General Motors Co (GM)

• GM Financial's credit performance remains strong, with net charge-offs at 1.2%, remaining within expectations, and the portfolio being heavily prime, performing well due to good employment levels and household income. GM Financial aims to increase penetration levels to the target range of 40% to 45%. -
• GM is experiencing increased EV demand and expects meaningful savings in EV profitability next year, supported by strategic initiatives like access to the Tesla Supercharger network and vehicles offering over 300 miles of range. They anticipate achieving $2 billion to $4 billion in lower EV losses in 2025. -
• GM has strong pricing power, with a $900 million pricing benefit driven by the strong performance of midsize SUVs like the Chevrolet Traverse and effective pricing adjustments on full-size SUVs and the Corvette. Upcoming SUV refreshes are expected to continue this pricing strength, with new full-size SUV refreshes planned for release later this year or early next year. -

• Significant increase in warranty costs: GM faced a $700 million year-over-year adjustment in the third quarter due to warranty claims on high-volume vehicles, indicating potential quality issues and leading to increased expenses. -
• Pricing pressures and potential normalization: The company's ability to sustain high pricing levels may be challenged as previous price increases are fully lapped, and there may be lower expected pricing due to seasonal industry incentives, which can impact margins. -
• Uncertainty in EV profitability amidst market conditions: GM's plan to reduce EV losses by $2 billion to $4 billion next year depends on EV sales growth. If EV sales are flat or down, the scale benefits and profitability improvements may not materialize, posing a risk to the company's EV strategy. -

1. 2025 Outlook and EV Loss Reduction
   Q: Will core business EBIT decline despite $2–4B EV loss improvement?
   A: Management anticipates the core business to remain resilient in 2025. While expecting a $2–4 billion improvement in EV losses, they project total EBIT to be similar to 2024 levels due to factors like labor cost inflation and conservative pricing assumptions. They're committed to driving results despite market changes. - -

2. Free Cash Flow and Share Repurchases
   Q: Can strong free cash flow continue next year, and what's the buyback plan?
   A: This year's free cash flow benefited from cash-deferred costs like warranty accruals. Management aims to maintain strong free cash flow but notes some benefits may not repeat next year. They reaffirm their commitment to reducing share count to 1 billion shares in early 2025, indicating continued capital returns to shareholders. - -

3. Pricing Resilience
   Q: How is GM sustaining strong pricing amid industry normalization?
   A: GM attributes its pricing resilience to a strong product portfolio and disciplined incentive spending. They've benefited from prior price increases and expect some stabilization as they lap last year's increases. Upcoming refreshed SUVs are expected to support pricing, and incentives remain below industry average. - -

4. CapEx Allocation
   Q: How is CapEx mix shifting among EV, ICE, and other investments?
   A: CapEx remains stable at around $11 billion, balancing investments between EVs and ICE vehicles. After significant infrastructure investments, GM now focuses more on product development and efficiency gains, including technology enhancements and cost reductions. Approximately one-third of program capital is allocated to ICE. - -

5. China Business Strategy
   Q: How committed is GM to China amid ongoing losses?
   A: GM is focused on turning around losses in China by collaborating with partners to achieve a sustainable and profitable business. They highlight successes like the new GLA product and a shift toward new energy vehicles. GM plans to participate differently in the market, leveraging strengths and capital-light strategies like premium imports. - -

6. EV Loss Reduction with Flat Sales
   Q: Can GM reduce EV losses by $2–4B even if EV sales are flat?
   A: Management believes meaningful EV profitability improvements are achievable through efficiency gains, cost reductions, and mix benefits from new models like the Cadillac Escalade IQ. While scale is important, improvements aren't solely dependent on sales growth. They emphasize discipline in scaling to demand and ongoing cost efficiencies. - -

7. Cruise Capitalization
   Q: What's motivating GM to raise capital for Cruise?
   A: GM seeks to invest in autonomy efficiently and is exploring partnerships to manage investments wisely. They aim to leverage opportunities to be more capital-efficient, potentially involving strategic partners, though specifics aren't disclosed. -

8. Q4 EBIT Decline Factors
   Q: What are the main factors behind expected Q4 EBIT decline?
   A: The anticipated $1.5 billion decline in adjusted EBIT for Q4 is due to factors like eight fewer production days, a $400 million pull-forward of production into Q3, and lapping prior year price increases. Management notes these are timing-related and not indicative of future performance. - -

9. R&D Budget Allocation
   Q: How is the R&D budget shifting between EVs and ICE?
   A: GM maintains a balanced R&D budget, investing in both EV and ICE development. While they've launched several EVs, ongoing work includes efficiency improvements and cost reductions. The R&D run rate is expected to continue, supporting portfolio enhancements and technological advancements. - -

10. Equinox EV Profitability
    Q: Can strong sales of entry-level Equinox EV support profit goals?
    A: GM is monitoring customer demand across its EV portfolio, including the $35,000 Equinox EV. They're confident in meeting profit improvement targets by responding to customer preferences and leveraging additional options to drive growth and profitability. -

Annual guidance for FY 2024:

• EBIT Adjusted: $14B to $15B - - (raised from $13B to $15B - )
• EPS Diluted Adjusted: $10 to $10.50 - - (raised from $9.50 to $10.50 - )
• Adjusted Automotive Free Cash Flow: $12.5B to $13.5B - (raised from $9.5B to $11.5B - )
• EV Production and Wholesale: Approximately 200,000 EVs in North America in 2024 - (no prior guidance)

Annual guidance for FY 2025:

• Share Repurchase Program: Reduce outstanding shares to less than 1 billion in early 2025 - (no prior guidance)