GM reports mediocre third quarter revenue, but raises estimate for full year
General Motors said on Wednesday that its third-quarter net profit fell 40% as it battled production constraints and a meager inventory of new cars.
The auto industry has faced a global shortage of semiconductor chips since February. Chips are used in many auto parts, and without them production at many GM factories has slowed down or stopped altogether, leaving lots of new cars at dealerships bare.
With no inventory to sell, the result is a dismal third quarter for GM.
The automaker reported net profit of $ 2.4 billion, up from $ 4 billion a year ago. Its adjusted profit before interest and taxes (EBIT) was $ 3 billion, compared to $ 5.3 billion. Revenue fell 25% to $ 26.8 billion from last year’s quarter when it was $ 35.5 billion.
In a letter to shareholders on Wednesday, GM CEO Mary Barra assured Wall Street that GM is well positioned for the future with its strategy to introduce 30 new electric vehicles by 2025 and a promise to double revenues. over the next decade with electric vehicles and other business diversifications. described earlier this month.
But she acknowledged the difficulties GM faced this quarter.
âThe quarter was tough due to continued pressures on semiconductors,â Barra wrote. “But it also includes the very strong results from GM Financial, the settlement of recall fees that we have reached with our esteemed and respected supplier and joint venture partner LG Electronics, and ($ 300 million) of equity income from our joint ventures in China. ”
Barra ended by saying that GM was tweaking its estimate for its annual results, saying it would approach the high end of GM’s earlier forecast, “which is for Adjusted EBIT in the $ 11.5 billion range. $ 13.5 billion, well above the $ 10 billion. $ 11 billion outlook we shared in February. “
GM’s results shouldn’t come as a surprise to Wall Street, after all the warning signs were there.
âGM got through the first half of the year relatively unscathed, keeping its all-important pickup truck and SUV factories running by allocating computer chips to these more popular and profitable models instead of installing them in less popular models,â less profitable and more abundant models, mostly cars, âsaid Michelle Krebs, executive analyst at Cox Automotive.
But in the third quarter, the chip shortage caught up with GM, forcing it to dramatically cut production on all models, Krebs said.
In September, GM warned Wall Street that the third quarter would be difficult due to the token deficit. GM chief financial officer Paul Jacobson said at the time, the automaker’s second-half vehicle sales and production would be down 200,000 units from the first half, mostly in the third quarter. GM delivered 1.1 million vehicles in the first half of the year.
Then, on October 1, GM announced that its sales of new vehicles in the United States had fallen 33% from the previous year. It sold 446,997 vehicles in the United States compared to 665,192 a year ago. The United States accounts for the bulk of GM’s revenue and profits.
The good news for the automaker is that GM’s average transaction prices are up 16%, topping $ 50,000 for the first time, to $ 50,392, Krebs said. GM has reduced the incentives by 46% to an average of $ 2,994 per vehicle, according to calculations by Cox Automotive.
Looking to the future
“The continued disruption of supply chains created by the chip shortage has been particularly hard on GM,” said Ivan Drury, senior director of ideas at Edmunds.
Drury noted that GM was âapplaudedâ for its Investor Day earlier this month when it announced it would double its annual revenues by 2030 and increase its adjusted margins before interest and taxes (EBIT) in the month. as it moves towards a fully electric future.
GM talked about a future line of electric vehicles at the time and gave Wall Street a preview of the Chevrolet Silverado E, the all-electric pickup it plans to debut at the Consumer Electronics Show in Las Vegas in 2022. GM showed a photo of its all-glass roof.
But, said Drury, “All eyes will be on how GM is overcoming these more immediate shortages, which should serve as a key indicator of whether the company can actually meet its higher future goals.”
Following:Everything you need to know about the auto manufacturer’s chip shortage
One bright spot for GM is that consumer demand remains strong for pickup trucks and large SUVs, which generate big profit margins even amid inventory issues, Drury said.
GM also dodged a bit of a bullet as the bulk of the battery issues with its Bolt EV seemed to fall more on LG’s shoulders than on the automaker itself, especially at a time when the industry has been distracted by other headlines, âDrury mentioned.
Earlier this month, GM reached an agreement with its battery supplier, LG Electronics Inc., over the high costs of recalling nearly 140,000 Chevrolet Bolt EVs and EUVs around the world. LG will reimburse GM for $ 1.9 billion in costs associated with the Bolt recall due to manufacturing defects in battery modules supplied by LG.
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