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General Motors Company (NYSE:GM) Fourth Quarter 2023 Earnings Call Transcript, January 30, 2024
General Motors Company beats earnings expectations. Reported EPS is $1.24, expectations were $1.12. General Motors Company isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Trader: Good morning and welcome to General Motors’ fourth quarter and calendar year 2023 earnings convention. During open comments, all participants will be in listen-only mode. After the open comments, we will host a response session. As a reminder, this telephone convention was recorded on Tuesday, January 30, 2024. Now I’d like to turn the floor over to Ashish Kohli, GM’s vice president of investor relations.
Ashish Kohli: Thank you, Amanda, and hello everyone. Thank you for signing up as we review GM’s currency effects for the fourth quarter and calendar year 2023. Our convention call documents were posted this morning and are on GM’s investor relations website. We are also streaming this call online. We signed up today through Mary Barra, GM president and CEO; and Paul Jacobson, GM’s executive vice president and chief monetary officer. Dan Berce, president and CEO of GM Financial, will also sign up for us in the Q&A portion of the call. During today’s call, Control will make forward-looking statements about our expectations. These statements are subject to dangers and uncertainties that may cause actual effects to differ materially.
These dangers and uncertainties come with points known in our SEC filings. Please review the Safe Harbor Statements on the first page of our presentation, as the content of our call will be governed through this language. And with that, I’m very happy to pass the call on to Mary.
Mary Barra: Thank you, Ashish, and hello everyone. As we head into 2024, I GM is well-positioned for a year of strong financial execution that builds on everything we’ve done and, more importantly, learned in 2023. There is a growing consensus that the U. S. economy is becoming more and more sustainable. In the U. S. , the hard labor market and auto sales will remain resilient. At GM, we expect healthy sales of about 16 million units. We have an unmatched ICE portfolio in North America, expanded EV production on the LTM platform, and GM Financial continues to perform well. We build on products that our consumers love. In 2023, GM sold more cars in the U. S. than any other manufacturer. All of our U. S. brands increased sales year-over-year and gained market share in the U. S. The U. S. economy has healthy margins thanks to strong pricing and incentives that are more than 20% below the industry average.
The Chevrolet Bolt EV and EUV recorded record sales. We lead the industry in initial quality for the second year in a row, according to J. D. Power. We have now been the industry leader in combined sales of pickup trucks, full-size vans, and full-size SUVs for 10 consecutive years, making us a leader in the highest ATP quadrant of the market and helping us dominate the advertising fleets. And we’ve overtaken Honda and Toyota in the top quadrant, thanks to attractive, successful cars. like the Chevrolet Trax, which is among Car and Driver’s top 10 trucks and SUVs, and the Buick Envista, which is winning among younger buyers. In fact, more than one in 4 Envista consumers are between the ages of 18 and 35. The widespread momentum we are experiencing today is vital to our future because our consumers are the most steadfast in the industry.
All of those successes contributed to full-year adjusted EBIT of $12. 4 billion and adjusted non-automotive cash flow of $11. 7 billion in 2023, bringing our total to more than $22 billion for 2022 and 2023. Nearly two-thirds of this money is returned to shareholders in the form of dividends and percentage buybacks, adding up to the effect of the accelerated $10 billion percentage buyback program we announced in November. Through the ASR, we immediately withdrew 215 million unusual percentages in the fourth quarter. The percentage count is less than 1. 2 billion and we are working to reduce it further to less than a billion outstanding non-unusual percentages, which would be about six hundred million less than at our peak. As we look to the future, our priorities and commitments are clear.
Their goal is to maximize the opportunities we have with our winning ICE portfolio, grow our electric vehicle business profitably, generate strong margins and cash flow, and refocus and relaunch teams. Across the company, we’re taking vital steps to address each and every priority. Let’s start with our portfolio ICE. La Chevrolet crossover lineup saw record sales last year, and this year we’re improving on two of its most important models competing in expansion segments. For example, Super Cruise will be available for the first time on the Traverse and we’re introducing a new Z71 off-road model. The 2025 Chevrolet Equinox we unveiled last week is another wonderful example. It has more popular protective gear, a new styling inspired by a pickup truck, and a strong concentration on technology.
And importantly, both the Traverse and Equinox will have higher projected margins than the outgoing model. Buick and GMC are also launching new crossovers this year to keep our momentum going. In our EV business, we expect our US portfolio to be variable profit positive in the second half of the year based on our current expectations for EV demand and production growth. Strong interest in our vehicles, lower commodity prices and other factors will support this. Our plan is to produce in wholesale 200,000 to 300,000 Altium-based Chevrolet, GMC, Cadillac and BrightDrop EVs in North America this year, but we will be guided by customer demand. It’s true, the pace of EV growth has slowed, which has created some uncertainty. We will build to demand and we are encouraged that many third party forecasts have US EV deliveries rising from about 7% of the industry in 2023 to at least 10% in 2024, which would mean another year of record EV sales.
Our competitive position will improve throughout the year with increased production of the Cadillac LYRIQ, GMC Hummer EV, Chevrolet Blazer EV and Silverado EV trucks. We’re also excited to see the Chevrolet Equinox EV and Silverado EV RST, GMC Sierra EV. Denali and Cadillac Escalade IQ will hit showrooms later this year. We are confident in the design and functionality of those vehicles. For example, the LYRIQ is fueling Cadillac’s expansion. Its sales have increased sequentially every month since September, and January deliveries are expected to be in line with December’s despite winter storms across the country. We also have over 10,000 (sorry, 100,000) bookings and orders for electric vans that we plan to fulfill in 2024 and 2025.
However, if demand situations change, we will leverage our production flexibility in Spring Hill and Ramos to build more ICE models and fewer electric vehicles. We can also combine other EV products in Factory ZERO. In the end we will stay with the client. The adjustments we have made to the supply chain, production and software will contribute to our growth. On the battery side, our Ultium Cells joint venture is in full production in Ohio and the new Tennessee factory will begin shipping cells this quarter. In addition, our supply chain team transitioned very temporarily to sourcing resources to two minor moving components after the U. S. Treasury moved to the U. S. Treasury. The U. S. Department of Homeland Security issued its updated IRA guidance in December. This update means that future new productions of the Chevrolet Blazer EV and Cadillac LYRIQ will be eligible for the full $7,500 consumer credit.
We work intensively with our dealers to ensure consistent pricing for our consumers, which we believe will affect no more than approximately 25,000 vehicles. Our battery module production is carried out on time. The meeting plant used to build modules and the installation of new high-capacity meeting lines are expected to be completed by the middle of the year. Our software and facilities team is also in the process of resolving the stability issues that some consumers have experienced with the Chevrolet. Blazer EV that has affected their presentations and charging experience. And they are operating with an immense sense of urgency to temporarily lift the stagnation in sales. We have let those consumers down and we know it. We are committed to getting the right software. And we will.
We have made several organizational and procedural innovations that will help us deliver the most productive visitor experience imaginable in the future. Among several significant organizational realignments, we created a Software Quality Division within the Software & Services team that conducted a retrospective of the Blazer. EV and advanced existing software verification and progression procedures across the enterprise. The effects of this activity are implemented across all future systems and come with improved standardization of software progression and release procedure, increased focus on vehicle-level verification automation, and more quality criteria and metrics for vehicle-level software. From a margin and cash flow perspective, we are making smart strides in burden relief and capital efficiency.
Compared to 2022, our constant net depreciation and amortization costs will decrease by $2 billion by the end of 2024, offsetting the superior effect of higher costs of hard work. We’re also starting to save money through earning with simplicity, and all of our existing and long-term systems have embraced this vital way of designing products. Each team is guilty of creating series of finishes that make it less difficult to order cars with the content consumers need and far fewer standalone features. By making more gadgets popular in the final series with logical value trade-offs, we can eliminate literally thousands of unique component SKUs and dozens of software versions. For example, we’ve removed over 1000 selectable features in our existing and short-term product systems. , reducing the complexity of hardware, software, ordering and manufacturing, and most importantly, all the prices related to them.
By 2024, savings are expected to be approximately $200 million. To be clear, we’re talking about $200 million in savings to run the same product plan. These savings will add up over time as we apply long-term field products like our next-generation full-size pickup trucks. We also continue to balance capital priorities and generate a steady flexible cash flow. We expect our capital expenditures for 2024 to be in the range of $10. 5 billion to $11. 5 billion, which is a roughly stable year. -over the year and particularly below $13 billion in our initial guidance at the end of 2023. Future plans include the introduction of our plug-in hybrid generation in select cars in North America. Let’s be clear, GM remains committed to getting rid of exhaust emissions from our light cars by 2035.
But in the meantime, the rollout of plug-in generation in strategic segments will bring some of the environmental benefits of electric cars as the country continues to build its charging infrastructure. We plan launches to help us meet the strictest fuel economy and tailpipe standards. emission criteria that are being proposed. And we plan to implement the program in a cost-effective and cost-effective way, as the generation is already in production in other markets. We’ll have more percentages on that later. Transition to Cruise. Last week, we released the effects of independent assessments and have already begun imposing significant adjustments to create a larger cruise ship. We are committed to regaining acceptance from our regulators and the public through our actions.
Our 2024 investment plan in Cruise reflects our more planned and fast-paced go-to-market strategy, and we are proposing new monetary targets and a new roadmap. Spending will be especially minimized this year, but we will continue to invest in other people who are in the U. S. and Canada. This reflects our commitment to our vision of delivering the protection benefits of autonomous driving generation and a scalable and successful business. I look forward to sharing our timeline for the return of Cruise EVs to the roads. soon. In short, we learned a lot in 2023, and those learnings will allow us to build on our strengths and meet our challenges. All team members are committed to building on our momentum and creating shareholder value.
You’ll see in our proxy this spring that executive pay is even more tied to the implementation of our comprehensive ICE, EV, AV, and software plans, while also meeting our monetary goals. Therefore, our goals, in fact, are aligned with theirs. Before I turn the floor over to Paul, I’d like to pay attention to our upcoming Investor Day. Because of the significant adjustments taking place at GM and Cruise, we think it makes sense to wait until later in the year to host an event. This will give our software team time to focus on the software for our upcoming releases and we will be able to share more tangible evidence on the 4 pillars of our strategy: ICE, EV, AV and software. show them what we’ve done, not just tell them what we’re going to do.
In the meantime, we’ve already provided a roadmap for EV profitability in 2025, and we’ll share updates on Cruise as we finalize the technology and relaunch plans. With that, I’ll turn it over to Paul to go through our 2023 financials and provide more details on our 2024 outlook. Then we’ll take your questions.
Paul Jacobson: Thank you, Mary, and good morning, everybody. Thank you all for joining us this morning. I’d like to start by identifying the entire GM team by what they completed in 2023. When you look at the last two years, the effects show an impressive trend in terms of earnings growth. EPS consistency and money generation. For the full year, our adjusted EBIT of $12. 4 billion was above the midpoint of diversity we set in November, driven by the continued strength of our core business. We increased earnings 10% year-over-year to a record $172 billion and generated $7. 68 in diluted EPS adjustments. One of the priorities has been successful growth. And throughout the year, we proved that by expanding our market share in the U. S. and Canada. Increase the U. S. economy by 30 basis points while maintaining incentives. below industry averages.
It is vital to mention the steps we took in 2023 to reduce consistent prices and the progress made in the $2 billion net charge relief program. For example, automotive engineering has shrunk by $400 million, thanks to portfolio simplification, knowing the benefits of earning with simplicity, as well as our push for virtual engineering. Marketing spend has been reduced by $500 million and we are making plans for another $400 million this year. And we’ve noticed about $500 million from decreased spending on BrightDrop and other expansion activities. , as well as the effect of the voluntary separation program on the entire company. These $1. 4 billion discounts at constant prices were partially offset by an accumulation of $400 million in depreciation and amortization, meeting our goal of completing part of the $2 billion program. in 2023.
We began 2023 with $24 billion in auto and marketable securities money, generated $11. 7 billion in full-year adjusted nonautomotive net cash flow, and supported approximately $12 billion to our percentage shareholders in the form of dividends and percentage buybacks, adding up to the effect of the $10 billion accelerated percentage repurchase program initiated in the fourth quarter. Looking ahead to 2024, we are well placed with approximately $20 billion in money for automobiles and marketable securities and will appropriately balance our capital allocation priorities with the plan to continue returning capital to our percentage shareholders through buybacks and our new superior dividend rate. to fourth-quarter results. The company’s overall profit was $43 billion, stable year-over-year, despite the effect of the strike. However, we had a number of issues that we do not expect to be repeated in 2024 and that have an increased effect on our margin in the quarter.
We achieved $1. 8 billion in adjusted EBIT, a 4. 1% adjusted EBIT margin and $1. 24 in adjusted diluted EPS. These effects were also affected by the strike, which had an impact of $900 million on adjusted EBIT in the fourth quarter and $1. 1 billion for the full year, primarily due to the loss of approximately 95,000 production sets. Additionally, we increased our stock valuation provisions to $1. 1 billion to revalue inventories of battery electric and mobile vehicles held at year-end. This adjustment was particularly larger in the fourth quarter compared to previous quarters, due to the combination of increased mobile production in preparation for our EV ramp-up in 2024 and the holding of a larger number of electric cars in the company’s stock. . Adjustments for the full year amounted to $1. 7 billion. We expect this figure to be particularly lower in 2024 as we continue to make progress towards our electric vehicle EBIT margin targets. North America reported fourth-quarter adjusted EBIT of $2 billion, a decrease of $1. 6 billion year-over-year, primarily due to the impact of the $900 million strike and billions of dollars in exchange rates. actions I just talked about.
Performance was also boosted by higher costs and lower constant costs, which more than offset the combined headwinds. The North American margin of 8. 7% was within our full-year target diversity of 8% to 10% and included an effect of 1. 6 percentage points. from the strike and stock adjustments. Part of this functionality comes from proactively managing our stock levels, which helps minimize incentives. I’m pleased to have ended the year with 50 days of stock in the U. S. The U. S. Securities and Exchange Commission is at the lowest end of our 50- to 60-day diversity target, and with incentives more than 20% below the industry average. GM International had another strong quarter with fourth-quarter adjusted EBIT of $300 million, which was consistent year-over-year. Thank you to the entire foreign team for yet another year of smart execution and for generating $1. 2 billion in adjusted EBIT.
GM Financial also performed well with adjusted EBIT of $700 million in the fourth quarter, slightly below year-over-year. Full-year effects were $3 billion, at the high end of management diversity from $2. 5 billion to $3 billion. Portfolio loans signs remain strong, in part due to predominantly blue-chip loans combined with a slightly higher net rate due to moderation in credit performance. GM Financial has been an integral component of the company in supporting our customers, supporting our distributors, and paying $1. 8 billion in dividends to GM in 2023. Cruise spending was $800 million in the quarter, up $300 million year-over-year and similar to the quarter. So let’s look ahead to 2024. We expect adjusted EBIT to be between $12 billion and $14 billion.
Adjusted diluted EPS was in the range of $8. 50 to $9. 50, adding an estimated gain of $1. 45 percent resulting from last year’s accelerated buyback based on the existing percentage price, which will be partially offset through a headwind of approximately $0. 50 due to an increase consistent with the tax rate and a decrease in interest income. Due to declining money balances and adjusted loose cash flow in the automotive segment in diversity from $8 billion to $10 billion for the year. I need to summarize a few things in 2023 that we don’t expect to see a repeat and that will contribute to our positive outlook for this year, despite some potential macroeconomic headwinds. These come with the impact of the $800 million adjusted EBIT on LG deals. And as a reminder, this will save us an additional $1,000 consistent with the vehicle on the road to EV profitability.
Adjusted EBIT from the strike has a $1. 1 billion impact and a very large amount of the $1. 7 billion in net cost changes achievable as we work on selling shares, realizing higher profits for EVs and benefits from falling lithium prices. Taking into account the existing macroeconomic environment, we forecast a market similar to that of 2023, with overall US industrial volumes of approximately 16 million units. We expect wholesale volume to increase as we recover from the effect of the strike and continue our track record of percentage gains in the market, driven primarily by increased EV volume. However, we anticipate combined headwinds for our MCI production, due to expected moves to proactively manage full-size truck stock levels. We also assume a 2-2. 5% year-on-year value decline, but overall remain confident in our ability to balance production, stock levels and earnings ability, while expanding our revenue and maintaining our margins in South America. North between 8 and 20 years. 10%. range.
We’re on track to achieve the remaining $1 billion in net constant load savings, driven by space benefits similar to last year, adding corporate, engineering and marketing benefits. The total year of the movements we made was 2023. We anticipate a buildup of $1. 3 billion. Hard work prices, as well as logistics, are a slight hurdle year after year, basically due to the emerging prices of shipping finished vehicles. Cruise spending is expected to decrease by about $1 billion, given the new operating plan Mary previously discussed. In November, we took stock of our path to EV profitability with an estimated EBIT margin improvement of more than 60 percent and a reduction in overall EV loss in 2024 compared to 2023, even excluding the effect of stock adjustments.
This is due in large part to higher EV volumes and leveraging consistent loads similar to battery electric and mobile vehicle manufacturing, as well as the merit of all of our volume in North America on the Ultium platform. We are already seeing an improvement in mobile charging today, thanks to a significant drop in raw curtain rates and higher rates on mobiles produced at our first battery plant in JV thanks to higher capacity utilization. For GM International, we will be looking forward to our operations in South America and the Middle East. However, we expect tension to continue in China, adding plans to cut production in the first quarter to balance middlemen’s stock levels. These moves will most likely lead to a slight loss of Chinese equity’s revenue stream in the first quarter. , with a return to profitability from the second quarter.
For GM Financial, we expect EBIT-adjusted again in the $2.5 billion to $3 billion range with credit performance and used vehicle prices returning to normal throughout the year, along with earning asset growth from retail loan originations and the commercial loan portfolio. We are forecasting another year of robust automotive adjusted free cash flow, but we anticipate modest year-over-year headwinds from 2023 working capital benefits that we assume will not repeat and the timing of payments associated with accruals recognized last year. For example, warranty, tax, and higher assumed inventory levels. From a modeling perspective, remember that Q1 is our seasonally weakest cash flow quarter of the year. We expect our capital spend to be similar to 2023, inclusive of $500 million to $1 billion of investments in our battery JVs. Our 2024 effective tax rate is assumed to be in the range of 18% to 20%, up from last year, primarily due to the global mix of earnings and lower R&D credits primarily due to lower Cruise spend.
And our full-year EPS guidance assumes a fully diluted percentage-weighted average number of just under 1. 15 billion percentages. This includes the impact of the remaining percentages that will be purchased through the ASR, which we believe will reduce our fully diluted percentage. will feature less than 1. 1 billion percentages when completed. The actual number of percentages will count various points that affect the final ASR agreement, adding up to the average percentage value during execution and excluding the impact of any additional percentages. buybacks beyond the ASR. In conclusion, we know that the EV market is not going to grow linearly and we are willing to trade off between ICE and EV production given our unique production functions to balance stock levels and increase visitor demand.
This will support pricing and our current incentive discipline. While we have faced some challenging situations in our transition to electric vehicles, we are actively working to address them and remain excited about our long term and looking forward to a successful 2024. This concludes our opening remarks, and now we’ll move on to the Q&A portion of the call.
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