Q1 2023 General Motors Co Earnings Call
Speaker 1: Good morning and welcome to General Motors Company.
Speaker 1: 1st quarter, 2023 earnings conference call.
Speaker 1: During the opening remarks, all participants will begin to listen only mode.
Speaker 1: After the opening remarks, we've all conducted question and answer session.
Speaker 1: We are asking analysts to limit their questions to one and every follow-up. To ask a question, press star and then one on your telephone keypad.
Speaker 1: To withdraw your question, press star and then two on your telephone keypad. As a reminder, the conference call is being recorded Tuesday, April 25, 2023. I would now like to turn the conference over to Ashish Kohli, GM Vice President of Investor Relations. Thank you, you may begin.
Speaker 2: Thanks, Julie, and good morning, everyone. We appreciate you joining us as we review GM's financial results for the first quarter of 2023.
Speaker 2: Our conference call materials were issued this morning and are available on GM's Investor Relations website.
Speaker 2: We are also broadcasting this call via WebCast. Joining us today are Mary Barra, GM's Chair and CEO , Paul Jacobson, GM's Executive Vice President and CFO , and Kyle Boat, CEO of Cruz. Dan Burst, President and CEO of GM Financial will also join us for the Q&A portion of the call. Before we begin, I'd like to direct your attention to the forward-looking statements on the first page of our presentation. The content of our call will be governed by this language. And with that, I'm delighted to turn the call over to Mary. Thanks a lot. Good morning, everyone. Thank you for joining us.
Speaker 3: Paul, Kyle, Dan and I are glad to have this opportunity to discuss our first quarter results with you. Once again, we delivered strong earnings and I appreciate the efforts of everyone involved, including the GM team, our dealers, our suppliers, our unions that all helped us meet strong customer demand for our products. Highlights include our international markets outside of China.
Speaker 3: which had a record quarter in North America where we earned 10.9% EBIT adjusted margins.
Speaker 3: In the US, we are the market leader in retail and fleet sales, including commercial sales.
Speaker 3: We earned the largest year-over-year increase in the US market share of any automaker, and we did it with strong production and inventory discipline, as well as consistent pricing.
Speaker 3: We delivered more than 20,000 EVs in the U.S. in the quarter on the strength of record bold EV and EUV sales and rising Cadillac lyric deliveries. This moves us up to the second market position and increased our EV market share by 800 basis points. We delivered more than 20,000 EVs in the quarter on the right.
Speaker 3: We also continue to sell more trucks in the US than anyone by a wide margin.
Speaker 3: In addition, the $2 billion of fixed cost reductions we are targeting will flow to the bottom line faster than we originally expected. And the enterprise value of these fixed cost reductions will have even greater than $2 billion value because we're strengthening our culture which has consistently delivered strong results.
Speaker 3: We're reducing our executive ranks by more than 15% through voluntary separations, which will help reduce bureaucracy. And we are empowering our leaders to structure their teams to be faster and more agile. In addition, we are prioritizing programs and projects that have the highest revenue and cost impact. We understand the bar continues to be raised, so we're holding ourselves accountable.
Speaker 3: to drive improvements every single day. As we look at the performance of the business and the opportunity ahead of us with new ICE and EV launches, we're able to raise our full year 2023 earnings guidance to a range of 11 billion to 13 billion.
Speaker 3: The new ice products we are launching around the world will build on this momentum and support strong mix pricing and EVET. In GMI, the new Chevrolet Tracks is off to a very fast starting career with more than 13,000 orders placed in the first week of sale.
Speaker 3: In Brazil, the new Chevrolet Montana pickup saw more than 10,000 orders out of the gate.
Speaker 3: And demand for our new midsize and heavy duty pickups in North America is growing especially at the high end.
Speaker 3: Over the last years, we've evolved our premium truck offerings from a niche to a franchise, and we did it through manufacturing investments, design, demonstrated capability, and technologies like Super Cruise.
Speaker 3: Our customers are responding. 60% of dealer and customer orders for the new Chevrolet Colorado are high-end Z71, ZR2, and Trail Boss models. Last year it was 42%.
Speaker 3: 75% of the GMC Canyon orders are for higher end AT4 and Denali models. Last year it was 45%.
Speaker 3: 52% of Chevrolet Silverado HD orders are for the top of the line high country model. And 30% of the GMC Sierra heavy duty orders are for the new Denali Ultimate, which is a brand new model that didn't exist a year ago.
Speaker 3: Our profitable growth opportunities extend into other segments as well. For example, the Chevrolet Tracks and Trailblazer and the Buick Encore GX and Invista will help us win new customers from brands that walked away from affordable vehicles or scaled back customer choice.
Speaker 3: All four of these small SUVs are beautifully designed, packed with technology, and include a long list of standard active safety and driver assistance technologies.
Speaker 3: Yet they all have starting MSRP below $30,000 with the track starting below $25,000. As a measure of just how good these vehicles are, the tracks earned a 63% lease residual. That's 24 points above the previous generation and the best we've ever done in this segment.
Speaker 3: As for the INVESTA, one auto-writer said it's gorgeous styling resembles a Lamborghini and another said, as far as rivals go, the 2024 INVESTA might be playing in the sandbox alone because it's both premium and affordable. At the same time, our EV volumes in market share are growing as cell production rises and our team's master new hardware software and manufacturing technology.
Speaker 3: Cadillac lyrics and production will continue to rise to help us meet pent-up demand. Both GMC Hummer EV models are shipping from factory zero and production is scaling. Our production ramp is carefully cadenced as we add additional trim series to the Hummer EV pickup and begin production of Edition 1 SUV.
Speaker 3: The team at Cammy has now built more than 500 bright drop ZEVO 600 Vans and the ZEVO 400 begins production in the second half of the year. And we've added pearl later in Ryder as customers.
Speaker 3: We already have 340 fleet customers for the Silverado EV and the team at Ramos Arispe is making great progress preparing for the launches of the Blazer EV and the Equinox EV in the second half of the year.
Speaker 3: All of this is enabled by rising production at ultim cells in Ohio, which we expect to reach full capacity at the end of the year.
Speaker 3: Everything we learned in Ohio will be applied to our next choose, Ultim Cell Plants, including in Tennessee, where we will begin hiring and training production workers in a matter of weeks.
Speaker 3: Work also continues to transform our assembly plan in Orient Township, Michigan to build the GMC Sierra EV and the Chevrolet Silverado EV.
Speaker 3: We have progressed so far that it's now time to plan to end the Chevrolet Bolt EV and EUV production which will happen at the very end of the year. When Orion EV assembly reopens in 2024 and reaches full production, employment will nearly triple and will have a company-wide capacity to build 600,000 electric trucks annually.
Speaker 3: We'll need this capacity because our trucks more than measure up to our customers' expectation and we'll demonstrate that work and EV range are not mutually exclusive terms for Chevrolet and GMC trucks. So stay tuned.
Speaker 3: As we scale EVs, we will lower fixed costs and will continue to drive margin improvements we outlined at investor day. This includes optimizing our pouch cells for energy density, range and cost using new approaches pioneered at our Wallace Battery Center and buy our technology partners.
Speaker 3: And we announced this morning that we're also working with SAMHSA to add cylindrical and prismatic cells to our portfolio.
Speaker 3: Having multiple strong cell partners will allow us to expand into new segments more quickly, grow our annual EV assembly capacity in North America significantly above 1 million units, and integrate cells directly into battery packs to reduce weight, complexity, and cost. Reducing vehicle complexity in expanding the use of shared subsystems.
Speaker 3: screen configurations by 60% across our entire portfolio. By reducing complexity, we can focus on delivering new and improved digital experiences much more quickly.
Speaker 3: We also expect that our supply chain will be an even bigger competitive advantage starting in 26 and 27 because of the direct investments we've made in lithium, nickel, and other commodities as well as CAM, which will allow us to purchase significant quantities of material on favorable commercial terms.
Speaker 3: All of this is coming together in a way that will fundamentally change the narrative that traditional automakers can't deliver competitive EV margins. We have a lot of work to do, but we have the right trajectory, and I believe we can get there much faster than people think.
Speaker 3: Now, before I turn the call over to Paul, I would like to invite Kyle to share an update on cruise which continues to expand the scale and scope of its operations. Kyle, over to you.
Speaker 2: Thanks, Mary. I'd like to give a brief update on our progress. Since last quarter, our driverless fleet has increased by 86% from 130 to 242 concurrently operating AVs. We've completed over 1.5 million driverless miles and the pace continues to accelerate. Our first million miles took us about 15 months to complete.
Speaker 2: Well, the next million miles will likely take less than three.
Speaker 4: We're also regularly completing over 1000 driverless trips with passengers every day, and we're seeing strong retention from our early users.
Speaker 4: This is significant quarter-over-quarter growth and our service is well-liked, but we've had limits on when and where it operates.
Speaker 4: But today I'm excited to share that right now a small portion of our fleet is now serving driverless rides 24 hours a day across all of San Francisco. For us this is a milestone years in the making and represents that our driverless fleet has real commercial value.
Speaker 4: We're completing the work needed to roll it out to the rest of our driverless fleet as soon as we can. Another key part of rapid scaling is a readily available supply of vehicles. Fortunately, our purpose-built and cost optimized AV, the Cruise Origin, will be testing in Austin soon. This vehicle has been validated almost entirely in simulation, reducing our historical reliance on expensive and time-consuming supervised technology.
Speaker 4: not test myology collection. The launch of the origin is a critical step on our path to profitability as well and towards hitting a billion dollars in revenue in 2025. We remain on track and slightly ahead as of today.
Speaker 2: Thanks, Mary. Back to you. Well, thanks, Kyle. Now I'm going to turn over to Paul for a deeper dive into the quarter. Thank you, Mary, and thank you, Kyle, and good morning, everyone. Thank you for joining us today. I'm pleased to report a strong start to the year as the team continues to execute on our transformation. We're strategically transitioning the business while at the same time leveraging our...
Speaker 5: And, as Mary mentioned, we took initial steps in Q1 towards implementing our $2 billion cost initiative, of which we now expect to realize about 50% in 2023, with the majority of this benefit occurring in the back half of the year.
Speaker 5: The performance-based exits and roughly 5,000 individuals who participated in the voluntary severance program will drive approximately a billion dollars towards this target.
Speaker 5: The people cost is just one of several areas we're focusing on. The remaining billion dollars will come from the following initiatives.
Speaker 5: Actions to reduce complexity across the portfolio and throughout the business in everything we do from vehicle design to engineering and manufacturing.
Speaker 5: Prioritizing our growth initiatives, we simply cannot do everything. We're focusing on projects like Crews, Bright Drop, and Software Defined Vehicles, which offer the biggest returns on revenue and margin. And lastly, we're being tactical on overhead and discretionary costs, including corporate travel, IT costs, and marketing spend.
Speaker 5: These actions will have a near term impact on costs, but we also outlined a number of additional medium to long-term opportunities that are invested in November last year, which we are aggressively pursuing. For example, we are developing a fully integrated battery ecosystem and taking a portfolio approach to battery raw materials.
Speaker 5: We will source from a mix of established and early stage minors giving us both security of supply and lower pricing volatility. These are meaningful advantages as we scale into the back half of the decade.
Speaker 5: The Treasury Department's recent guidance on the Clean Energy Consumer Purchase Incident have also validated our battery supply chain work with our entire fleet of EVs under the MSRP cap qualifying for the full $7,500 incentive this year.
Speaker 5: Now let's discuss another important topic, dealer inventory. As we mentioned on the last earnings call, our plan is to balance supply with demand, and that's exactly what we did this quarter. Early in the year, production improved as supply constraints started to ease and began to outpace still healthy and growing demand.
Speaker 5: As a result, we proactively plan some downtime, which allowed us to end the quarter with US dealer stock flat compared to December , while we gained 1.3 points of share and increased volumes 4% year over year.
Speaker 5: These production actions were contemplated in our 2023 guidance metrics laid out at the beginning of the year. We are still planning to a 15 million unit SAR and targeting to end 2023 with 50 to 60 days of total dealer inventory. Although seasonality, production schedules and timing of fleet deliveries
Speaker 5: may take us out of this range from time to time. Now let's get into the Q1 results. Revenue was $40 billion, up 11% year over year. We achieved $3.8 billion in EBIT adjusted, 9.5% EBIT adjusted margins, and $2.21 in EPS diluted adjusted.
Speaker 5: Total company results were down only $200 million year over year, despite a combined $800 million headwind from lower pension income and lower GM financial earnings. Providing more evidence that the underlying business remains quite strong.
Speaker 5: Adjusted auto-free cash flow was essentially flat year over year driven by higher capital expenditures related to our EV investments.
Speaker 5: seasonal working capital, headwinds, and GM financial dividend timing. However, we used our strong balance sheet to repurchase $365 million of stock in Q1, retiring 9 million shares, and early retiring $1.5 billion in debt, maturing later this year.
Speaker 5: Given the strong Q1 results in our current outlook, we are increasing our full-year guidance to EBIT adjusted in the $11-13 billion range. EPS diluted adjusted to the $6.35-$7.35 range, an automotive-adjusted automotive free cash flow in the five and a half to seven-and-a-half billion
Speaker 5: I'll provide more details on this after I cover the regional results. North America delivered Q1 even adjusted of $3.6 billion, up $400 million year over year, and even adjusted margins of 10.9%. Results were primarily driven by higher pricing and volume, partially offset by mix.
Speaker 5: lower pension income, warranty reserve adjustments, and higher commodity and logistics costs. We saw a $1.3 billion pricing tailwind year over year in the quarter driven largely by the price increases in 2022 carrying into 2023.
Speaker 5: We expect this year-over-year pricing benefit to moderate as we progress through the year. However, we anticipate pricing performance on our all new mid-sized pickups and refreshed HD pickups to partially offset this headwind.
Speaker 5: Demand for our full size pickups remains strong, with increased year-over-year total sales of our Silverado and Sierra full size pickups up 3%. We also gained 3.3 percentage points of total market share to continue our number one position in full size pickup sales. Encouragingly, April-to-date performance is also trending well as Demand remains healthy.
Speaker 5: to lower volume and pricing pressure, partially offset by cost actions.
Speaker 5: The environment and China has been very challenging is the industry navigates, continued COVID-related impacts, regulatory changes for both EV and IC vehicles, and greater than expected competitive pricing actions. The China team is taking aggressive actions to offset. However, we don't expect an improvement in equity income until the second half of the year.
Speaker 5: EBIT, EBIT adjusted in GM International excluding China equity income was $250 million up over $150 million versus last year.
Speaker 5: The successful turnaround the team has executed over the past few years continued with another record quarter.
Speaker 5: The results were driven by higher pricing, volume and mix, partially offset by commodity and logistics costs and foreign currency headlands.
Speaker 5: For the full year, we expect pricing to be up on a year-over-year basis, leveraging the strength of the portfolio, and more than covering FX headwinds.
Speaker 5: For GM International, we anticipate moderately improved full year 2023 results relative to 2022. The strong results and momentum for the rest of GM International are anticipated to more than offset continued headwinds in China.
Speaker 5: GM Financial delivered first quarter EBT adjusted of over $750 million, down $500 million year over year, as expected. Primarily due to the expected decrease in net-least vehicle income, driven by lower-least sales makes as a result of reduced new vehicle production since Q3 2021.
Speaker 5: and lower net gains on least terminations.
Speaker 5: Also, while higher cost of funds impacted results versus 2022, it was partially offset by higher effective yields on new originations and growth in the loan portfolio.
Speaker 5: GM financials key metrics, balance sheet and liquidity remain strong, providing them the ability to support the GM enterprise across economic cycles.
Speaker 5: We've seen no material impact due to the recent banking crisis. In fact, earlier this month, we were able to renew our $16 billion of all of the credit facilities while also receiving a ratings upgrade of GM and GM financial bonds from Moody's. This upgrade should improve credit spreads on future bond issuances and improve cost of funds as their debt portfolio reprices.
Speaker 5: GM Financial also paid a $450 million dividend to GM and Q1.
Speaker 5: million dollars in the quarter down slightly year over year as we continue to invest in growth initiatives.
Speaker 5: Crew expenses were $550 million in the quarter, up $250 million year over year, driven by an increase in operating spend, as well as by the inclusion of stock-based compensation expense this quarter versus Q1 2022.
Speaker 5: As we look forward to the rest of the year, our goal is to remain agile and adapt to the dynamic macro environment. Our updated guidance assumes that the pricing benefit we saw in Q1 is neutralized over the rest of the year as we cycle price increases taken in 2022 and incentives gradually increase. Commodity and logistics costs have been stickier than originally estimated, primarily due to higher steel prices on market index contracts.
Speaker 5: For the full year, we now expect commodity and logistics costs to be essentially flat year over year versus our prior expectation for a modest tailwind. Our expectation to realize at least $300 million, even adjusted benefit in 2023 from the clean energy production tax credits is unchanged. And while we continue to experience parts availability and logistics challenges.
Speaker 5: America EV capacity in 2025. As we scale and launch multiple high volume EVs and strategically important segments, we will see the benefits of the Oltium platform expand and help us deliver margins in the low to mid-single digits by 2025.
Speaker 5: In closing, I also want to say how proud and thankful I am for all of our amazing team members for their tireless efforts. They've executed quarter after quarter and delivered two consecutive years of record profits, despite many external challenges. Needless to say, my optimism for GM's long-term potential remains very high. This concludes our opening comments and will now move to the Q&A portion of the call.
Speaker 1: Thank you. To ask a question, press star and then land on your telephone keypad.
Speaker 1: Our first question comes from John Murphy with Bank of America. Your line is open.
Speaker 6: Good morning, everybody. I just wanted to, you know, you mentioned that the first quarter of pricing would reverse to the course of the year and that's something close to neutral. But it seems like there's some lessons that have been learned for the last couple of years on creating mix and price, you know, upside and managing the business to be more profitable over time. So.
Speaker 6: I'm just curious if you can talk about maybe the lessons that are learned, the products that are being launched because it seems like the mid-putt pickups and the HD refresh you're leaning into higher mix but then Mary you mentioned for crossover is below 30,000 that's kind of going in the other direction. How do you think about managing this going forward and do you think this current price level is something that you might be able to maintain, you know you give back what you gained in the first quarter?
Speaker 5: macro environment around us and as we said going into the year we were planning I think somewhat conservatively in recognition of that macro so about a 15 million unit star with some normalization of incentives and pricing to a little bit lower demand we certainly haven't seen that in Q1 and you know despite that forecast
Speaker 5: We're still comfortable taking up our guides because I think we've reflected some of that in the back half. And certainly if we see demand hold up, I would expect that we can outperform these results across the board, but we want to make sure that we're very conscious of the macro. When you ask about lessons learned, I think we certainly...
Speaker 5: have really focused on vehicle margins and I think you know one of the important steps this quarter that I'm not sure that the market digested all that well was you know when we took down capacity for a couple of weeks at a plant to balance production to demand and I think when you look back on that decision to have inventories flat while we gain share and increased volumes over the time period I think is one of the
Speaker 5: yet customers were asking for it and you see they've responded with their orders. So I think there's lots of encouraging signs for how we think about the business going forward.
Speaker 3: Yeah, I would just add, John , that we all think you have to have the right portfolio for the market. Yeah, we're doing really well at the very high end, especially in truck, this Paul mentioned. But having, you know, the tracks and the Envista, the Buick Envista at affordable levels, and we've been able to do that profitably because of the work we've done to reduce complexity, leverage the scale of components across the vehicles.
Speaker 3: For instance, the track only has one power train. So, you know, I think when you talk about mix, I think the opportunity, you still have to cover the market for what people can afford, but doing it in a way that you've really reduced complexity, I think, is one of the big lessons learned, and we're going to continue to drive that not only across the ice portfolio, but the EV portfolio as well. And maybe if it just has one follow-up, the cap you of 96% in North America that was
Speaker 6: you know, on later this year, you know, third shifts. I mean, it's just, you get into this thing where you're seeing like you're managing the business very optimally right now, and if you start growing volume, I think you're going to become a lot less optimal as yet starting adding third shifts, particularly with that 96% capute number.
Speaker 5: Yeah, so John , you know, it obviously varies by vehicle type and where we are and we've been running pretty much as flat out as we can on full size SUVs and pickup trucks over time. So there's a little bit at the margins, but that's something that we've got to really manage aggressively.
Speaker 5: across the board. So there are opportunities to be able to do that should we see demand pick up. But balancing it to demand I think is the is the most important piece of that as we can. So if we if we need to take down to moderate some of the growth, I think you'll see us do that. Opportunities to make up for it, you know, are really centered around making sure that we've got those shift capacities as well as
Speaker 7: Just two questions for me. First, maybe Paul's hoping to maybe talk a bit about the, how should you think about the cadence for North America, earnings or rest of the year, particularly with a strong start you mentioned for in April , and it's an invincible production, and any product plan that you'll have for the trucks. And then,
Speaker 7: and Kyle a congrats on one and a half million driverless miles hope you can share a bit of a you know where you're seeing the safety metrics on those miles and performance metrics relative to expectations and how the experience is informing you on future scaling plans for cruise
Speaker 5: Yeah good morning, Itai. Thanks for the question. So you know on a cadence side I think we alluded to on the on the full year guidance the original guidance was that you know we we thought the second half was going to be more challenging so as we lap the the price increases of last year.
Speaker 5: as well as building in a little bit of time if there are any downturns in demand. That's where we kind of see it. So I would say it's a little bit of a first half second half story. We still got time to be able to manage the second half or watching it closely. As we said in the prepared remarks, April has been very strong.
Speaker 5: for us as well and has continued to be strong. So I would say that the risk still lies a little bit in the second half, but it's one that even with that out there we felt comfortable raising our guidance today.
Speaker 4: And, Kyle, do you want to take the question on crew scaling? Sure, yeah, I can do that. So, you know, we are in this rapid scaling phase right now, and on the safety side, our performance is strong. We're very happy with how that's going. We'll have some more to share on that soon. But for scaling, you know, we've almost doubled our fleet size just in the last quarter, you know, and we expect, you know, that kind of rate of improvement we're missing and continue.
Speaker 4: And as we do that, it surfaces just one bottleneck after another that we continuously burn down and move out of the way so we can keep scaling up the fleet. That's all very helpful. Thank you. Thank you. Our next question comes from Rod Lash. What will research your line is open? Good morning, everybody.
Speaker 7: It's great to hear the comments about changing the EV margin narrative. I'm hoping you can maybe just broadly address the developments that we're seeing in North America, China and the EV market. It does look like competition is pretty aggressive in both areas.
Speaker 7: So I was wondering if anything that you're seeing is surprising to you and are there strategic adjustments that
that you are making as you kind of observe the market dynamics in both markets North America and China. Maybe you could just provide a little color on how you adjust strategy in real time.
So, let me, Rod, appreciate the question. Let me start with China. You know, as Paul said, the industry is pretty tough right now. It's still recovering from COVID. Pricing isn't aggressive, is very aggressive, as you know. And when you look at the fundamentals of the industry in China, you know, you've got 50% capacity utilization. You've got more than 100 brands competing. That, I don't think that's a steady state.
that you can look at. But if you look a little longer term from a country perspective, I mean, there's still tremendous growth and I think the market can still be strong and have great profitability potential. So from a GM specific perspective, we're launching the right EVs right now, off the LCM platform. I think 24 and 25 are gonna be key years for us as we not only get the right EV products.
think will be well positioned. We do have brands that have value in the country, and we're going to have the right EB portfolio there. And frankly, right now, our ice portfolio is strong, and so that's going to enable us to fund it as we look at the price challenges. From a US perspective, our main focus right now is twofold. One is getting the EVs out there.
Yeah, I'll, let Paul talk about specifically about lithium, but when we look at the 27 through 32 targets. What EPA has put out you know, we're still digesting them understanding what it means and you know we'll provide comment as appropriate when you know we do support continuing to to increase to a to combat climate change.
Yeah. So Collin you know obviously, we've been doing a lot of work with multiple partners across the entire battery raw materials spectrum. We think that's the prudent thing to do both for not only from a scarcity perspective, but also making sure we get to a security of supply.
And you're ahead of your $2 billion.