GM puts profit ahead of growth, veering away from Tesla
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[July 25, 2023] By
Joseph White and Ben Klayman
DETROIT (Reuters) -General Motors lifted its full-year profit guidance
on Tuesday, in large part because it plans to invest less in new
products and cut operating costs by an additional $1 billion through the
end of next year.
GM said net income for the second quarter rose by nearly 52% to $2.6
billion, as revenue grew 25% from the year-ago period when production
was hobbled by semiconductor shortages.
Shares rose 0.4% to $39.45 in premarket trade.
The Detroit automaker said it now expects full-year net income of $9.3
billion to $10.7 billion, up from a previous forecast of $8.4 billion to
$9.9 billion. On a per-share basis, GM is now forecasting net income of
$7.15 to $8.15 for the year, up from a range of $6.35 to $7.35.
The new outlook does not factor in the potential costs of a strike by
the United Auto Workers union should it fail to reach a new contract
with GM by the Sept. 14 deadline.
GM's more bullish outlook comes after six months of stronger demand and
richer pricing than expected earlier this year, Chief Financial Officer
Paul Jacobson said during a media conference call.
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GM's higher profit outlook also reflects decisions to ratchet down
spending.
GM said it will spend $11 billion to $12 billion on capital investments
this year, down from an earlier plan to spend $11 billion to $13
billion. Jacobson did not identify specific projects that would be cut.
"There's a lot of focus on winning with simplicity," he said.
The automaker said it also will expand a previously announced drive to
cut operating costs by $2 billion through the end of 2024. GM will now
target an additional $1 billion in overhead, marketing and other costs,
Jacobson said.
In contrast to Tesla CEO Elon Musk's strategy of cutting prices to
accelerate demand, GM pushed average transaction prices in North America
up by $1,600 to about $52,000 in the latest quarter, Jacobson said.
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The new GM logo is seen on the facade of
the General Motors headquarters in Detroit, Michigan, U.S., March
16, 2021. REUTERS/Rebecca Cook/File Photo
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"We're focused on profitability. Our recent results demonstrate that
we're not sacrificing margin for volume. We will continue this
strategy to help drive a fundamentally stronger company beyond
2023," he said.
GM's decisions to cut new product investment and operating costs
come as the automaker's profit margins are under pressure. GM's
pretax profit rose from a year earlier to 7.2% of revenue in the
second quarter. But for the first six months of the year, GM's
pretax margins fell to 8.3% of revenue, down from 8.9% a year ago.
GM's second-quarter results included a $792 million charge for "new
commercial agreements" with South Korean battery maker LG Energy
Solution.
GM said it has agreed to shoulder more of the costs for a recall of
Chevrolet Bolt electric vehicles to replace LGES batteries that
could catch on fire. Other agreements with LGES should result in
lower battery costs for GM in the future, Jacobson said, without
elaborating.
In China, GM's second-largest market, the automaker reported a
profit of $78 million, reversing a year-ago loss. But GM is still
earning far less than it once did in China as Chinese EV brands and
Tesla gain market share.
"The environment there remains challenging," Jacobson said. "We saw
the economic recovery slow down a little bit and a lot of price
competition there." GM increased its combustion vehicle sales by
38%, but petroleum-fueled vehicles are losing market share overall
in China.
(Reporting by Joseph White and Ben Klayman in DetroitEditing by
Matthew Lewis and Louise Heavens)
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