The GM logo is seen on the facade of General Motors headquarters in Detroit, Michigan, United States, March 16, 2021. Picture taken March 16, 2021. Portal/Rebecca Cook//File Photo acquires license rights
DETROIT, Oct 24 (Portal) – General Motors (GM.N) on Tuesday withdrew its previous forecast for 2023 earnings and near-term electric vehicle production, citing costs related to the United Auto Workers strikes in October increased to $200 million per week.
GM’s third-quarter net income fell 7.3% to $3.06 billion, while revenue rose 5.4% to $44.1 billion. Analyst adjusted earnings per share came in at $2.28, above Wall Street expectations and above $2.25 a year ago due to the impact of share buybacks.
GM shares rose 1.6% in premarket trading following the stronger-than-expected profit.
Rising UAW strike numbers, the prospect of higher labor costs once a new contract is reached, rising warranty costs and an uncertain macroeconomic outlook have forced GM to abandon previous full-year financial performance targets that it raised in July. Well, Fargo analyst Colin Langan said the impact of the strike is not surprising.
The UAW strikes cost the company $200 million in the third quarter and $600 million so far in the fourth quarter, GM Chief Financial Officer Paul Jacobson said in a briefing with reporters.
According to Jacobson, strike costs are currently running at $200 million per week. He declined to discuss the potential impact if UAW President Shawn Fain orders new work stoppages at GM’s most profitable North American factories, such as the Arlington, Texas, plant that builds Cadillac Escalades and Chevrolet Suburbans, or the heavy-duty truck plant. Pickups in Flint, Michigan.
As the pace of electric vehicle sales growth in North America has slowed and even industry leader Tesla (TSLA.O) remains cautious about the pace of its expansion, GM is changing its electric vehicle strategy in the region.
The Detroit automaker said its future EV strategy is to “balance supply and demand to maintain strong pricing while taking immediate actions to increase the profitability of our EV portfolio.”
GM is abandoning its goal of building 400,000 electric vehicles from 2022 to mid-2024, Jacobson said.
GM CEO Mary Barra had reiterated that goal in July, before the UAW strikes began eating up cash, at a time when GM also raised its 2023 operating profit forecast to a range of $12 billion to $14 billion had.
“We’re just not going to talk about the preliminary production goals,” Jacobson said. “We want to make sure we balance this with what we see out there. The real focus is to produce one million electric vehicles by the end of 2025 while achieving our margin targets.”
Barra said in a letter to shareholders on Tuesday that GM still has a lot of work to do to reach its goal of low-to-mid-single-digit earnings before interest and taxes (EBIT) by 2025.
GM’s decision to delay converting a large factory in Orion Township, Michigan, to build electric pickup trucks will save $1.5 billion in capital investment in 2024, Jacobson said.
Delaying the electric truck expansion “will actually allow us to incorporate some of the changes and improvements that we saw in early production” and improve profit margins as the electric Silverados and GMC Sierras begin production begin, he said.
The company has joined other automakers in calling on the Biden administration to back away from ambitious emissions and fuel economy rules aimed at bringing electric vehicles to two-thirds of the U.S. vehicle market by 2032.
So far, GM’s sales and prices in North America have remained stable. Average sales prices for GM vehicles were $50,750 last quarter, down slightly from the previous quarter.
However, the automaker said its cost-cutting efforts only “partially offset” higher electric vehicle adoption costs, increased warranty costs and lower pension income in the quarter.
Overall, GM said quarterly profit fell $1.5 billion due to higher costs and the impact of selling more electric vehicles, the company said. Unlike rival Ford, GM is not claiming losses from its EV business.
Jacobson said GM executives are concerned about rising interest rates as well as the conflict in the Middle East and whether that could affect consumer behavior. However, he did not share Tesla CEO Elon Musk’s pessimism about the impact of rising interest rates on consumer demand.
“What I will tell you is that the consumer has done remarkably well for us so far, as evidenced by average transaction prices,” Jacobson said.
GM also said losses at its cruise robotaxi division widened to $732 million in the quarter. GM said the losses were “in line with expectations” as it expanded operations to 15 cities.
Reporting by Joe White; additional reporting by Ben Klayman; Edited by Jamie Freed, Kirsten Donovan and Chizu Nomiyama
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