Q3 2024 General Motors Co Earnings Call
Speaker Change: Good morning and welcome to the General Motors 3rd quarter 2024 earnings conference call.
Speaker Change: During the opening remarks, all participants will be in a listen-only mode.
Speaker Change: After the opening remarks, we will conduct a question and answer session.
Speaker Change: We are asking Annelyn to limit their questions to one and a brief follow-up. To ask a question, press star then one on your telephone keypad to join the queue. To withdraw your question, press star then two.
Manza: As a reminder, this conference call is being recorded Tuesday, October 22, 2024. I would now like to turn the conference over to Ashish Kohli, GM's Vice President of Investor Relations. Thanks, Manza. Good morning, everyone. We appreciate you joining us as we review GM's financial results for the third quarter of 2024.
Manza: A conference called materials were issued this morning and are available on GM's Investor Relations website.
Manza: We're also broadcasting this call, beer webcast.
Manza: Joining us today are Mary Barra, GM's Chair and CEO, and Paul Jacobson, GM's Executive Vice President and CEO. Dan Burst, President and CEO of GM Financial will also be joining us for the Q&A portion of the call.
Manza: On today's call, management will make forward-looking statements about our expectations. The statements are subject to risks and uncertainties that could cause their actual results to differ materially.
Manza: These risks and uncertainties include the factors identified in our filing with the SEC. Please review the safe harbor statement on the first page of our presentation as the content of our call will be governed by this language.
Speaker Change: and with that, I'm delighted to turn the call over to Mary.
Mary Barra: Thank you Ashish and good morning everyone. I want to begin by recognizing the incredible job our team, our suppliers and our dealers have been doing all year long. We have been able to grow our retail market share in the US with above average pricing, well-managed inventories and below average incentives.
Mary Barra: Now with our strong third quarter results, we expect our full year EBIT adjusted to be in the range of 14 billion to 15 billion and EPS diluted adjusted to be in the range of 10 to $10.50. Both at the upper end of our previous guidance, and we are once again raising our adjusted automotive free cash flow.
Mary Barra: I want to be clear, though, we are not mistaken progress for winning. The competition is fierce, and the regulatory environment will keep getting tougher. That's why we're focused on optimizing our ice and EB margins.
Mary Barra: We have a very strong record in ICE and we are on track to produce and wholesale about 200,000 EVs in North America this year and make our portfolio variable profit positive this quarter. This is a first step. We are working with urgency to make our EVs profitable on an EBIT basis as quickly as possible. To get there we will continue to drive improvements across the business.
Mary Barra: Apart from our financial performance on the progress we've made growing our ice business and scaling EVs, one of the things that truly stands out about the quarter is the resiliency and compassion of our suppliers and dealers after the storms that hit the southeast.
Mary Barra: We are saddened by the destruction and loss of life, and grateful for their significant contributions to relief efforts, which GM and our employees have supported through contributions to the Red Cross.
Mary Barra: One GM supplier that stands out is Aria Solutions and Old Fort North Carolina, which makes carpets for a full-size SUVs. They work tirelessly to support their employees and their community as well as GM. They even drilled a new well to restore water service to the plant and to their neighbors.
Mary Barra: This is a great example of the steps people in our business are willing to take to support their employees and manage events outside of their control.
Mary Barra: At Investor Day, we focused on the business drivers for 2024 and 2025 that are within our control. They include a wide range of new and redesigned ice SUVs that are more profitable than the outgoing models.
Mary Barra: Dettlingly improving EV profitability as we scale production in expand our portfolio. Fix cost discipline.
Mary Barra: Capital Efficiency and improved results in China, we're building momentum in all of these areas.
Mary Barra: For example, the new Chevrolet reverse GMC Acadia and Buick Enclave continue to grow their volumes in retail market share with very strong pricing and the new ice Chevrolet Equinox is arriving in dealerships in greater volume.
Mary Barra: We've seen month over month gains in retail segment share for the Equinox, ATP's are about $6,000 higher than the outgoing models and we're attracting younger buyers.
Mary Barra: Without a doubt, these vehicles, along with our new full-size SUVs, are some of the best we've ever delivered from a design, safety and technology standpoint.
Mary Barra: and I can say definitively that one of our other new ice models, the Chevrolet Corvette ZR1 is the fastest car we've ever built.
Mary Barra: It's a 164-horsepower engineering marvel, and Mark Rice recently drove it at 233 miles per hour on a high speed oval in Pappenburg, Germany, a speed that's unrivaled by any current production car priced under a million dollars.
Mary Barra: That wasn't a one-off in performance either. Five engineers also exceeded 230 miles per hour on multiple runs. If you haven't seen the video, Chevrolet posted to TikTok and YouTube, please check them out.
Speaker Change: Like the breathtaking performance of the Corvette, our strategic portfolio of EVs is separating GM from our competitors. As you know, we earned the number two EV sales position for the third quarter.
Speaker Change: Our total share is approaching 10% of the EV markets, and our EV Conquest rates are more than 60%.
Speaker Change: If you attended Investor Day, I hope you have a deeper appreciation for the role our battery manufacturing capabilities and overall self-strategy are playing in our drive to EV profitability.
Speaker Change: The scale and vertical integration we have achieved with LGES and Ohio Intensi is a major competitive advantage that's driving down cell costs. So, are the world-class yield rates we're seeing?
Speaker Change: Because we jointly produce ourselves, we reap the benefits of lower commodity prices. And we're generating significant manufacturing credits at both the cell and module level.
Speaker Change: It will be years before some of our competitors approach this level of performance.
Speaker Change: To drive more EV sales growth, all of our brands have been conducting extensive dealer outreach and training.
Speaker Change: For example, Chevrolet has been meeting with more than 7,000 dealership sales employees To educate them about EV technology and charging and the competitive advantages we have in areas like affordability, range, capability, and the total cost of ownership.
Speaker Change: People are leaving these meetings energized and just as confident in our EV portfolio as they are in our winning ice products.
Speaker Change: The training should really pay off in 2025 as we continue to expand our truck portfolio with both lower cost and longer range versions of the Silverado EV.
Speaker Change: Our longest range work trucks will have the ability to go nearly 500 miles on a full charge. Our most affordable work truck will begin at about $57,000 and both the LT with standard content and the LT premium package are priced so eligible customers may qualify for the full $7,500 federal tax credit.
Speaker Change: We will also have our full range of Equinox EV and Blazer EV models in the market starting in the first quarter, including a new more affordable Blazer, as well as an expanded portfolio of GMC CRI EV.
Speaker Change: Our Cadillet portfolio is expected to be another driver of volume and share growth, Conquist sales and EV profitability improvements as we go forward. EV consideration is much stronger among luxury customers than the mainstream market about 9.5 so we expected to grow faster.
Speaker Change: These customers want beautiful designs, advanced technology, performance and range, everything Cadillac delivers with the Lyric, Optic, Vistic and the Escalade IQ. No other luxury brand has so much to offer.
Speaker Change: Let's turn to China where the team is making progress, aligning production to demand.
Speaker Change: In the third quarter, GM and our JV's grew sales 14% from second quarter for our best performance since the third quarter of 2022. Our growing portfolio of EVs and plug-in hybrids played a key role. In fact, our new energy vehicles outsold ice models for the first time.
Speaker Change: Importantly, our dealer inventory has been reduced by more than 50% since the start of the year, which will allow us to better manage our pricing and cost.
Speaker Change: We will also continue to drive dealer engagement and discipline on six costs inventory, pricing and incentives.
Speaker Change: However, the operating environment in China continues to be challenging, and there is more hard work to do with our partner. There are a series of shareholder and joint venture board meetings planned during the fourth quarter that will be focused on restructuring actions to make the business sustainable and profitable, and we will share next steps as soon as we can.
Speaker Change: We will also provide an update on cruise so we can share more details about their future funding model. In the meantime, the cruise team continues to improve their technology and cost structure.
Speaker Change: Another era where you can expect news in the weeks and months ahead is in capital efficiency.
Speaker Change: As Kurt Kelty shared, we continue to refine our cell strategy with the incorporation of prismatic cells and new chemistries. We're seeing enterprise-wide benefits from winning with simplicity and we'll continue to add EV capacity and a measured cadence by converting existing component and assembly plants.
Speaker Change: and we're making good progress with Hayanda on specific areas of cooperation. We are nearing the completion of our first definitive agreement and we expect to have something to share soon.
Speaker Change: I'll close my prepared remarks by reiterating the commitment we made at Investor Day to build on our competitive strengths and deliver the performance that differentiates us from others in the industry.
Speaker Change: We know that's what investors expect, and it's the best way for us to demonstrate both leadership and our true long-term growth potential. Thank you and now I'd like to turn the call over to Paul to walk you through the quarter.
Paul Jacobson: Thank you Mary and I appreciate you all joining us this morning.
Paul Jacobson: I'm pleased to report that our business continues to perform well, demonstrating ongoing discipline and a focus on delivering consistent financial results.
Paul Jacobson: and none of this would have been possible if it weren't for the hard work and dedication of our amazing team. A big thanks to everyone. It all begins with our stellar ice portfolio, where we've been able to maintain strong pricing compared to the industry and our highly profitable full-size pickup and full-size SUVs continue to gain market share in their respective segments.
Paul Jacobson: We've been able to achieve these market share gains with significantly lower incentives in our competitors.
Paul Jacobson: For example, in the third quarter, our U.S. incentives were approximately 2.4 percentage points lower than the industry average. A gap that is widened from last year's third quarter where we were 1 percentage point below the industry. This demonstrates the strength of our products and our discipline go to market strategy.
Paul Jacobson: I also want to highlight our ongoing commitment to financial discipline and that we are on track to meet our $2 billion net fixed cost program by the end of this year.
Paul Jacobson: On Capitol Allocation, we were purchased $1 billion worth of stock in the quarter, retiring another 23 million shares.
Paul Jacobson: We ended the quarter with a diluted share count of 1.12 billion, down 19% compared to the end of the third quarter last year.
Paul Jacobson: We anticipate that the ASR will be completed by the end of October Our current estimate is that we will retire approximately 25 million additional shares associated with the program in the fourth quarter bringing the total number of shares retired as part of this program to nearly 250 million All told when you compare our third quarter results to last year you can see that the company continues to execute well
Paul Jacobson: Revenue was up 10% to $49 billion, with year over year volume growth in both ice and EVs.
Paul Jacobson: This is driven by having a great product portfolio and offering customers attractive choices in key segments.
Paul Jacobson: The higher wholesale volumes are also supported by three consecutive years of retail market share growth along with conquest rates at 60% of above for our EV sales.
Paul Jacobson: We achieved $4.1 billion in even adjusted, 8.4% even adjusted margins and $2.96 to share in EPS diluted adjusted, up roughly 30% year over year.
Paul Jacobson: Some of the performance during the quarter was timing, including a pull forward of some full size SUV production to support the ramp of the refresh model during the fourth quarter and prioritizing full size pickup availability.
Paul Jacobson: We estimate these factors had an even impact of around $400 million for the third quarter that would otherwise occurred in the fourth quarter.
Paul Jacobson: We achieved a justed automotive free cash flow of $5.8 billion during the third quarter. Up 900 million compared to last year due to even improvements, lower capital expenditures and improved working capital driven by higher production volume at the end of Q3.
Paul Jacobson: North America delivered third quarter EBITDA justed margins of 9.7% which resulted in $4 billion of EBITDA justed up 500 million year over year.
Paul Jacobson: This was driven by a higher wholesale volumes, strong pricing, ongoing cross-containment, and the EV valuation allowance benefit.
Paul Jacobson: Pricing for the quarter was up 900 million dollars year over year and better than what we assumed in our guidance.
Paul Jacobson: About half of this pricing benefit was from really strong performance from our mid-sized SUVs, especially this Chevrolet traverse.
Paul Jacobson: The rest was primarily from pricing adjustments that we made on our full-size SUVs and the Corvette in the fourth quarter of last year, which have now been fully left.
Speaker Change: I also want to adjust another topic of interest, namely how we are addressing warranty costs.
Speaker Change: The continued inflationary pressures, combined with warranty claims on a few of our high volume vehicles, led to a $700 million dollar year-over-year adjustment in the third quarter, from both reserve and rate adjustments. The primary issue causing the increased warranty accruals has been identified and a fix was put into production earlier in the year.
Speaker Change: Despite this expense, as you can see, our financial results remain strong. We are committed to the highest standards of quality and customer satisfaction.
Speaker Change: Lastly, dealer inventory levels ended the quarter at 68 days for ice vehicles, along with 10-12 EVs per dealer to help increase customer awareness.
Speaker Change: The seasonally strong fourth quarter sales period, launch timing, and lower whole sales due to the holiday season, as well as continuing discipline with our production levels puts us on track to end the year with total ice inventory in our targeted range of 50 to 60 days and an appropriate level of EVs. GM International third quarter EBIT adjusted was 50 million dollars down 300 million year over year driven by the continued challenges in the China market.
Speaker Change: As for our international business excluding China equity income, we are seeing stability and consistent results compared to the prior year. Our cost actions and discipline approach to pricing and volume are driving margin growth in South America and the Middle East, which is offsetting competitive and FX headwinds.
Speaker Change: GM Financial has consistently performed well, with third quarter EBT adjusted of $700 million, down 50 million year over year due to credit reserves within our expectations, and still tracking in the range of $2.75 to $3 billion for the full year. They continue to drive portfolio growth and pay to $450 million dividend to GM during the quarter.
Speaker Change: Crews expenses were $400 million in the quarter, down $350 million from a year ago, reflecting a reduction in operational activities. We are continually looking for opportunities to prioritize further expense reductions, even as we continue to make progress.
Speaker Change: Let's move now to the rest of the year.
Speaker Change: given the positive momentum we've seen thus far and our confidence in the rest of the year. We are narrowing full year 2024 guidance too.
Speaker Change: Ebid adjusted it to the $14 to $15 billion range, EPS diluted adjusted to the $10 to $10.50 a share range, which are both at the high end of our prior guidance, and increasing our adjusted automotive free cash flow to the $12.5 to $13.5 billion range. Our cash flow remains strong, and the increased guidance is driven by the timing of certain accruals such as warranty. Thank you very much.
Speaker Change: For even adjusted, our guidance assumes lower earnings in the fourth quarter, and part due to the $400 million I discussed earlier, along with lower expected ice wholesale volume, which can be attributed to two factors.
Speaker Change: First, we experienced a few days of downtime at our facilities that produce full-size pickups and SUVs earlier this month due to supply chain disruption caused by the hurricanes.
Speaker Change: In addition, we are in the process of ramping our refreshed full-size SUVs which will have an impact on production rates. As these are our most profitable vehicles, any production changes have an outsized impact on profitability. Second, the fourth quarter is impacted by seasonality as it tends to have about eight fewer production days due to the holidays. The fourth quarter is impacted by seasonality as it tends to have about eight fewer production days due to the holidays.
Speaker Change: We have also incorporated an impact from higher EV volumes and lower pricing in part due to higher seasonal industry incentives. In closing, I want to reiterate a few important points.
Speaker Change: The anticipated results for the fourth quarter should not be seen as a reflection of the company's full year earnings potential. In fact, we are expecting full year results for 2025 to be in a similar range to our robust performance in 2024.
Speaker Change: We are on track to produce and wholesale approximately 200,000 EVs this year and reach variable profit positive in Q4. Our EV momentum is growing. We continue to invest in the business and create products our customers love and are willing to pay for as this is fundamental to our success. While at the same time we're finding efficiencies and opportunities to make the business more profitable.
Speaker Change: Finally, we expect to consistently return excess capital to our shareholders and are making progress towards our goal of reducing the number of outstanding shares to less than 1 billion in early 2025. And by the way, that is just the next mile marker, not the end goal.
Speaker Change: This concludes our opening comments and we'll now move to the Q&A portion of the call.
Speaker Change: Thank you. As a reminder to analysts, we are asking that you limit your questions to one and a brief follow-up so that we make it to everyone on the call. To ask a question, press star then one on your telephone keypad to join the queue. To withdraw your question, press star then two. Our first question comes from the line of Joe Spak with UBS. Your line is open. Thank you very much.
Speaker Change: Thank you everyone for coming today, I guess just to start Paul.
Joe Spak: with the warranty. Can you just go over that again? How much was that sort of, you know, the one time reserve release? And you also talk about a rape adjustment. By that I'm assuming you mean in a cruel rate. And is that I guess that continues at least into, you know, the first half of 25, is that how we should think about it? [inaudible]
Speaker Change: Yeah, good morning, Joe. Thanks for the questions. So, you're right. It was both. What I would say is, you know, we have, excuse me, been pretty clear over the last several quarters that we've seen a lot of inflation, particularly in parts and labor for the, for the warranty claims while quality has been improved down, events are down about 25% over the last couple of years. We are seeing that inflation. We've continued to see that. So, you know, we do a review in the third quarter on the warranty accruals and, and this is, this is what it was determined. There were also a couple as I said in the prepared remarks, a couple of quality issues that we had uncovered in prior model years that we've already fixed.
Speaker Change: Maxx in the production lines, and don't see a problem going forward. So we think that, you know, there's some stability there, and hopefully as we eclipse the largest part of the inflationary cycle, this can be a tailwind over the next few years on uncomparasants.
Speaker Change: Okay, and then maybe just one housekeeping, I think last quarter, you talked about the inventory and mine being about 600 million in the back half, maybe 300 per quarter, and it was 600 this quarter. So is that also a timing thing or I know I think all of last year was about a 1.7 billion dollar headlines, but it still seems like there's a little bit more room to run on that. I guess I just want to understand how you expect the remainder of that inventory and mine to progress. [inaudible]
Speaker Change: Yeah, so I think this is some of the seasonality that we've talked about and what we alluded to in the difference, so we pulled forward some production here from the fourth quarter into the third quarter in anticipation of some of the lost production days. So that, you know, it's about $400 million that we see was kind of a pull forward, but we do expect that by the end of the year, as is consistent with our target to be back in that 50 to 60 day range. So, you know, there's some impact here and that's why we're seeing some of the discrepancy between third quarter and fourth quarter at the midpoint of our raised guide.
Speaker Change: Sorry, I was talking about the inventory on why not on the, um, on the Indian side.
Speaker Change: Oh, I'm sorry. You're talking about the lower of cost or market. Yeah, exactly. Yeah. Oh, I'm sorry. I thought that was an inventory question. So yeah, so you know, that that adjustment is a function of both the inventory that we have on hand for finished cells as well as finished products, but also a function of our ongoing improvements and profitability. So we think that slows down a little bit as we get to year end, but we're going to continue to watch that. But I think I think it can be a little bit of a tailwind next year, but probably not as much as we saw in 24.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Sorry for missing that, I misunderstood the question, sorry.
Speaker Change: Thank you. Our next question comes from John Murphy with Bank of America. Your line is open.
John Murphy: Good morning, everyone. Just wanted to follow up on the on the 2025 Outlook here.
John Murphy: You guys were indicating that there would be a $2.4 billion improvement in
John Murphy: the EV losses that'll benefit EBIT. Get your saying sort of the total EBIT will be about similar year over year, which implies a pretty big deterioration.
Speaker Change: and the ice business, which seems given the state of where volumes are pricing, your product intros, seems like a pretty big drop that's probably not going to happen, so I think if you look from an optimistic standpoint, you would say there could be two to four billion dollars of upside to your guide, I guess maybe a skeptic would say you're not going to get that benefit from EVs as hard as you may try, and there might be two to four billion dollars. But it just seems like the skew or the bias would probably be the upside, the ice business holds in close to flat, so I'm just curious what you think in the core business outside of EV is actually going to deteriorate by that much.
Speaker Change: Yeah, so John , you know, as we said at Investor Day where we gave some high level headwinds and tailwinds with the most prominent really being the progress that we're making on EVs, we'll give official guidance on 25 as we get as we get into fourth quarter like we typically do. But you know, there are a lot of things that go into that we know we're going to see labor cost inflation next year. We're also going to go into the year as we as we consistently do with pricing assumptions, et cetera, but all of that's a little bit preliminary just because we're in the middle of our budget process as we as we are setting our targets for 2025.
John Murphy: Okay, and then just maybe one follow-up on the comment on cruise capitalization that you also made an investor day, you know, it sounds like you're looking to raise some kind of capital there, but the reality is you have plenty of capital. So what is the motivation for raising capital there, is it for a strategic partner or maybe getting very low cost capital or lower cost capital than you may be able to raise in the rest of the business, just the fund crews, I mean, what's really the motivation there? So what's the motivation there? So what's really the motivation there?
Speaker Change: Well, I think as we look going forward, we believe in autonomy in general, but I think we want to make sure we're investing in autonomy as efficiently as possible. And there's a number of conversations that we're having with partners that I think just allows us to manage that investment more wisely. So that's what we're looking to do.
Speaker Change: So probably a partner with low cost capital is probably both Mary, right? Is the motivation? Yeah, I don't want to speculate on what partner, but I just want to say that we're looking at ways that we can be more efficient. One of the things people say about the auto industry is we do a lot of, all do a lot of different things and don't always leverage where we can partner with other OEMs or with other companies. And so we're really looking to leverage that especially across the business as we've mentioned. With the MOU that we have with Hyundai, the continuing work that we do with Honda. And as we look at the investment going forward in cruise and autonomy, we think it's important to do that there as well.
Speaker Change: Okay, thank you very much.
Speaker Change: Thank you, our next question comes from Dan Lovey with Barclays. Your line is open.
Speaker Change: and I, good morning, thanks for taking the question.
Dan Lovey: One is to start first with a question on the pricing and the bridge, which would up $900 million. I think this is maybe a little bit of a surprise to folks because some of the third party data.
Dan Lovey: appeared negative. You're now fracking at over a billion dollars of positive price.
Dan Lovey: and that's in the face of all of this, you know, price normalization. So maybe you could just give a little more color on the pricing piece of the bridge. Why it has been so resilient for you and really not, you know, what we're seeing as third part of it is not showing up in your bridge. And I know you've talked about normalization actually, but maybe you can give us some flavor for perhaps how your pricing can hold in even if the industry is weaker. Perhaps it relates to just where you are with the product refresh cycle. I know you talked about refresh ice, SUVs, just more color on on price in the bridge and it's a rebellion.
Speaker Change: Yeah, sure Dan. Oh, certainly this is an aspect of the business that we've been very proud of and it starts with the product portfolio. So not only have we been on a pretty consistent refresh cycle with our vehicles, as I mentioned in the prepare remarks, we're also still lapping price increases that we were able to take last year. So some of that we think probably stabilizes as we get into the fourth quarter as, you know, as we lap the fully lap those price increases from last year but it's something that we've we've tried to hold on to. You know, I think our incentive behavior in the market has been very disciplined from the perspective of doing what is important for our products and our customers and in fact
Speaker Change: Scott, that gap to the industry average has been widening even beyond the 100 basis points that we've talked about historically, nearly doubling that in the September quarter. And I think a lot of that has to do with our discipline approach to inventory as well. So we're going to continue to do that. But like I said, really proud of the products and what's out there. And we're seeing that in the demand for our vehicles. [inaudible]
Speaker Change: And can you just remind us as far as the SUV refreshes next year that comes typically with a price increase to war?
Speaker Change: Yeah, it should as we come out with a new full-size SUV refreshes. Hopefully later this year, early next year, so more to come on that. And we think that momentum is going to continue with these great products.
Speaker Change: Okay, thank you. Second question is on cash and the free cash load. Just two part question. One is on the free cash. Maybe you can explain, you know, the midpoint of the free cash guide was raised by $3 billion, even though either was raised by $500 million. [inaudible]
Speaker Change: Maybe color on that. And then also your cash now is $27 billion on the balance sheet. You've talked about a $20 billion target. Maybe you can just give us a sense of how you're thinking about the cash position on the balance sheet. If 20 billion is the target, or is that more of a minimum level that we should think of? [inaudible]
Speaker Change: Yeah, so Dan, on the free cash flow, you know, what, when you look at the earnings trajectory this year and, you know, now we're, you know, just to touch over 75% done with the year, what we've seen is, you know, generally go to market pricing has outperformed our initial expectations, while the cost that have come in.
Speaker Change: Have really been cash-deferred costs. So when you look at warranty expense, for example, that's not a cash cost in the current year, but rather in a cruel, against expectations of future cash outlays. So, because of that, the performance that we've seen and what we've been able to raise our guide is actually had a disproportionately strong effect on cash flow for that. So, that really explains that, you know, you were right. We were over $26,000,000 at quarter end. You know, we continue to work through our capital allocation process, as we've talked about, our CAPEX.
Speaker Change: and our balance sheet are both in strong, comfortable places. We have been somewhat limited as we've talked about in terms of share repurchases just because of the banks working through the tail end of the accelerated share by back last year. We expect that to be done this month and we can continue down the path of applying our capital allocation program.
Speaker Change: Okay, thank you.
Speaker Change: Thank you, our next question comes from Ryan Brinkman with GP Morgan. Your line is open.
Ryan Brinkman: Great, thanks for taking my question and I realize there's just a couple weeks out in the investor day where you were only, you know, preliminarily looking ahead to next year, you know, ahead of the formal guidance introduction next quarter. But I'd be curious, you know, if there anything you could share with regard to your assumption for GM or industry pricing in 2025, I guess it's been a very hard number to forecast. Even the track record of the past few years of this project, if any of us, you know, guessed it correctly. So that really looking for accuracy as much as, you know, the context with which to judge your outlook for continued very strong profits in 2020.
Speaker Change: Well, thanks Ryan, you know, as we said when John asked earlier to in an investor day, we're not giving any specifics.
Speaker Change: on 2025 as we go into it but we'll have more information as we continue to close out 2024 and look at the new refreshes that are coming out but we'll provide more detail on our fourth quarter call.
Ryan Brinkman: And it's just the thinking around that you're going to make your numbers regardless you're buying the way, like the $2 to $4 billion you'd be profit-driven. There's a lot of swing there, maybe some swing with China, if pricing does track softer, where would you look to offset that so that you can drive for those numbers?
Speaker Change: Well, I think I think what the team hopefully has demonstrated over the last few years is an ability to be resilient and respond to where the market is. We've done that with cutting fixed costs. We've done that with, you know, on the revenue side of the equation as well. So we're going to look all over but what you've got is a management team that is committed to driving results and driving performance and really demonstrating discipline and resiliency in changing conditions. I don't expect that 2025 is going to be any less change than what we've seen over the last few years but I think that that's something that we're going to be able to manage through.
Speaker Change: Thank you.
Speaker Change: Thank you, our next question comes from Emmanuel Rosner with Wolf Research, your line is open.
Emmanuel Rosner: Thank you very much. My first question is another one on free cash flow. It's obviously an incredibly impressive performance and outlook race for this year. In the context of you saying, hey, next year, our results could be in the same bowl park. Do you feel that this applies to free cash flow as well or to the extent that there was some benefit this year from maybe working capital building up, rebuilding inventory stocks etc. That's right. That in a free cash flow, maybe somewhat different next year. Thank you very much.
Speaker Change: Well, thanks, Emmanuel. I mean, clearly there were a couple of things that were working in our favor this year. As I mentioned, the warranty accruals, which is really cash deferred, as well as some inventory build from where we were in 20.
Speaker Change: You know, we might not laugh, and I think it's more important, honestly, to be disciplined with our inventory than it is to use it as a tool to drive free cash flow. That's just short term thinking if you're doing that. So, you know, I think it's too soon to tell, but you know, we're committed to driving free cash flow performance in the business every bit as much as we are in margins.
Speaker Change: Okay, that's great to hear. And then I guess as a follow-up, I think you're, you know, reiterating your commitment to, you know, try and reduce a share count to, you know, Bill, a billion share in early 2025. You'd probably need to reduce your share count by like 120 million shares over the next, you know, three months or so. So that's like a $5 billion buyback. Is that the sort of acceleration that you're targeting just over the next few months essentially? You know, obviously would be significantly faster than what we've seen recently. Just generally speaking, is this the right math and then how should we think about, you know, future pace of buybacks?
Speaker Change: Yeah, so I will agree with your math that it's about 120 million shares to get there. And we said that we believe that we can get there in early 2025. So no specific comments on when that is or what the velocity might be, but I think over the over the past year or so I think we've demonstrated our commitment to returning capital to shareholders. Thank you very much.
Speaker Change: Jeremy, thank you.
Speaker Change: Thank you, our next question comes from Adam, Jonas with Morgan Stanley, your line is open.
Adam Jonas: Hi, thanks and good morning everyone. I had a question on the GM financial side for Dan Bers.
Adam Jonas: We noticed that the net charge-offs increased slightly to 1.2%, but there's still pretty low, look very manageable. You mentioned a moderation and credit performance, but just wanted to see if you wanted to flag any other color or potential concerns and as a follow-up, GM financial penetrations around 39%. Is that the right level to assume going forward or could we see this rise if the market got more competitive in 2025? Just wanting to see again, not for short-term movements, but is this kind of dry powder for you to provide a better deal for your dealers and your customers in a more competitive environment going forward? Thanks.
Speaker Change: Yes, thanks for the question. So with respect to credit, our charge-offs year to date.
Speaker Change: at GM Financial, are almost spot on what we expected going into the year. So, you know, things are really going as planned. We did expect a modest moderation in credit year over year and that's exactly what we're seeing. You know, our portfolio is heavily prime and the prime credits have continued to perform very, very strong with good employment levels, good household income and still pretty strong.
Speaker Change: Household Balance Sheets. So, you know, all on all credit is developing very much in line with what we expected.
Speaker Change: And on the second part of your question with respect to penetration levels, you know, we work with the OEM and in terms of targeting penetration. A lot of the penetration results from either leasing or...
Speaker Change: Supported or Subvended Loans, you know, our long-term target is 40 to 45 percent, so yeah, we were slightly below that, but you know, the month of October, for instance, we're right in that range. So that that is the uh...
Speaker Change: the strategy they're at him.
Speaker Change: Thanks very much and just lastly on the cap-axe you're targeting stable cap-axe and a stable on this kind of 11 billion dollar.
Speaker Change: I'm wondering how the mix of that capex has been changing if you did like a look back last 12 months between EVA, EV ice, new products, new capacities.
Speaker Change: How that might be shifting with the 12-month forward, at least rate of change or proportion.
Speaker Change: particularly with respect to some of the AI related.
Speaker Change: An infrastructure that might be coming in, is that a material number to call out yet? When could it be? And kind of how that mix of capex might be changing? Just any color around that without specificity would be very helpful. Thanks.
Speaker Change: Yeah, thanks Adam. I'll try that. I think if you look over the last few years, our CAFX has probably pivoted more towards product portfolio and away from infrastructure. As you know, we went through a big wave a few years ago of plant retooling and getting set up for the foundation to grow EVs. And we're really glad we made that investment because it's putting us in a position to be able to realize the scale benefits as we highlighted at an investor day. Okay, down at Spring Hill. So, you know, we're still maintaining a balance between EV and ICE as well. Still about third of our program capital is going into IC vehicles and you see that in the performance of the refreshes that we've put out.
Speaker Change: Whether it's the mid-sized trucks or the smaller mid-sized SUVs and then ultimately the full size SUVs that are coming.
Speaker Change: Again, so I think we've struck the right balance going forward. We do have a lot of a growing amount of capital for what I would call broad efficiency gains that are going to help lower our cost of production, but also deploy technology and everything that we do from building vehicles to the administrative side of the business as well. So that is that is playing a part and we think that the 11 billion dollar area of capital spending against what what we're earning is very manageable and represent a disciplined approach. Thank you very much.
Speaker Change: And the only thing I'd add to that item is when we stay at that level approach.
Speaker Change: It definitely leads to I think higher quality execution because we're not driving you know product or engineering ups and down or across manufacturing. So that definitely has been helpful. And then as we look at the mix between ice and EV, you know, there's been cases where, you know, we wait until what's the last moment where we have to make a decision on, are we going to do a next generation of an ice version or what are we, how are we going to look at it from an EV perspective. And so we're really being led by the customer and we have that flexibility now that we have that infrastructure that Paul talked about. So we're really trying to respond to the market and be very efficient with our capital.
Speaker Change: Thanks Mary, thanks Paul
Speaker Change: Thank you, our next question comes from Tom Narayan with RBC, your line is open.
Tom Narayan: Oh, yeah, thanks for taking the questions. Paul, so Price Mix was a plus 300 million in Q3 North America in the EBIT bridge. Price, specifically 900 million, as you guys talked about, Mix was a negative 600 million EV sales coming in lower mix. That increases in Q4 to get to the 200,000 target. And I think you called out some price headwinds in Q4 versus Q3. So should we expect price, price, mix, net in North America to be a net negative in Q4, is that, is that am I kind of understanding that right?
Speaker Change: Yeah, I think, Tom, thanks for the question. I think as you look at some of that laughing, it certainly could be. It's not going to be a benefit like we saw in the third quarter and that's some of the walk between Q3 and Q4, but I think a lot of that is timing of things that we did a year ago and so on, which is why we haven't said that and don't believe that fourth quarter is really an indicator of the run rate going forward in 2025. So that was augmented a little bit by some of the timing of wholesale in the quarter that we talked about with the pull forward, but I think you're actually correct.
Speaker Change: Okay, and I'm Mary on China, the color we're hearing from the German OEMs is China's, but it put bluntly, it's quite concerning, even premium brands losing share to domestic, I know things can improve with a higher bev mix and restructuring, but you're so strong arguably in the best market in the world right now, the US. I guess how committed are you to China longer term, especially if these losses persist? Thanks.
Speaker Change: Well, we believe that we can turn around the losses and that's why we have a series of meetings with our partner to make the hard decisions to get the business to be sustainable and profitable. Right now in the business, one of the things that's driving the improvement is the fact that the GLA, which is really our, we like to think of it as our full-size truck franchise in China. As we launch that new vehicle, it's doing very, very well. We did just cross over that now. Now, we're more weighted to new energy vehicles than ICE. I think that's an important transformation that frankly I would have liked to see happen a little bit earlier. So, and then when you look at what we have from the premium import channel.
Speaker Change: That's a very capital light way to participate in the market with unique products like the Schupper Lake Fahoe that we're just starting to take orders for. And again, that gives us more scale. So, we're going to be very measured as we go through, but when you look at the size of the China market and the growth opportunity that's in the mid to long term, we think we can participate clearly in a different way than we did just a handful of years ago with the rise of hundreds of competitors from China domestic companies that frankly don't seem to prioritize profitability. They're definitely prioritizing production. It provides for a very challenging environment and that's where I think we have to play in the air.
Speaker Change: and Mary Barra is at our strength and where we have franchises like the GLA and then some of the other premium products. But we do believe there's a place we can participate in a very different manner, but do that profitably and that's what we're 100% focused on getting to as quickly as possible.
Speaker Change: God, thank you.
Speaker Change: Thank you, our next question comes from Edison You with Deutsche Bank, your line is open.
Speaker Change: Hey, good morning. Thank you for taking our questions. First, just on cruise, we noticed that you indicated that the autonomous miles have gone up about three X. Just curious, have you given any sort of rough framework on when you might return to actually unsupervised testing like you were before?
Speaker Change: Yeah, we hope to, well, one will be dated by safety, but we hope and we're working hard to get there by the end of the year, meeting the higher standard of role model driver as opposed to, I'll say, average human driver. So, that that is the goal that the team is working hard to every single day.
Speaker Change: and just a follow up on China, just in terms of the mechanics that given the losses, do we anticipate at some point having to actually...
Speaker Change: Fund the JV in a more material way, or is the idea that the restructuring under discussion would improve that, so we wouldn't have to do that.
Speaker Change: I think we're looking to create a sustainable business within country. We have a series, as I mentioned in my prepared remarks, we have a series of meetings with the partner, so I don't want to get ahead of that of how that's going to go forward. I want to make sure we do that with our partner, so more to follow as we make those decisions.
Speaker Change: Thank you.
Speaker Change: Thank you, our next question comes from James Pickarello with B and P Parabelle, your line is open.
Speaker Change: Hi, everybody. I know a sequential bridge is not the easiest exercise, but at the midpoint of the full year guide, right, we're looking at a one and a half billion step down and adjusted even for the fourth quarter. Just at a high level, can you help bucket the major factors that inform that quarterly decline, right, we'll see less ice volume, more EVs, how could we think about pricing in that quarterly bridge? And to what extent are you seeing intensified competitor actions to address their prolonged dealer inventory problem in the US, is this dynamic in any way influencing chance assumptions for the fourth quarter? Thanks.
Speaker Change: Yeah, thanks, James. You know, you're right, I don't want to get into all the details here, but you know, directionally as we talked about, there's about $400 million of timing that we talked about, there are about eight fewer production days in the fourth quarter than there are the third due to all the days around Thanksgiving, around Christmas as well as Election Day, Veterans Day, things like that. So when you combine that with the cutover for the model year on the full size SUVs, it starts to add up a little bit, so as well as laughing last year. And that's that's kind of where we where we are, but we think some of that is, you know, isolated to the fourth quarter, obviously, as we have given broad kind of perspective on 2020.
Speaker Change: going forward so on the pricing side i think the teams done a really good job of making sure that we're pricing our products to value for the customer and we've done that somewhat independent we've been through periods where one competitor or another has significantly taking up incentive levels we've stay pretty consistent in that and as we've said wide in the gap against the industry so we're going towe're going to do with best for for our customers and our products going forward and and that's been a strategy that's continue to work for us
Speaker Change: Now, just my follow-on would be just on the intensified competitor actions. Are you seeing anything there? And then my house key question for the share count. Can you just confirm what the final ASR, right, that's getting completed, officially completed this month? What that ASR impact is on the share count? Thank you.
Speaker Change: Sure, so just, you know, as I said, we see a lot of behavior from customers. We've seen or from competitors. We've seen that it manifests itself in terms of higher incentive levels. We've managed through that. This isn't the first time that that's happened over our recent performance. And, you know, we're going to continue to manage our product portfolio to our demand. And I think that's a strategy that's worked well for us. We, in the prepared remarks, we talked about 250 million shares. Remember, we got most of the credit in our diluted share count last year when we closed the deal. But this is about another 25 million shares that'll be delivered when it's done.
Speaker Change: and that will be new shares that reduce the denominator on EPS.
Speaker Change: Thank you.
Speaker Change: Thank you, our next question comes from Daniel Roscoe with Bernstein Research, your line is open.
Daniel Roscoe: Hey, thanks for taking my question and morning. I'll ask the companion question to Adam's Capex question. Paul, could you shed some light on your thinking about the R&D budget and whether kind of the 10 billion run rate from last year is the right level going forward? And maybe you know, has any of that shifted in terms of allocation between EV and ice and product launches, given that you know, the EVs are launched now and maybe also the broader slowdown of EVs in the market.
Speaker Change: Yeah so you know I think when you look at the total sort of product development budget combined with what we're doing with autonomy and so on I think we've struck the right balance in terms of our ability to fund and as Mary mentioned our ability to drive returns
Speaker Change: Out of our investments, so, you know, while we have successfully launched.
Speaker Change: A number of our electric vehicle products, there's still work that can be done in terms of engineering more efficient solutions and the work that Mark talked about at investor day around winning with simplicity and removing part numbers and going in and trying to take out complexity from the business is a pretty strong engineering effort that goes into our product development budget. So we're focused on creating a portfolio that's going to win and win for the long term. And that requires us to constantly be looking at that portfolio, both on the EV and the ice side. So if we find ourselves in a situation where we're not generating as much cash flow, I think there's a lot of things in there that we can take.
Speaker Change: Look at and we can adjust, but where we've been performing fairly consistently, we think that the total budget for product development and capex is very affordable and something that we can implement effectively.
Speaker Change: Thanks, and maybe falling up for Mary on that, you recently affirmed your 2035 ice phase out target, and it kind of between now and then, and I get this a little bit more strategic, but is there the need for a fully new BV platform, kind of before the end of the decade, or are you confident that with Paul, what Paul just said, you can kind of keep on improving on the BV3 and BT1, to kind of keep up with competition.
Speaker Change: Yeah, we definitely believe when you look at the core of the dedicated EV platform, there's clearly things that we're doing to drive more efficiency and that work is going to continue. We'll continue to look at different production design and production things that are going to help us take cost out of the business, but it's not a complete melt and report by any stretch of imagination. I would think it's more evolutionary, so that's how you should think about it.
Speaker Change: Great, that's helpful, thanks.
Speaker Change: Thank you. Our next question comes from Chris McNally with Evercore. Your line is open.
Chris Mcnally: Thank you so much, team. Paul, I'm not trying to beat the dead horse after a Murphy and Brinkman's question, but I know it's an important one for investors. Would you be able to even just for 2025, maybe prioritize your buckets as the two main tailwinds, one being cost-wage and the other one being price just which is sort of a larger headwind for 2025 so we can start to sort of make our own assumptions?
Paul: Well, thanks for that, Chris. And I think that is beating the dead horse, but as we talked about, there's a number of costs that we continue to look at in the business. What we're committed to is making sure that we keep our fixed cost discipline around that. We've talked about rather than flat, keeping it flat, excluding depreciation. So we'll see some depreciation headwinds next year that we expect going in into. And we'll go into the year on the pricing assumptions that have served us well, which is to make sure that we set up a budget that is affordable for us. And one that, you know, if the commercial environment stays
Paul: and Assistant, one that we think we could outperform, but it would be irresponsible for us to think about and set a budget that has pricing continuing to grow and continuing to expand off of these levels, and then has to adjust the business backwards. So we think that this is a strategy that's worked well for us, and we'll get into specifics when we give our fourth quarter results in our 20, 25 guidance.
Speaker Change: Absolutely, much appreciated. And then the following question is around the sort of walk of two to four billion in lower EV losses next year. And this is a question I've been sort of surprised that I've been getting from investors. So I'm going to pass it along, which is if EV sales were flat or down year year in 2025, could you still achieve that two to four billion in lower EV losses? It's sort of my way of asking the election question about asking the election question.
Speaker Change: Well, I'm not sure that's an election question as much as it is what our consumer is looking to do, but you know we've seen the recent uptick in September month, both in terms of demand but also us getting share gains and so I think that there is an element of growth next year for us.
Speaker Change: in EVs as we continue to bring our products to market, because the customers are responding to those, so you know when you look at what we were able to do to give our customers access to the Tesla Supercharger network, we're out there proactively addressing things like range anxiety with vehicles that have over 300 miles of range as well as supplementing that charging infrastructure with a really efficient solution for them. So we think that there's an opportunity to continue to expand that. Clearly as we've articulated for the last year or so, scale is an important piece of this, but you know what's more important is making sure that we scale to demand and we're there with a flexible portfolio for consumers and meeting them where they are.
Speaker Change: R. So, obviously, if we don't grow as much those scale benefits aren't going to be as fully realized. But our best estimate today, based on the momentum we see and where we see EV adoption going next year, is that we can realize meaningful savings in our EV profitability.
Speaker Change: And so Paul says to summarize, that volume is a component of that, but it's not the only component. I mean, obviously, you only just put in part of the contribution margin now. So I imagine there's also some of the annualization effect, and you also talked about dead cells and things like that. So volume is one component of that to the portfolio, but there's obviously a lot more on your rear compared.
Speaker Change: For sure, we're constantly making improvements in terms of the efficiency of production, as well as the part number reductions that Mark has talked about, as well as we should see some mixed benefits coming in with the Cadillac Escalada IQ and some of the other vehicles that are coming to market. So, there's a lot going on, a lot of moving parts, but that's just our best look where we are today on our journey. But again, the most important thing that we can do as a company is get to that positive contribution margin, and I think we've got a good roadmap. And I think we've proven our resiliency in that, even though we're at the lower end of what we projected our production to be.
Speaker Change: at the beginning of the year. So, you know, continuing with that kind of scrappiness is I think what sets this team apart.
Speaker Change: I will ask you to answer.
Speaker Change: Thanks for your thank you.
Speaker Change: Thank you. Our last question comes from the line of Mark Delaney with Goldman Sachs. You may proceed.
Mark Delaney: Yes, good morning and thanks very much for taking the question. Would you have no selling the entry-level version of the Equinox EV that's priced starting at 35,000 prior to any IRA credits? I'm hoping to better understand if there are strong sales of that particular SKU, can GM still hit its EV profit improvement outlook for 4Q and 2025?
Speaker Change: You know, we're going to look across the entire EV portfolio that we're selling. And we talk about, you know, some of the different models are really going to be from a blazer EV and an equinox EV are going to be coming in in 2025. But we are going to, you know, look and make sure we're responding to what the customer likes. We're seeing, you know, strong interest in the equinox with EV with what we have in market right now. So I think it's, I think it's doing well as we go forward and we look to continue to grow as Paul talked about. That's where additional options I think are going to be important.
Speaker Change: Thanks for that, Mary. Another question was just on your manufacturing flexibility and to the extent there's a material increase in tariffs on vehicles imported into the U.S. Can you talk about how much flexibility GM has to shift more of its production domestically and or potentially offset tariffs with either pricing or cost reductions? Thanks.
Speaker Change: Well, I think we're always working on cost reductions. I think it depends on specifically, you know, what the terrorist would be. I would tell you.
Speaker Change: You know, we are paying a careful attention to the approach both candidates might take.
Speaker Change: and I'm not going to speculate on what either might do, but what I will tell you we have and will continue to engage constructively with the policy-making process regardless of the election outcome. When you look at the number of jobs created in the US, even with some vehicles that are...