GM expects higher profit after 2023 issues

NEW YORK: From a costly strike to stubborn production headaches, General Motors Co had a very difficult 2023. Chief executive officer Mary Barra says that has paved the way for a much better 2024.

GM shares jumped following a rosy full-year outlook from the automaker.

The more bullish guidance stems largely from the belief that the heavy costs of those problems, which included difficulties with Ultium electric vehicle (EV) batteries and regulatory scrutiny at GM’s Cruise robotaxi business, are now in the rearview mirror.

“Last year, we had some disappointments in EVs, and that created some cause for concern, as well as challenges at Cruise,” Barra said in an interview with Jon Ferro on Bloomberg TV.

“This is going to be a breakout year for Ultium-based EVs, and we’re going to demonstrate that this year.”

GM’s guidance for stronger profits and better-than-expected fourth quarter results showed the two distinctively different sides of the automaker.

While it struggles to build EVs that are a keystone of Barra’s long-term growth plan and its Cruise robotaxi unit is on full reboot, GM’s core business of making petrol-powered trucks and sport-utility vehicles (SUV) is still throwing off a lot of cash.

The Detroit automaker said that adjusted earnings before interest and taxes (ebit) for all of 2023 totalled US$12.4bil, near the high end of its November forecast for up to US$12.7bil.

For the current year, GM sees adjusted ebit in a range of US$12bil to US$14bil, which is shy of 2022’s record US$14.5bil but still higher than Wall Street’s expectations.

Cutting cost

Barra told analysts on a conference call that her company aims to cut costs by some US$2bil this year, sell at least 250,000 EVs and re-introduce hybrids to the North American market.

She also said that GM remains committed to its troubled Cruise self-driving business and would consider external funding for it.

The pivot to hybrids represents a reversal for Barra. She has eschewed the technology while focusing on EVs in the United States.

But with the nation’s charging network slowing to develop and regulators pushing for tougher fuel economy standards, she said a change of course was needed.

“As we’re going through this transformation, a lot has changed,” Barra said. “We thought we’d be farther along on charging infrastructure across the entire country.

“Also, the regulatory environment has changed and has gotten more stringent.”

Proceeds from the company’s traditional business of selling petrol-powered vehicles are going back into research and development while also funding rich buybacks and dividend hikes.

GM expects demand for vehicles to remain robust, spurred in part by optimism about a soft landing for the US economy, a stark shift from its previous caution about economic headwinds.

Job market

“Consensus is growing that the US economy, the job market and auto sales will continue to be resilient,” Barra said in a letter to shareholders.

She added that the company expected US industry-wide auto sales to climb to about 16 million vehicles, “with the mix of EVs continuing to grow”.

That’s up from 15.5 million vehicles in the United States last year and would be the highest level since 2019.

GM projects that it will spend about US$1bil less on Cruise this year. It sees a US$1.7bil drain from its EV business shrinking and doesn’t expect to suffer from another strike, which ate US$1.1bil last year.

The company reported a fourth-quarter adjusted profit of US$1.24 per share, besting analysts’ projection of US$1.16 per share.

But that was below the US$2.12 per share that GM reported a year ago and US$2.28 per share in the third quarter, partly as a result of a 46-day strike that shut down several plants.

GM’s fourth-quarter revenue totalled US$43bil, down slightly from the same period in 2023 but above analysts’ projection for US$39.5bil.

That compares with the US$25.2bil that EV market leader Tesla Inc reported last week for the fourth quarter.

Traditional GM rival Ford Motor Co reports its earnings on Feb 6.

GM said EV output will ramp up this year after some hiccups. It’s pushing ahead with new battery-powered models, including all-electric versions of its compact crossover Chevrolet Equinox and full-size GMC Sierra Denali SUV.

“It’s true the pace of EV growth has slowed, which has created some uncertainty,” Barra said in her letter.

Higher production

“We believe our competitive position will improve throughout the year, based on higher production” of core models.

She added that GM expects its EV lineup to cover its variable costs but not show a net profit by late 2024.

The company is targeting fully profitable EVs in 2025.

Last year, the automaker produced only half as many EVs as it had initially projected due to manufacturing issues at the assembly plants where Ultium battery packs are assembled.

Cruise LLC, GM’s self-driving car unit, lost US$792mil in the fourth quarter, compared with a loss of US$524mil a year earlier.

For the full year, Cruise’s loss was nearly US$2.7bil, bigger than the US$1.9bil it lost in 2022.

The driverless company is under federal investigation for an accident, which led it to halt its fleet nationwide in October.

Despite the problems, Barra said GM remains “fully committed” to its driverless technology and will reveal a plan to restart the business later this year. — Bloomberg