Q3 2022 General Motors Co Earnings Call

Yeah.

Good morning, and welcome to the General Motors Company third 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 answer session. We are asking analysts to listen that limit their questions.

And a brief follow up to ask a question Press Star then one on your telephone keypad to withdraw your question. Please press star two.

Minder at this conference is being recorded Tuesday October 25th 2022, I would now like to turn the conference over to Ashish Kohli Gm's, Vice President of Investor Relations.

Thank you Madison and good morning, everyone.

We appreciate you joining us to review Gm's financial results for the third quarter of 2022.

Our conference call materials were issued this morning and are available on Gm's Investor Relations website.

We are 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 C F O as.

That's why it's called boat CEO of crews.

Dan burst president and CEO of GM financial 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 contents of our call will be governed by this language.

And with that I'm delighted to turn the call over to Mary.

Thanks, Ashish and good morning, everyone. Thanks for joining the call during the third quarter. The jam team once again demonstrated our ability to deliver strong results, while executing our growth strategy and managing multiple headwinds.

The third quarter brings our EBIT adjusted earnings for the first nine months of the year to $10 7 billion, which keeps us on track to deliver our full year guidance.

We translated improved supply chain performance into another quarter of full size pickup in full size SUV sales leadership with very strong mix in pricing. The Cadillac Escalade also continues to lead it segment by a wide margin.

Chevrolet and GMC unveiled new mid sized and heavy duty pickups to help maintain our strong position when they launch and the Chevrolet bolt EV and EV are selling at record levels. Thanks to their range technology in value and in September they outsold the Ford Mustang Mach E more than two to one.

Bright drop is generating revenue in the last mile delivery segment and later this year can be assembly is set to launch break drop production, making its candidates first large scale E B plant.

Production will ramp up in 'twenty 'twenty three to begin fulfilling major orders from our customers, including Walmart Fedex and merchants sleep.

In addition, bright dropped launch trace grocery cart last month to help speed up online grocery order fulfillment with Kroger slated to be the first customer.

And as Kyle shared last month cruise has begun its expansion into Austin, and Phoenix and he'll share an update in a few minutes. So he's been a great team effort by everyone and I really want to thank and recognize the G M team, our suppliers and our dealers.

While the operating environment remains challenging our team continues to adjust quickly when and where it needs to this is especially true of our supply chain and manufacturing teams during the quarter, we completed and shipped nearly 75% of the unfinished vehicles. We housing the company inventory in June that's well ahead of the plan, we shared at our last or in.

Carl.

As we've moved through the year, we have seen gradual improvement in the supply chain, including semiconductors short term disruptions will continue to happen, but we're taking concrete steps to minimize them and build long term resiliency. This include signing several strategic supply agreements for mature nodes, where supply is most constrained.

We are also working directly with semiconductor suppliers and sharing long term forecast to increase transparency and ensure their planning cycles cycles include our volume.

I'd also like to recognize the GM China team. Despite disruptions caused by Covid Lockdowns morale is strong and the business has returned to profitability and they are building momentum in China's fast growing E b market.

This includes strong sales of the Wuling hung one many E D, which remains China's best selling electric vehicle. The September launch of the Cadillac lyric and they debuted later this year of the first Buick E V on the Altium platform.

As we grow EV volumes, we continue to benefit from investments, we have made in new ice products and manufacturing capacity, especially in our truck portfolio, where we are the industry leader.

In fact, we took full size pickup leadership from the Ford F series in 2020 and upheld it ever since will press our advantage with the new 'twenty 'twenty four Chevrolet Silverado H D and G. M. C. C. R H D, which will be available in the first half of 2020 three.

Far ranging improvements to these trucks, including redesigned interiors enhanced trailer in technology and new high feature models like the ZR two for Chevrolet and the Denali Ultimate for GNC are designed to support continued strong pricing.

We are also launching all new Chevrolet, Colorado, and GMC Canyon in the first half of 'twenty 'twenty, three which will include new premium off road offerings.

Importantly, the launches will be accompanied by significant reductions in complexity. For example, we reduced the number of tab and bad configurations from three to one to focus on the fastest turning model and we've also reduced our engine options from three to one.

Going forward, all Colorado and Canyon will be powered by the Silverado and Sierra has high output 2.7 liter Turbo engine, which is a great solution for customers and our business. The new engine offers more horsepower and torque than the outgoing gas powertrains and we expect a one to two mile per gallon fuel economy improvement on most models.

Let's turn next to our EV supply chain and manufacturing base, where we are vertically integrating and scaling to meet strong demand. We will soon be transitioning production of the Cadillac lyric and GMC Hummer EV from using imported cells T cells produced at our L. T himself joint venture plant in Ohio at the same time work is under.

Way for higher production at factories Euro as well as volume production. It can be assembly and Ramos our risk base, starting in 'twenty 'twenty, three and Orient Assembly in 2024.

Construction is also underway on two more altium cell plants that will open in 2023, and 'twenty 'twenty four respectively.

This will help us meet strong and growing demand for the GMC Hummer EV, the Chevrolet Silverado, EV and Chevrolet Equinox, CB and Blazer E V along with the GMC, Sierra a b and break drop bands.

All of our 2023 launches are progressing well, however, due to a slight slightly slower launch of cell and pack production than we expected. Our plan is now to produce 400000 Evs in North America over the course of 2022 'twenty three in the first half of 'twenty 'twenty four we.

We are always gated by quality and everything we've learned will help us scale more than two more than 1 million units of annual capacity in 2025 with even greater confidence.

For growth beyond 2025, we continue to secure our future with strategic supply agreements and direct investments and natural resource recovery processing and recycling that.

Most recent example of this is a strategic investment we made in Queensland Pacific metals of Australia to secure cost competitive nickel and cobalt.

The new clean energy tax credits in the U S. Certainly validate our strategy and they will be a strong tailwind to expand domestic supply chain capacity and drive EV adoption.

As we scale the Altium platform, we have been very intentional to position the company for volume growth, but with flexibility efficiency and increased profitability over time.

This includes fully leveraging the Chevrolet bolt EV and EV we're.

We're planning to increase bolt production from about 44000 vehicles in 2022 to 70000 vehicles next year because demand is at record levels, we will use our industry, leading loyalty to move bulk customers into one of our new <unk> like the Chevrolet Equinox CB for their next purchase.

Our bolt EV and EV owner base should surpassed 200000 at the end of next year, if we retain them at our average customer loyalty rate of 64% that's more than 100000 future customers for Altium platform vehicles I believe we can do even better because our new evs are that good.

As I've said cut sugar ban is strong and growing for the lyric the hummer EV the Silverado E B, the blazer EV and the early customer and media response to the Equinox E V and the G. M. C. C. R. E. D. We just unveiled have been overwhelmingly positive.

Electric Dotcom wrote that affordability makes the equinox to be a win for the company and E V buyers everywhere.

In motor trend said it could be one of the first vehicles to trigger a tidal wave of EV demand.

And with the Sierra E D. G. M C will be the only brand with three all electric trucks in the market and they are all incredibly distinctive thanks to the flexibility of the Altium platform.

The Sierra E V didn't always addition, one 400 miles of range 350 kilowatt DC fast charging 9500 pounds of towing bold styling and luxurious refinements make it unlike anything else in the market.

In addition, the agreement we struck with Hertz to deliver as many as 175000 Evs over the next five years will build on this momentum huge segments of the U S population have never driven in E b and renting one for personal or business travel will be far more immersive than a test drive at a dealer. These.

These customers as well as experienced E V drivers, we'll see just how exciting and well executed or products out and this can help increase purchase consideration in sale for G. M E vs.

There had been many other exciting developments this summer and fall and I'd like to briefly mention too that speak directly to the power of our brands and the new business opportunities ahead of us.

The first is the Cadillac selective that we revealed just days ago. It is a completely bespoke work of automotive are built around the most advanced and innovative technology, we have ever engineered.

Immediate describe the celestial as the most advanced most luxurious and one of the most important vehicles Cadillac has ever made but one headline really captured its essence Cadillac out roles roles rice.

The second is the growth of Super cruise our customers have now travelled 40 million miles with Super cruise engaged and the numbers are growing very quickly. We recently doubled its road network to more than 400000 miles of Interstate and non divided highways, making it even more valuable to customers who already have highly are highly satisfied with the technology.

<unk> by the end of next year it will be available on 22 models globally.

While we are expanding the competitive advantage we have in advanced driver assistance systems with Super cruise the cruise team in San Francisco continues to make rapid rapid progress in autonomous vehicles carloads with us so I'd like to invite him to share an update with you.

Thanks, Mary overall, we remain largely on track for our goals this year, including expansion in San Francisco and the goal we announced in September to begin commercial driverless operation in two new markets. We've now driven well over 400000 fully driverless miles in San Francisco and given thousands of.

Members of the public.

We expect to expand our service our service area and hours of operation. Soon we believe this is now the largest fastest growing and most successful commercial robo taxi service in existence and by a large margin.

We've done this while building up a solid track record around safety, especially our safety culture, which drives our decision, making and approach to responsible EV deployment for <unk>.

Experience is getting better all the time and we see this reflected in increased adoption and then many rave reviews, we receive across both our ride hail and delivery operations.

As you May recall, we plan to do early commercialization in 'twenty, one 'twenty two and we have next year marks the beginning of a rapid scaling plays where we plan to churn through the backlog of users waiting to use our service ramp up our operations and start to generate meaningful revenue.

As for our new markets, Austin, and Phoenix, we remain on track to complete our first commercial driverless public rides and deliveries by the end of the year.

This will begin at limited scale, initially and ramp up as we produce more vehicles.

Current status is that our mapping systems worked as expected and we've started supervised testing in Austin with more than a dozen vehicles.

We had hoped we are finding that most of our Avi systems generalize well to new markets and for the handful of things that are unique to Austin.

Donkeys petty jobs squeeze on horses are continuous learning machine is able to automatically mine for these unusual things and then retrain, our neural networks to better handle those situations.

The same technology is already in use in San Francisco and will be used in all other markets. So that our system will continuously adapt to changes that occur within that market such as new kinds of scooters, a predominance of Homer evs or however else cities might change.

As for the industry, we're seeing increased separation between the companies operating commercial driverless services.

Is that are still stuck in the trough of disillusionment what's happening here is that the companies with the best product pulled ahead and are accelerating.

While it was the best products and those people are what makes a company great. They have a highly vested interest in identifying and moving to the clear winners and they're good at it this virtuous cycle fuels the growth of the leaders in stunts the progress of the laggards.

Not just with talent, but also with suppliers partnerships and investors and you've seen this play out at cruise with us pulling in timing and expanding scale, which is an anomaly in an industry that is dominated by delayed milestones and miss targets. Thank.

Thank you back to Ya man.

Thanks, Kyle I appreciate the update and all the work the team is doing at cruise.

So before I turn the call over to Paul I want to encourage all of you to join our Investor Day on November 17, we plan to use this time to go deeper into the second phase of our EV growth strategy Phase one was focused on technology innovation, specifically the development of our proprietary Altium and Ultrafine platforms phase two is the rapid scaling of our product.

Portfolio based on LTM, and ultra firewall, leveraging ice vehicles to maintain strong margins and in phase III will drive rapid revenue and margin growth across the entire ecosystem through software defined vehicles crews and other initiatives to create a flywheel effect phase.

Phase two has already begun and Mark race, Doug parts, Travis Cats, Paul and I will show you, how it accelerates through 2020 five.

We will include Kpis to help you track, our EV progress, including including margin improvement.

And in the first half of 2023, we are playing a deep dive into our software defined vehicle strategy to show you. How we will leverage I'll defy to help expand revenue and margin. We also plan to share new details about the expansion of Super cruise the launch of ultra cruise and other high return technology initiatives, both events are going to be exciting and compelling.

With that said I'll turn the call over to Paul Thank you.

Thank you Mary and good morning, everyone. Thank you for taking the time to join us with.

We have stressed that this year's about executing in the beginning of the year, we highlight odd billion dollars of inflation.

The business was set out to perform at or near the record levels that we achieved in 2021.

Although we were more than three quarters of the way through the year I'm extremely proud of the progress that our global team has made we remain well on our way to achieving the commitments we outlined in February .

Volumes were up 80% year over year, as we successfully completed and shipped nearly 75% of the vehicles built without certain components holding company inventory at the end of Q2.

This tailwind was partially offset by logistical challenges, we have seen particularly for Mexico, which has impacted our ability to recognize revenue on certain in transit vehicles, along with some spot plant downtime.

Overall parts availability and supply chain issues continue to slowly trend in the right direction with the team working tirelessly to navigate the dynamic environment. As a result, we remain on track to increase the full year 2022, wholesales by 25% to 30% year over year and delivered North American EBIT margins of 10%.

Q2 revenue of $41 $9 billion was a record for the company, we achieved $4 $3 billion in EBIT adjusted of 10, 2% EBIT adjusted margins and $2 25 in EPS diluted adjusted.

We generated $4 6 billion.

Cash flow during the quarter and continue to expect $7 billion to $9 billion.

For the full year are.

Our strong cash generation allows us to continue investing in our future while at the same time returning cash to shareholders.

Confidence in our longer term outlook inform the board's decision in August to reinstate a cup of corporate dividend and increase our share repurchase authorization to $5 billion. During the quarter, we bought about $1.5 billion of stock retiring 38 million shares.

North America delivered Q3, EBIT adjusted of $3 $9 billion up $1.8 billion year over year and EBIT adjusted margins of 11, 2%, primarily driven by higher volume and pricing, partially offset by higher commodity costs as well as investments in growth.

Q3, EBIT was positively impacted by the completion of a substantial amount of the vehicles that we built without certain components, which we said last quarter were primarily full sized trucks and Suvs.

As production improves we're closely monitoring dealer stock and inventory turns to appropriately match supply with demand the number of vehicles physically on dealer lots is well below historical levels and continues to be tight at around 20 days.

Importantly demand remains strong for our highest margin projects with very fast turn rates. These include HD pickups like the Sierra which is turning at about 10 days and our full size Suvs are.

Faster.

Total dealer stock, including in transit vehicles increase due to accommodate higher production clearing out the portion of company inventory and logistical challenges that have lengthened Lasalle.

Vehicles to arrive at dealers.

Pricing in Q3 was favorable versus Q2, and well above Q3 last year.

Costs were up year over year, primarily due to increased commodity and logistics expenses engineering software development costs and the absence of a favorable bulk recovery in the third quarter last year.

GM International delivered third quarter EBIT adjusted of $300 up $100 million year over year as the team continued to navigate a volatile and dynamic environment.

This included $300 million of equity income in China up slightly year over year as production levels and continued to improve from COVID-19 related impacts earlier in the year.

EBIT adjusted in GMI, including China, Excluding China equity income was breakeven also up slightly year over year with results driven by favorable pricing and volume, partially but by the same mixing commodity costs year.

Year to date EBIT adjusted is $400 million, reflecting the tremendous work. The team has done over the last several years to strengthen this business.

GM financial once again delivered strong results with Q3, EBT adjusted of $900 million down $200 million year over year, primarily due to lower net lease leased vehicle income.

Overall, GM financial balance sheet and credit metrics remain healthy, reflecting the strong underlying credit quality of the portfolio, although moderating off historically strong levels net charge offs remain below pre pandemic levels as credit mix has shifted towards prime customers.

Corporate expenses were $350 million in the quarter up a $100 million year over year, primarily driven by growth initiatives.

Corporate also included a $100 million gain relating to the disposition of our still aren't just warrants which were exercised in Q3, when the lockup period expired and resulted in approximately $1 $1 billion of cash proceeds.

<unk> expenses were $500 million in the quarter up $200 million year over year, driven mainly by modifications to share based awards, resulting in an accounting change in compensation expense.

Now let me provide a few forward looking comments.

We continue to track to the midpoint of the $13 billion to $15 billion EBIT adjusted range, we laid out at the beginning of the year year to date, we're at $10 7 billion dollar EBIT, adjusted which implies Q4 EBIT adjusted in the low $3 billion range slightly higher wholesale volumes from completing the remaining vehicles holding company inventory are expected to be.

More than offset by a normalizing mix launch related costs and typical seasonality we see in Q4.

We estimate commodity and logistics costs to be around 5 billion dollar headwind year over year consistent with prior expectations.

Earlier in the year raw materials were driving around two thirds of this $5 billion increase they have come down and are no closer now closer to half with this benefit has been offset by other cost such as logistics and supplier claims.

We're working collaboratively collaboratively with our suppliers to jointly identify efficiencies to help mitigate these headwinds.

As we move into 2023, we continue to see the dynamics between commodities and pricing of the natural hedge that should trend in similar directions, helping to maintaining the earnings power of the company.

We also continue to see strong demand for our products and we will remain thoughtful in our approach to pricing.

We've been agile through this volatile environment over the last couple of years and as we said last quarter, we're already taken proactive steps to manage costs and cash flows, including reducing some discretionary spending that's limiting hiring to critical needs and positions that support growth.

In summary, we continue to execute on our near term financial goals, but more importantly, we're making great progress on the milestones we shared last year and then just to reach will have the opportunity to update you at our Investor Day in New York on November 17th.

This concludes our opening comments, we'll now move to the Q&A portion of the call.

Okay.

Thank you.

A reminder to analysts we are asking that you limit your questions to one and a brief follow up so that we may get to everyone on the call.

First question comes from John Murphy from Bank of America, John Your line is open.

Good morning, guys and thanks for all the detail.

A first question around the.

The inventory and I'll promise I'll, just say the one follow up to this I mean, if you think about 359.

9000 of.

Units on your lots right now youre, saying its about 20 days supply and I'm. Just curious how you think about governing that going forward. So you maintain this very strong price environment, which is driving that.

Our record profitability I'm, just trying to make sure we stay at tight levels and how do you think about staying tied to support pricing.

So there.

Go ahead market [laughter] apologies well thanks for that question. John So you know we were watching this very very closely as we've said you know looking at dealer turn times looking at.

Grounded stock you know as we've talked about.

Logistics remain a bit of a challenge for us whether it's vehicles that are completed waiting transit to dealers or.

Even some vehicles that we've had some challenges getting across.

Order from our facilities down there so a lot of this inventories still in transit the grounded.

Inventory, we continue to speak to our dealers. They stay demand is really strong and you know many dealers are thinking about the older vehicles sit there with a buyer.

You know officer out of a transaction they already had and it's not very long before they go through their list and find somebody to purchase them. So this is something that we're watching very closely I think theres, a little bit of a surge right now.

The vehicles that were.

Partially built at the end of June , but we watch this we're seeing no no signs of concern in the short run.

Okay, and then just a follow up then on tightness I mean cap used in the quarter. I think you said in North America is one O three 3%.

Two ship Street trying now kind of implied capacity of about $3 1 million units. If we look back to some period that was somewhat normal third quarter of 2020, it's hard to call anything the last couple of years normal, but kind of kind of normal that cap was 112% and your G. M&A EBIT margins were 15% right. So this quarter, where we were over 11 I'm just.

Curious as you think about ramping up that cap U curve Mary you've been doing this for a while and I understand this stuff well.

Is there room for margins all else equal as as volumes recover and that cap Ute goes up that you could see significant upside to margins over time, and where does that been backwards. It's at 110 115 or 20% cap. You then would you add more capacity to to help alleviate that that sort of backward bend.

Well, John I think overall, we're going to remain disciplined I do think there's an opportunity to drive strong margins I you know we're seeing it right now with that's the mix for instance on full size trucks are consumers continue to want a very high mix are we think that that will translate also.

I went to E V and as we move forward in the EV launch and have our battery plants operating and get to scale and continuing to make the battery improvements, we see again and that's another level to have strong margins and then sitting on top of that is from a from a software perspective, and and then you know overall beyond I'll say the traditional.

The the battery pack assembly as well both of those as we've ramped up our taking a little bit longer and that's why you know instead of hitting that 400000, Mark at the end of 'twenty three it's gonna seep into 'twenty 'twenty, four but with everything that we're learning a you know it gives me great confidence that we're going to be able to start plant two three and beyond on time.

When you look at at the health of the business and I think when you look at cash platforms. When you look at cash flows when you look at our ability to.

Repurchase some shares during the quarter that signals, our confidence about being able to balance the spending be aggressive where we can as you've seen us over the last couple of years, but also keep that balanced within our means and you're going to continue to see that from us.

Thanks very much.

Our next question comes from Rod Lache from Wolfe Research.

Your line is open.

Good morning wanted to ask first Mary I overheard you say in an interview this morning, the gyms well positioned for the I R. A I was hoping you can give us maybe some color on the magnitude of the north American content and critical medical mineral sourcing or where the manufacturing credits.

Look out to next year and related to this your original margin targets sort of midterm and long term at 10% and 12% were pre I R. A I'm curious if you have any thoughts on whether this could be accretive to that.

Sure well just to maybe touch on that last point you know we believe we are very well positioned and we think we're waiting for the the treasury rules to be finalized, but we think it will accomplish so it positions us with our strong EV portfolio covering the important segments to really drive affordability.

To spur consumer adoption. So overall, we feel very well positioned but if you look at it and you know right now over the 10 year lifecycle of the credit we will offer a number of models in the segments and price ranges that will be eligible for the full 7500 dollar credit and for US. Many of these are going to be high volume and.

<unk>, we do think some of the vehicles will be eligible for the 3750 credits starting in January and then we'll ramp towards full qualification across the broad portfolio in two to three years as some of the different supply comes online in North America or in the United States.

We also think there's a significant opportunity to potentially leverage the other tax credits of up to $45 per kilowatt hour with respect to battery cells and battery modules produced in the U S. So that's another opportunity where again I think we're better positioned than most because of our aggressive plan to get the battery plants and the pack Assembly are in this country and then we do.

I think we see an opportunity for our suppliers to leverage a tax credit for up to 10% of the cost of the U S source battery electrode active materials you know starting in January of next year. So that's just a little bit more color again, we will have vehicles that are in the right MSRP our range to two.

Qualify so when you look at it overall, there's the commercial incentives also that will support bright drop in the fleet and rental car. There's they use D V purchase incentive that we think will support E. B resale values and again, we have car Bravo and then the elements from our manufacturing granted loans. So.

You know, that's just a little bit of the detail again, we're waiting for the final rules from Treasury, but yeah. I think you can see this will really go a long way to helping us drive affordable E D's and drive our profitability well you know even hitting some of the lower MSR piece.

Okay. Thanks, Mary that's that's helpful and Paul on your last call you mentioned that the next recession would be characterized by risk to pricing as opposed to volume.

Since then rates have obviously gone up in trade ins out values have moderated and even though you have a lot of in transit inventory it looks like the aggregate inventories probably climbing the 50 to 60 day range was hoping maybe you can give us a little bit of additional color on how you see that playing out where do you think we ship from.

Supply constrained to demand constrained and or any color on this commodity hedge that you are that you mentioned during the prepared remarks.

Yeah. Thanks, Rob So you know what I think you know it's it's obviously we've seen some increases in inventory, but that's not a surprise I think we wholesale oh rounding to a million vehicles during the quarter.

As evidence of both producing and clearing out the the vehicles that hadn't been finished in June . So you know I think we're working through that right now I think it's too soon to conclude anything about trends, we do know that there's a lot of pent up demand.

From the last couple of years as evidenced by both the MSR piece as well as what turn rates of I've been doing so we're watching all of that closely but haven't come to any conclusions about any softening or any demand.

That's occurred to date I think as you look at you know the dealer.

Statistics as well as G M F.

People that are clamoring to get into our vehicles and still see high demand, particularly for the full size trucks and Suvs.

Thanks anything on that commodity hedge Paul that you mentioned what you you just concluded you still negotiations since that.

Do you have any measure of the magnitude of that offset.

No no nothing specific today Rod I mean keep in mind that you know obviously when you look across.

All of the commodities they've come off their highs, which will benefit some tailwind next year you know as it relates to steel remember, we've got a portfolio approach where some of them. It's somewhere on term contracts. We benefited from that as steel was spiking over the last couple of years, but you'll you'll see some lag, particularly.

And steel.

You know from some of those multi year contracts, which is which is fine over the long term, but it will we wont provide as big of a tailwind but.

Otherwise would.

Well, we'll get more detail on that as we give full year 2023 guidance.

Later, but nothing specific now.

Thank you.

Our next question comes from each time and Kelly <unk> from Citi. Your line is open.

Great. Thanks, Good morning, everybody and congrats on the results maybe just to follow up on that last question. Paul just if you can.

I'll, let you do think that pricing net of commodities can still be up I guess, if you can talk to neutral into next year maybe.

Maybe hoping you can elaborate on that about last comments in the prepared remarks, but maybe also talk about the opportunities you see with the HD each blocks in the midsized trucks, you're launching next year it sounded somewhat to some probably some opportunities for the company there as well.

Yeah. Good morning, Utah, So I didn't I didn't necessarily say that it was gonna be flat so that was going to be some go.

Forward you know we already do know about some pressure that's likely to hit next year from pension accounting you know keep in mind that you know while the funded status hasn't changed just the differentiation of.

Although very different rate environment, that's going to cause some headwinds on the pension side.

We'll know more as as rates settle out at the at the end of the year, but you know that could be north of $1 billion no change to cash no change to any funding just the way. They work. So we're watching all of that that's why we're trying to necessarily piecemeal all of this stuff going forward, what we'll provide.

More with our full year guidance, you know and obviously when you look at the launches of the new H D. You know, there's there's a lot of our content rich vehicles that are coming out we've continued to see those and strong demand as we rolled them out both across the Suvs and the and the light duty pickups as well so.

We expect to see some demand coming there is as customers can't get them fast enough. So we think that there. There is some good news out there all of that has to be balanced by every.

Others are seeing out there even if we're not seeing it which is why we continue to be cautious in our approach, but what we're focused on is executing every day and I think this quarter demonstrates the power of the team's ability to do that.

That's really helpful and maybe a ballpark for married Kyle any update on when we could see the deployment of the cruise origin next year is that more first half or second half and then call Windows origins are deployed what's your targeted ODT in San Francisco at that time.

Kyle do you want to take that.

Sure no problem so to begin with one of the things. We did just recently as we started operating the cruise origin on the streets of San Francisco, but being driven manually for data collection and so that's another milestone as we ramp towards production for that vehicle volume production next year.

We deploy initially the Oh D D will probably look.

Similar to what we're doing with our boats, but we're gonna announced that a little later as we get closer to the deployment phase for that vehicle.

Great. That's very helpful. Thank you.

Okay.

Our next question comes from Ryan Brinkman from JP Morgan Ryan. Your line is open hi, Thanks for taking my questions I wanted to ask on commodity costs I realize its a complicated equation with binds deal in advance compensating suppliers in a lag some hedging, but just straight lining the latest spot prices through the end of 'twenty three would suggest to me.

Sizable tailwind next year or so how have you done any work to try to dimension. This tailwind and maybe how it might compare in magnitude any headwind do you expect to face from higher non commodity supply chain costs, such as energy logistics labor or other costs.

Yeah, Hey, Ryan again.

I wanted to avoid getting into any specific commentary about 'twenty two 'twenty three guidance from that standpoint, you know obviously, we are you know watching not just commodities, but logistics container rates. You know just overall, there's a lot of things that are moving around and changing and evolving so you know.

If we see slowdowns in the economy, not only would we expect commodity rates to come down further we'd expect freight rates to.

Come down as well, we'd probably spend less on expedited premium freights that we've been spending because of supply chain should normalize a little bit.

But you know those are the things that we're working through in the budget. So what I ask because it give us time to go through that take our board through that and you know, we'll let you know as soon as we pull it all together for our plan in 'twenty three.

Okay. Thanks, and then just lastly is there any color you can provide on potential settlements with suppliers to compensate them for premium non commodity supply chain costs board called this out as a billion dollar headwind during this quarter versus I didn't see anything in your released along those lines I'm curious if you're taking a similar approach to settle more.

Lee or maybe expect to spread these payments over several quarters or just any thoughts you might be able to provide on how these negotiations with suppliers are progressing amidst the higher inflation environment and impact on Jim going forward.

Yeah sure. So obviously I won't comment on any specific discussions that were.

With our suppliers, but you know as we alluded to in the prepared remarks.

We are focused in on this as well as commodity prices et cetera.

As part of the $5 billion of pressure that we were gonna see year over year, we've been talking about that all year. So you know the supplier world isn't new to us.

Not a surprise to us. It is is as we said in the prepared remarks, taking up a little bit more of that bucket than it was before on a percentage basis, but you know I think overall, we're we're in control of that situation working proactively with our suppliers and making sure we're doing in a way that meets their needs as well as meeting our.

And the commitments we've made to the street.

We won't talk about anything specific with it its in there we've we've budgeted and planned for that and there was no no surprise from our side on on what we've seen and I think it speaks to our you know the quality of the guidance that we've been able to.

To highlight all year.

Great. Thank you.

Our next question comes from Mark Delaney from Goldman Sachs. Mark Your line is open.

Yes, good morning, and thank you very much for taking the questions. The first one is on mix in the company spoke to some mixed normalization in the prepared comments. What you think is driving that mix normalization or is it more about what GM has the supply to be able to produce and that broadening out beyond the higher end or are you seeing any pressure on mix related to what consumers are able to afford given the macroeconomic backdrop.

Yeah, no nothing nothing from the consumer side I'd say that comment was really aimed towards the fact that you know we cleared out the vehicles that are had been built without the components are at the end of June we talked about 75% of those are being full sized trucks and Suvs. So it stands to reason.

Is that you know with only about 25% of that pool left you'd see some balance so it's really more due to production.

Most of it than it is anything on the consumer side.

That's helpful. My follow up is on on cruise and as cruises enter into scaling all phase in and Karl Thanks for all the updates. So you you shared on the progress cruise is making them or are you guys able to share any more color on how investors should expect an investment levels accrues to trend going forward in order to support that.

Wrap up relative to the current level of investment.

Kyle I don't know if you want to comment I mean, I'll just say you know, we roughly see it slightly higher than 2022 levels and yeah. That's that's what we're building into the plan.

Yeah.

Okay. Thank.

Thank you.

Anything anything else Mark.

Thank you.

Our next question comes from Adam Jonas from Morgan Stanley Adam Your line is open.

Thanks, I just had a follow up on cruise again, I'm thinking quarterly cash consumption was 0.5 billion this quarter.

Rolling out though into two new cities by the end of the year further expansion.

Just want to confirm marry that that if we kind of continue that quarterly run rate of 0.5.

Maybe increase it slightly but not not not dramatically is that a fair assumption from here Yeah. That's a fair assumption and then remember as we start to scale. We do have a line of credit for the vehicles from GM financial Thanks, Mary just a follow up on G M financial while up slightly the delinquencies as you pointed out is still really low too.

5% in net charge offs below pre pandemic levels. Just curious how you would describe the credit outlook for GM financial what what changes are you, making in your portfolio to prepare for.

For further rises in rates and impact on park portfolio performance I figured that's an unusual environment given how much of the business as it has been.

Our order booked but I I I correct me, if I'm wrong, you're moving more into kind of that at the margin does that just in time.

Market that were familiar where there's still some order book. So I appreciate your what Youre hearing in real time from the dealers on the credit side. Thanks.

Yeah. Adam This is Denver, some yeah first of all as you pointed out our credit metrics are really still quite strong.

Pre pandemic, our net losses ran in the one 5% range. So they are less than half of that now.

70 basis points, you know for several years running now our portfolio is skewed more and more to prime consumers and that's defined as <unk> plus FICO.

In fact, recent vintages have been 80% prime at our whole portfolio now is 72% Prime. It's also heavily new car finance related which typically has been a stronger credit profile.

Prime consumers period, typically have a stronger balance sheet buffer better income levels, and historically have been more resilient and weaker economic times.

As I said last quarter to your question, our new car portfolio continues to perform.

Substantially better than pre pandemic levels.

Our used car non prime book is showing more normalization.

And as always we always look for a targeted ways to improve our underwriting and now is no exception. So that would be the area of most focus their used car non prime book.

That all being said.

We overall expect some normalization in credit.

Especially weaker economic conditions.

But our reserve levels already contemplate that in.

Dealer standpoint, the through the door application flow really doesn't look different now with the.

On the run.

Buyers as opposed to orders of acquirer, but we haven't really seen any difference at the dealer level.

Really appreciate the color. Thank you.

Our next question comes from Emmanuel Rosner from Deutsche Bank.

Your line is open.

Oh, Thank you very much and good morning.

First a quick follow up on the.

The delay in the the battery ramp up can you. Please.

Please remind us which of the EV models, whereas in our easy to use self sum this up plants, you're ramping up and therefore, we will see some sort of a delay.

And their volume ramp up and I guess more broadly how are you going to prioritize.

Allocation over the next call it 18 months or so when you are a bit more constrained than maybe expected.

Yeah, Emmanuel so because of the the Altium platform, we really have a lot of flexibility and so the the cells coming from all Tam, which you know are now in production will be flowing you know first to support Hummer production and you know we have over 90000 orders are there.

And then the lyric, which we have really strong strong interest in both the two model years, you know were already sold out for the available and we have strong interest.

And as we get into next year they'll be spread across also silverado blazer and equinox Evs for Chevrolet and some of our other models. So you know we will allocate them across all of those are you know somewhat based on demand and as those each of those plants ramp and.

And you know, we'll make that somewhat dynamically as we go next year, but well.

Spread them across all of those vehicles and again this is just.

Just a slight shift in the acceleration as we get into 'twenty four because we'll have a plant coming online next year and the following year, you're going to see a steeper ramp and that's what gives me great confidence in getting to the million units by 2025.

Okay. Thanks for the color and then the follow up was.

Put a finer point on some of.

Demand trends youre seeing sort of real time Bose booths in the U S and China as possible.

Yeah.

And I think I think we've covered most of this I'll I'll start Paul and then if you want to add anything I mean, I again, we're still seeing very strong demand I think what specific PJM is we have a very strong truck portfolio. If you look at what we have right now we've refreshed our light duty trucks.

We have now not only the heavy duties coming out early next year, but we also have a you know an all new mid size trucks. So I think that puts us in a very strong position with trucks, regardless of what the environment is I think we're gonna have a very strong offering from a customer perspective and choice across.

The full range of those vehicles are we are still seeing strong hep's on that are you know, we're watching carefully to see if and when they moderate I also balancing against incentives are you know we're going to continue we think to see some semi conductor challenges in and I'll say overall.

Challenges from a from the supply base I mean.

It's still very tight when you look at them how long we've been running at that even a small hiccup usually has an impact and so we're going to continue to work those issues, but we see that improving as well. So I think the big the big thing that we're looking at is what will demand be there's still a lot of different predictions on what are the economic situation.

<unk> will be but I think overall from where we are coming in are in low inventory perspective strong product offering.

And I think we're well positioned to manage through it I don't know Paul if you want to add anything.

Yeah, maybe I'll just I'll just add that you know we're still very much in a in a production constrained world.

As an industry against where demand is and as we look to 'twenty. Two 'twenty. Three are you know we've said publicly that we're we're kind of planning for a 15 million Saar a year, which is you know kind of below where most people pegged demand, but it's actually above where actuals have been for them.

Most of the year given some of those supply constraints. So you know I think everything Mary said is absolutely true.

Watching it very closely we are planning for some tightness next year, but that's because we want to be on the on the proper side, we don't want to get surprised if we are if we see that trending lower so I'm you know hopefully demand remains strong I'm.

Going into 2023, and we can outperform the expectations that were putting on paper right now, but you know what.

Three.

And then in China, and the new ones there.

And you know in China, I think where I as we now have the lyric we started offering to Lyrica in September and we will have the Buick all team based product. Those are two very important brands that we do well in China, you know I think well continue to see strength in the Hungarian mini EV.

So I think the real opportunity for us in China is to now with the products, we have grow that grow our E D portfolio, while maintaining our costs are and you know, we'll look to see how the company or the country guys from an economic perspective, but you know we have a strong portfolio coming from an EV perspective, and I'm really.

I'm proud of what the team is doing in light of.

Volatile and different headwinds that they face, especially with some of the COVID-19 situation.

Great. Thank you.

Yeah.

Our next question comes from Colin Langan from Wells Fargo. Colin Your line is open.

Oh, great. Thanks for taking my questions.

Any color on pricing I mean, any color as it improved sequentially I know year over year, it's still quite a bit of a big tailwind and should we expect it to stay strong. Its just feels like there's an awful lot of headwinds out there rates are rising used car prices are falling.

You highlighted demand is strong but.

Part of the market data is a little cautionary I think some of the dealers are saying pre salt vehicles are sort of back to normal levels with the very being very few left in inventory has ticked up themselves really haven't moved yet.

You would think that this man was there. So should we think pricing is going to have to move for you and the industry to kind of keep the Taman flowing.

So collyn I'll I'll take a shot Mary you can add anything you know.

Certainly you know I think this comes down to the to the question of how much pent up demand is there, which you know I don't think is necessarily.

Really specific we know about.

Over time, but you know, we're what we're really focused on those trends going forward and managing to those trends.

Uh huh.

Uh huh throughout this year the customers, obviously been very resilient.

And I think that speaks to the quality of our products.

Uh huh.

So I don't think that piece is going to change I think you know the industry could normalize we could see that although I don't think we see a big increases in production going forward. So depending on how that pent up demand shakes out and I think that'll affect inventory, but what you're hearing from everyone in the industry.

Learn in inventory management over the last couple of years.

And you know we ourselves have cited some of that so even if we assume some slight softness in 'twenty three is as I've talked about on the cider side, we're not we're not seeing it as you know sort of a major shakeup.

Yeah.

And then just following up on the questions around the IRA just for clarification I think you said you.

See I think over 10 years, the potential to get the full 7500.

And then I'll forget you think you've got the 3007 hundred 50% of the battery component part of it I mean is that I wasn't sure. If the 7500 Theres also the commercial credits as the $7500 for retail buyers that you think is possible because that's sourcing parts seems to be the.

Most challenging to get at.

Yeah, we I, we we think you know out of the gate, we're gonna be eligible for the odd 3750, and we'll ramp you know they have full colocation in the next two to three years getting up to the 7500, So you know which positions us well to be eligible for the complete.

But the complete credit from the consumer perspective, the 7500 dollar one you know through the 10 years and it just take a couple of years to ramp up based on our expectations with this supply moves that we've already made and then you know as I mentioned, there's also the to leverage the tax credit of up to $45 per kilowatt hour battery cells and batteries.

Macho has produced in the U S. Again, we're well positioned there and then you know the commercial incentives I think are going to be very important, especially with bright dropped our fleet and rental car. So those opportunities as well as used used price purchase incentives as well. So again, we're waiting to see what treasury does from a roll perspective.

But you know those are just a few of the opportunities that we think we're well positioned for them and frankly better than most.

Great. Thanks for taking my questions.

Our last question comes from James Picariello from BNP Parable James Your line is open.

Hi, good morning, everyone.

Just at a high level you know the the sequential walk to the full year adjusted EBITDA midpoint of $14 billion. Just curious if you could provide you know the major puts and takes to get to the midpoint, obviously it would be a.

The sequential decline in the fourth quarter relative to a very strong third quarter, yeah, just any color there would be great.

Al you want to take that yeah sure. So you know I would say it starts you know it starts with a wholesales, obviously, we had a a really strong quarter as not only did were we able to produce but we also cleared out you know 75% of that so it was a little bit front weighted if you recall back in the June quarter call, we talked about being <unk>.

50, 50 of clearing those out so theres nothing sequentially different about the business that we're talking about but I would expect that we are we are you know.

Cut wholesale is a little bit just off of the fact that we cleared out the majority of those vehicles from June <unk>.

Okay, and just on that in terms of the 25% to 30% wholesale growth.

Is there a bias towards the lower half of that range based on how supply chains are shaping up and how the third quarter came in or.

How should we be yeah.

Yeah, No no no specific commentary on that range as Mary highlighted.

While the chip and the logistics environment is generally improving there are still.

Some short term impacts that we digest Hum you know on a on a regular basis and the team does a good job of working through those but I wouldn't want to get more specific than the 25% to 30%.

Okay. Thanks, guys.

Thank you I'd now like to turn the call over to Mary Barra Bora for her closing comments.

Well, thank you Madison and I just have a couple of comments to close the call person from US I hope everyone is hearing that the entire team is focused on meeting our commitments and driving results that support the rapid scaling of our EV business and driving continued strong margins I think over the last two years, especially we've demonstrated.

Resiliency and the ability to manage headwinds many times that have even been stronger than we've seen in the past and going forward. We will continue to show that agility and resiliency in our guests whenever we need to do what we need to do to stay on track and so I'm very confident of our transformation that's underway and I think.

Next year is a big year for us.

You'll hear our at our Investor day in November .

More about the EV strategy, including the Kpis. So I hope you will attend.

And Paul Kyle Dan and I. Thank you for the questions today, and we look forward to seeing many of you there and again I couldn't be more committed to where we are clearly in execution mode from a G. M perspective with R. E V. A P strategy. So thank you everyone have a good day.

That concludes the conference call for today, Thank you for joining.

Yeah.