GM Q1 2024 Earnings Call

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[00:00:56] Good morning and welcome to the General Motors Company

[00:00:59] First Quarter 2024 Earnings Conference Call

[00:01:02] All participants will be in a listen-only mode

[00:01:24] Hello everyone and welcome to Killawada Podcast about electric vehicles,

[00:01:27] renewable energy, autonomous driving and much much more.

[00:01:31] My name is Bodey and I am your host

[00:01:34] and on today's episode as you've already heard

[00:01:38] we are going to cover GM's Q1 2024 Earnings Call

[00:01:43] On today's call, management will make forward-looking statements about our

[00:01:47] expectations. These statements are subject to risks

[00:01:50] and uncertainties that could cause their actual results to differ materially.

[00:01:54] These risks and uncertainties include the factors identified in our filings with the SEC.

[00:02:00] Please review the Safe Harbor statement on the first page of our presentation

[00:02:04] as the content of our call will be governed by this language

[00:02:07] Now that we've got the disclosures over with let's go ahead

[00:02:10] and move on to Mary Barra's opening remarks

[00:02:14] which as always have been edited to only include the parts that are important for this podcast

[00:02:21] In January we outlined clear priorities for 2024

[00:02:25] that are designed to build on our strength and learn from the challenges we faced in 2023.

[00:02:31] I'm very pleased to share that the team is executing well against all of them.

[00:02:35] Around the world we are very focused on growth and profitability

[00:02:39] which means taking full advantage of our winning product portfolio to grow share

[00:02:43] without chasing unprofitable business. In North America the fundamental strengths of

[00:02:48] Chevrolet, Buick, GMC and Cadillac truly stand out.

[00:02:53] The team delivered a 10.6% EBIT margin in the quarter thanks to our industry

[00:02:57] leading full-size pickups, the momentum we're building in mid-sized pickups,

[00:03:02] the growth we are seeing in our SUV business,

[00:03:05] profit improvement in our EV portfolio and our overall operating discipline.

[00:03:11] In our EV business we are building momentum in production and profitability.

[00:03:16] For example, we have increased battery module production by 300% over the last six months.

[00:03:22] Quality is very good in continuing to improve

[00:03:25] and the installation and validation of our new high-speed module assembly lines is on track.

[00:03:30] We are projecting to double our current capacity by the end of the summer.

[00:03:35] EV production rose sharply during the quarter and our dealers translated that into a 21%

[00:03:40] year-over-year increase in EV retail customer deliveries.

[00:03:44] For example, the Cadillac Lyric out sold all of the EVs from European luxury brands in the first

[00:03:49] quarter and since mid-March we are now delivering Chevrolet Blazer EVs with updated and improved

[00:03:56] software. All of our product programs are benefiting from the end-to-end improvements

[00:04:01] we've made in software including the increased rigor we have instilled in our quality and validation

[00:04:06] processes. More importantly, the talented executives and engineers we've hired from the tech industry

[00:04:12] are raising the bar for software design and execution which will help us truly differentiate

[00:04:17] our customer experience and the suite of software-driven products and services we offer.

[00:04:23] We're also making progress at cruise. The team is back on the road in Phoenix updating

[00:04:28] gathering more road information. This is a critical step for validating our improved self-driving system

[00:04:34] and building upon the more than 5 million driverless miles we've logged before the pause.

[00:04:40] We are engaging frequently with regulators and stakeholders and building trust as we regain

[00:04:44] momentum. Safety will remain front and center and will guide our progress.

[00:04:50] In our EV business, the LTM cell plan in Spring Hill is shipping sales and scaling

[00:04:54] production through the year. The Chevrolet Equinox EV will arrive in showrooms this quarter and we're

[00:05:00] very excited because it will be the most affordable long-range EV in the market.

[00:05:05] It will also offer supercruise like all of our Chevrolet GMC and Cadillac EVs on the LTM platform.

[00:05:12] We will then introduce more affordable trim series for the Chevrolet Equinox EV,

[00:05:16] the Blazer EV and the Silverado EV in the second half of the year which will help grow

[00:05:21] volume and share. Also in the second half of the year Cadillac will expand its EV lineup to include

[00:05:28] the Optique and the Escalade IQ. This is important because EV adoption in luxury segments is higher

[00:05:35] and more resilient than in the broader market. Two of our most highly anticipated launches

[00:05:40] are the GMC Sierra EV Denali and the Chevrolet Silverado EV RST. They are best in class in

[00:05:46] ways that truly matter to truck customers. By optimizing the battery, aerodynamics and other

[00:05:52] systems we were able to increase the range of the RST and the Denali by 10% to an estimated 440 miles

[00:06:00] which is about 40 miles better than the median range of ICE vehicles on the road today.

[00:06:05] No EV pickup on the road today even comes close and it's possible to go even farther.

[00:06:11] A few weeks ago two road testers took the RST on a drive from Las Vegas to Phoenix and they

[00:06:16] drove it like customers do on paved and gravel roads at freeway speeds at different temperatures

[00:06:22] and different elevations. At the end they managed to travel 460 miles on a single charge.

[00:06:29] It's the same story for towing. One journalist drove a Silverado EV work truck and three competing

[00:06:35] battery electric trucks on a 500 mile trip over the Rocky Mountains while towing trailers.

[00:06:40] It wasn't even a competition. The Silverado EV stopped once to charge while every other

[00:06:45] truck had to stop four to five times. Chevrolet and GM say are also the only pickup brands that

[00:06:51] allow drivers to tow while using supercruise our hands-free driving technology. That's just one

[00:06:56] of the several features that uniquely differentiates our products. So let's go over a couple of the

[00:07:01] things that Mary discussed. First battery module production was up 300%. That's great. They

[00:07:07] started selling the Chevy Blazer EV again which is wonderful. They had to shut that down because

[00:07:12] of some software issues. GM Cruise started up here in Phoenix to my understanding and I think they

[00:07:19] talk about this a little bit later in the earnings call is that is right now they're just mapping.

[00:07:26] They're not operating the ride share side of the business. They're human drivers just driving

[00:07:31] around mapping and I don't think I've seen one since they started back in this area

[00:07:36] and I used to see them all the time. Talked a little bit about the Equinox EV which will

[00:07:41] come with supercruise which is their self-driving software or driver assist software. Let's call it

[00:07:47] that. I did a little research and it's $2,500 up front which may be included in the purchase price

[00:07:53] of the vehicle for supercruise so you get the first three years free it sounds like

[00:07:58] and then after that you have to pay $25 a month. I think that's actually a really good price.

[00:08:03] So hopefully GM really pressures Tesla with that. Let's see I did not include this in the clip

[00:08:11] but the ultium based Chevy Bolt will arrive in late 2025 and it's supposed to be affordable.

[00:08:17] Let's go ahead and move on to GM's chief financial officer Paul Jacobson and we'll do his opening

[00:08:23] remarks again edited for this show his opening remarks there was much more information in there

[00:08:29] but we don't really need to know EBITDA information. I'm not even sure what EBITDA means to be

[00:08:35] honest with you I've looked it up several times I can't keep it in my head. If I see it I know

[00:08:39] it don't email me. All right let's go ahead and listen to Paul. As Mary mentioned cruise is resuming

[00:08:44] operations in Phoenix along with testing in simulated environments and on closed courses

[00:08:50] while they work to earn trust and build partnerships with regulators and customers.

[00:08:55] We expect full year cruise expenses to be around $1.7 billion. Let's move now to one of

[00:09:01] the most important metrics we're focused on EV profitability. We continue to see sequential

[00:09:08] and year-over-year improvements in variable profit and EVIT margins as we benefit from scale,

[00:09:13] material cost and mix improvements. Since last year we have significantly reduced cell costs

[00:09:20] with a large driver being lower battery raw material costs especially for lithium. We ramped

[00:09:26] our first battery JV plant last year and as they increased production and made other efficiencies

[00:09:31] the cost of cells came down significantly and cell plant number two in Tennessee is ramping

[00:09:37] even faster based on the learnings from plant one and is expected to reach full installed capacity by

[00:09:43] the end of the year. Collectively these factors are helping improve vehicle profitability for example

[00:09:50] we have seen more than $12,000 of year-over-year cost savings in the Lyric alone. As we continue

[00:09:56] to ramp we expect to see the benefits from the production tax credit continue to grow and our

[00:10:02] fixed cost absorption to improve meaningfully. We wholesale 22,000 ultium based EVs in Q1 up from

[00:10:10] less than 2,000 in the first quarter of last year and remain on track to achieve our 200,000 to

[00:10:16] 300,000 unit production and wholesale volume target for 2024. I would also like to touch

[00:10:23] on EV pricing which we recently adjusted on the 2024 Blazer EV. This action has been well

[00:10:30] received by our dealers and customers and as Mary mentioned the vehicle is gaining momentum.

[00:10:36] We assume some pricing pressure for both ICE and EVs in our business plan and guidance for 2024

[00:10:42] but we continue to work on finding additional offsets through cost performance and other efficiencies.

[00:10:48] Importantly this pricing action doesn't change our expectation to achieve positive

[00:10:53] variable profit for our EV portfolio in the second half of the year or our mid-single-digit

[00:10:59] margin target in 2025. We remain confident that when consumers see our new EVs and get a chance to

[00:11:06] drive them they will appreciate the unique combination of design, performance, range

[00:11:12] and value that we offer at multiple price points and because of our supply chain efforts

[00:11:17] customers are well positioned to leverage the $7,500 clean energy consumer purchase tax credit.

[00:11:24] In closing I want to reiterate our capital allocation framework along with our intention

[00:11:29] to be much more consistent in how we deploy capital. We are generating strong cash flow

[00:11:34] which is funding our EV transformation and growth opportunities. These efforts include

[00:11:39] investing in future products, transitioning manufacturing capacity to EVs and deploying

[00:11:45] resources into cutting-edge battery technology. At the same time you've seen us adapt to

[00:11:51] the dynamic market particularly for EVs and made bold decisions to be more efficient with our

[00:11:57] capital spend something we will continue to do moving forward. Our balance sheet remains strong

[00:12:04] and on shareholder returns we executed the ASR last November and the response has been

[00:12:09] overwhelmingly positive with GM stock outperforming its peers and being up nearly 50% since the

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[00:14:12] may vary. All right I don't have much to add there this is just kind of the financial side of what

[00:14:22] Mary had said. I think there's good information in there. Let's go ahead and move into our first

[00:14:28] analyst question which is a question on cruise. Our first question comes from the line of

[00:14:35] Joe Spach with UBS. You may proceed. On cruise with the relaunch and I understand the manually

[00:14:44] operated and mapping but Mary you emphasize an improved system so maybe you could just give us

[00:14:49] a little bit more color on how much of the existing technology stack is really sort of being

[00:14:55] leveraged and what's been redone. And then just on the financial side does the guy

[00:15:01] didn't assume any further steps towards that relaunch and what about a capital need with the

[00:15:08] cash bounce down to 700 million. Sure well first cruise we're very excited that they're back on

[00:15:15] the roads in Phoenix as I said it is manual but then we'll progress to supervise and then to

[00:15:20] unsupervised and the core tech stack what we've been doing since you know we made the

[00:15:25] decision to pause is continuing to work and improving it so we've actually strengthened

[00:15:30] you know the safety of the system by continuing to you know make sure we comprehend I'd say

[00:15:37] low probability but higher severity type issues because what we recognize in October although

[00:15:43] I think mainly it was an issue of not having built the right relationship with the regulatory

[00:15:48] agencies at all levels as well as the public and then being transparent but we also realize

[00:15:55] even though we demonstrated and externally validated that the technology was safer than

[00:15:59] an average human driver we need to do more and so that's what we've been focused on that's why

[00:16:04] we're as we're going back to Phoenix we're you know making sure we're up to date but

[00:16:09] very excited about where we are in the technology and very much believe in it.

[00:16:13] For what we plan to do this year of getting back on the road and demonstrating

[00:16:18] you know that the model works in one city as I've said in the past and then expanding

[00:16:23] from there we believe it's comprehended in the budget that we have and then as you look

[00:16:28] at how we plan to fund the business we're exploring quite a few options right now

[00:16:32] and including potentially outside taking outside investments as well and so we'll have more to say

[00:16:40] about that as we move through the year but I'm very excited to be back on the road we believe in

[00:16:44] the technology we're making it even better that didn't stop through this whole period since last

[00:16:50] October. Notice how Mary said that GM crews needs to build relationships with regulators

[00:16:56] and the public I think and I mentioned this on Tesla's earnings call but Tesla needs to put more energy

[00:17:06] in building relationships with the public I mean they definitely need to put in the time with regulators

[00:17:12] but they need to change their image and how people see full self-driving and autopilot so GM

[00:17:21] definitely had a really bad look with dragging that pedestrian, that bicyclist and then you know

[00:17:29] sending doctored footage to the police and all of that was bad and a lot of people got fired

[00:17:36] and GM should be fine for that to be honest and they're probably going to be sued and they

[00:17:39] deserve to be sued but if you're going to move forward in this space you have to re-earn

[00:17:46] the public's trust. The same thing goes with what Tesla needs to do they need to rehab their image

[00:17:54] in the eyes of a lot of people now I don't necessarily think that Elon's interested in that

[00:18:00] but it needs to be done. All right let's move on to our second question which is what are

[00:18:07] GM's software goals over the next few months? It relates to the software strategy as we move

[00:18:13] through the year and beyond first you know as Mike stepped back over the past year though he did an

[00:18:19] incredible job of reevaluating and changing our software development process as well as our validation

[00:18:24] process and brought in an incredibly strong team of you know probably more than a dozen people at

[00:18:31] the senior level to really focus on having the right software strategies we move forward so I'm

[00:18:37] very confident you know we pause at beginning this year with the blazer as we saw a limited

[00:18:41] number of consumers had an issue where we've moved past that now and that's allowed us to strengthen

[00:18:47] the software of all of our upcoming vehicles and so well you know the goals for the next couple

[00:18:53] months are to launch with quality on time and we're out of pay out of path to do that

[00:18:58] and then as we go forward as as the new software goes across multiple vehicles and that gives us

[00:19:04] an opportunity to focus more on growing subscriptions and services but I'm very pleased

[00:19:10] with where we are with the team that we have and the progress they've made and it's showing in

[00:19:15] our ability to launch with quality GM's had a lot of issues with software so we'll see where this

[00:19:23] goes we'll see if it's good or not I don't know for sure if you own a GM EV a new one with a

[00:19:31] new software on it like a new Chevy Blazer EV or let's say one of our folks in the community

[00:19:38] is getting a new Chevy RST EV pickup truck tell me what you think of the software I'm curious

[00:19:47] all right let's go ahead and move on to our next question which is about EV sales thank you our next

[00:19:55] question comes from Mark Delaney with Goldman Sachs your line is open another question on EVs

[00:20:00] and on the pricing topic the company spoke to good demand and feedback for its EVs but the

[00:20:04] broader market has been quite competitive for EV in terms of pricing I'm hoping to better understand

[00:20:09] if you think GM is going to need to take additional pricing actions this year to reach the 200 to 300

[00:20:13] thousand outlook that you have in North America or did the demand signals you have from the market

[00:20:19] suggest you can hit that kind of volumes this year with relatively firm pricing going forward thanks

[00:20:25] sure well you know obviously the the early results here as we're ramping up Altium are

[00:20:29] pretty strong with retail sales up about 20 percent year over year despite the fact that

[00:20:36] the bolt which is sunsetting the prior generation was down about 60 percent during the quarter so

[00:20:42] retail demand remains strong we we've obviously seen a lot of softness in fleet particularly on

[00:20:47] the rental side for EVs but but we see customers responding now you know these are on admittedly

[00:20:54] lower volumes as we scale up but we're building that momentum that I think we need with the

[00:20:58] products to be able to you know show consumers what what our capabilities are when you look at the

[00:21:07] statistics that Mary cited in the script about the range and what's in our earnings deck you see

[00:21:13] that the purpose built EVs are actually better in terms of performance range charging speed

[00:21:20] towing capabilities etc than many of the other products that are out there on the market

[00:21:24] and I think as consumers continue to see that will be well positioned as as EV demands at the

[00:21:31] retail side continue to trend so we're obviously going to watch it closely but the early indications are

[00:21:38] strong based on that clip do you think that GM is going to maybe not prioritize hybrids as much

[00:21:47] as they said they were going to do in the last earnings call from a business standpoint it makes a

[00:21:52] ton of sense to build whatever cars people want to buy it'll be interesting to see how 2024 plays

[00:22:00] out for hybrids 2024 and 2025 plays out for hybrids all right let's move on to our next question

[00:22:07] which is similar and it's about EV sales targets versus consumer demand thank you our next question

[00:22:15] comes from Alex Potter with Piper Sandler you may proceed first question on Altium you stuck

[00:22:21] to the 200 to 300 thousand production guidance which is good to see but at the same time you talk about

[00:22:27] how you're going to use consumer demand as sort of a gating factor is would you say that the 200

[00:22:32] to 300 is that something that you're going to stick to sort of come heller high water and then

[00:22:37] gauge consumer demand from there or is it something that you could slow walk

[00:22:42] maybe toward mid-year toward the second half if it doesn't seem like the consumer

[00:22:45] demand is materializing yeah we're never going to build just build products come heller high water

[00:22:51] because the numbers out there uh we're always going to be responsive to the customer uh but we do

[00:22:56] believe that we're going to be in that 200,000 to 300,000 dollar range with the number of of

[00:23:02] EVs that we have launching off of Altium you know we're seeing strength with Hummers we're

[00:23:06] ramping that up we're seeing strength with Lyric and Blazer is you know just now ramping up

[00:23:11] we've got the equinox coming there's and there's several more so I think when you look at the fact

[00:23:17] that these are all going to meet customers exactly you know with the performance and functionality

[00:23:22] that they need we think we're well positioned there so I would also say though as you look

[00:23:27] across our portfolio um we are well positioned whether it's ice or EV from a uh with the strength

[00:23:34] of our ice portfolio so we're well positioned to respond to the customer like I said we

[00:23:39] we are very focused on making sure that we don't overbuild that we're able to maintain our price

[00:23:45] our margins and we think we've got the strength and you know specifically if you look at Spring

[00:23:49] Hill uh we can build EV or ice in that plant so I think we're well positioned we think we're

[00:23:55] going to be in that 200 to 300,000 range uh by by customer demand uh and we'll just

[00:24:02] continue to adapt yeah I think it would be a really big mistake for a company just to build

[00:24:08] as many of a product as they possibly can because they said that they were going to reach this goal so

[00:24:14] if GM is like hey we're going to build 200,000 EVs in 2024 and they have the capacity to build

[00:24:23] let's say 300,000 and they have the demand for 285,000 it doesn't make any sense for them to just

[00:24:31] build 200,000 EVs for that year same thing goes on the other side if people aren't wanting

[00:24:37] to buy GM's EVs it doesn't make sense for them to build 200,000 that'd be crazy all right I think we

[00:24:46] can end that here uh there was lots of EV talk on this earnings call unfortunately a lot of it was

[00:24:53] like business e-sales numbers and all this other terminology that I'm not equipped to go through

[00:24:59] with you so if you want to listen to the earnings call I'll put the link in the show notes

[00:25:05] and you can listen to the whole thing if you're interested but I want to thank everybody for

[00:25:09] listening to this episode I really appreciate it if you want to email me and give me your thoughts

[00:25:13] it's bodi b-o-d-i-e at 918digital.com you can also support the show on Patreon if you're

[00:25:20] interested go to patreon.com forward slash kilowatt or support kilowatt.com all the

[00:25:26] money goes back into the show none of the money goes into my own pocket and then what's

[00:25:30] the other thing oh I have a new podcast it's called Beyond the Post and I would really love it if

[00:25:35] everybody went and checked it out there's links in the show notes on the latest episode Rob and I

[00:25:41] talk about seven things you can do to monetize your content creation so hopefully you'll find

[00:25:48] that interesting if you're into that kind of thing all right everybody that is it I hope

[00:25:55] you all have a wonderful week and I will talk to you on Friday actually you know what I forgot

[00:26:02] I'm doing this experiment thing I'll actually talk to you on Wednesday and Thursday and Friday

[00:26:09] all right everybody thanks for listening have a great day tired of ads barging into your favorite

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