now is to get these battery plants up and get it launched because there is such strong demand for the products that we have whether it's the hummer at the lyric and continuing we're seeing really good.
Interest in the in the bolt them from a customer perspective, but if we get into next year with the Silverado EV the blazer Avi the equinox EV.
And yet this year later the S U V of the Hummer.
We're busy getting everything ramped up and then if one thing General Motors engineering team and manufacturing team knows how to do it to take cost out and we will do it.
Okay.
You talked about pricing is stable can you comment a bit on lead times. We're in this unusual environment, where are you kind of have a lot of preorders are some of the dealers have indicated at the time. The lead times have shrunk is that true is that what you were saying that lead times have kind of started to normalize.
No I mean, there there could be yet visit for specific products, we might be seeing that but you know frankly for most in demand products when you'll get full size trucks and Suvs theirs.
We still are really aren't seeing a change in in the lead time to get these products out.
Okay, alright, thanks for taking my questions.
Our last question comes from Jairam Nathan of Daiwa. Your line is open.
Yeah, Hi, Thanks for squeezing me in here. So I just had a question on inventory and they talked about it pretty young I think 9200 cause an increase in the third quarter and 22.
In the food how should we look at the mix of production I'm. You know if you have seen companies like Walmart kind of building inventory up the wrong things and especially given as gas prices and largest movies. It seems counter intuitive. So how should we look at the mix in terms of home what is the production of ammonia.
Well right now you know we can't build enough full size truck and SUV as we mentioned you know mid teens and even lower from a for full size Suvs. So it's something we watch very very carefully and I think that the opportunity. We have we still expect very strong demand a lot of these vehicles are way up.
Customers waiting for and believe me I get emails from them waiting for their trucks and Suvs and so we're confident with the decision. We made in June to build shied. These vehicles that we're going to see strong demand and then post that when we do eventually and we don't know when to start to see demand start to normalize.
Still have work to do to to build the inventory to the appropriate level again never back to where even close to where we were but at a at a level. So.
With that where we're confident in the vehicles. We're building today that we are we have strong demand for them.
Okay, and just a follow up I just wanted to understand like how do I.
What's the plan to locate these battery packs and it looks like for <unk>.
Some of your products like like like uplands, and it looks like there's a lot of demand and I'm with you.
You have announced quite a bit of.
UBS coming up so how do you kind of look at the battery resources.
Between these features.
So we look across all the whole EV portfolio that we have off of all time and look you know where we're the strongest demand isn't in general you know, we're going to allocate where we see we see the strongest demand. The challenge. We have right. Now is our you know that's why we're so excited to get battery plants fell one up in next year plant two in the following year plant three.
Because right now our demand is outstripping our capacity and so we look to kind of make sure. We're covering all of the key segments and the customers and a lot of it is.
Just looking at what that demand is in kind of allocating across so we'll.
We'll continue to do that especially where we see the strongest demand for whether it's the fleet vehicles from bright drop on knowing the importance of getting affordably. These out with the blazer and equinox, but also the strength that we're gonna see that were already seen on the silverado EV and the and the lyric as well. So it's a it's a problem were working out of.
But frankly, it's a it's a better problem to have than others.
Just so.
So I kind of would expect somebody like lets say both because of the women did in fact close together one would argue that you should be making.
All tightrope so well this was an auto is but.
Would that be the Atlanta would be would it be more spread out.
It it won't be more spread out and as we look to have the full portfolio because remember having vehicles in the key segments that there's huge demand for I think it's going to drive <unk> volumes. So.
Yeah, Ken well allocate as we evaluate the market and the ability because we have come in and sells in the in the packs that gives us a lot of flexibility to make decisions as we see how the demand unfolds.
Okay, great. Thank you.
Thank you I would now like to turn the call over to Mary Barra for her closing comments.
Thanks, so much.
As Paul and I have discussed today, we believe the team is executing well on both our short term and our long term commitments even in this environment, that's pretty uncertain. We have a strong foundation in place and we believe as I. Just said, we're rolling out the right E vs in the right segments.
We have strength across Cadillac strength cross Chevy and you'll see it in GNC in palmar as well and we also you know the feedback that we're getting with the performance. The design. The technology on these vehicles are we couldn't be more pleased with the response that we're seeing from every vehicle that we reveal so we felt that theres going to be strong customer demand.
And that will again as we execute our business plan to get us to the margin targets that we've talked about.
I will also say we are very pleased that we will host another investor event in the fall in New York City and one that includes a hands on experience with our E. B. So you can see.
These vehicles and the strength that they bring to the market we're going to have more detailed sit here soon but please mark your calendars for November 17th.
And I look forward to seeing you there if I don't before then so thanks again for all your questions and I Hope everybody has a good day.
That concludes the conference call for today. Thank you for joining you may now disconnect.