GM posts $ 2.8 billion profit, but cautious tone drives share price down

DETROIT (AP) – General Motors posted a solid $ 2.8 billion second quarter profit on August 4, but its cautious outlook for the rest of the year scared investors.

The Detroit-based automaker made solid profits despite a global shortage of computer chips that forced it and other companies to temporarily close factories.

As GM raised its outlook for the year, it also warned of high commodity prices and lower production due to chip shortages, and warned that the highly contagious delta variant of the coronavirus could hamper its supply chain.

The cautious tone rocked investors, who pushed GM shares down nearly 9%.

CFO Paul Jacobson predicted GM would produce 100,000 fewer vehicles in the second half of the year compared to the first, even as other companies plan improvements in semiconductor production. GM said it handled the shortage well and was able to divert rare chips to factories that make more profitable vans and large SUVs.

But Edward Jones Industrials analyst Jeff Windau said investors are creating some uncertainty in GM’s stock price after the company forecasts costs to rise from $ 3.5 billion to $ 4.5 billion. in the second semester.

“Obviously there are stoppages, and there are just concerns about how things are going,” said Windau. “Expectations have increased over the past two months. It sort of comes back and potentially resets the bar a bit. “

On August 3, GM announced that the pickup truck plants in Flint, Michigan; Silao, Mexico; and Fort Wayne, Indiana; would be closed the following week due to the chip shortage. Production is scheduled to resume on August 16. But factories in Tennessee and Mexico that make cars and SUVs that had been out of order since July 19 are expected to resume operations on August 9.

Even with caution, GM told the same story as its big profit competitors Ford, Stellantis and others, saying high prices and strong demand for expensive pickup trucks and luxury SUVs helped overcome inventory shortages. .

GM increased its full-year net profit forecast to $ 7.7 billion and $ 9.2 billion, and its pre-tax profit to a range of $ 11.5 billion to 13.5 billion billion dollars from $ 10 billion to $ 11 billion.

Executives said on August 4 that they expected tight inventories and high prices to continue throughout the year as the chip shortage persists through 2022.

Still, CEO Mary Barra has warned that the rapidly spreading delta variant of the coronavirus could cause supply chain problems in the future. The company also plans to manage future shortages by working with semiconductor manufacturers, she said.

“There is even more variability than I would like to see,” said Barra. “It’s something we’re going to get out of, and it won’t be a problem as we move forward over a little longer period. “

The average GM vehicle sold for nearly $ 44,000 from April to June, the company said, and it was up nearly $ 3,000 from July.

Jacobson said the high prices today are driven by strong demand for more expensive trucks and SUVs with a “very rich mix” of options purchased by consumers. Barra said prices will drop a bit as inventories rise, but she still expects them to be strong as GM adds electric vehicles to its lineup.

Excluding one-off items, GM gained $ 1.97 per share, beating Wall Street estimates by $ 1.82. Revenue was $ 34.2 billion, which also exceeded analysts’ estimates of $ 29.92 billion, according to FactSet.

Profit would have been $ 1.3 billion higher without the recall charges, including $ 800 million to resolve a battery fire issue in older Chevrolet Bolt electric vehicles, the company said.

Barra said GM had just over 200,000 vehicles in inventory, enough to meet consumer demand for 25 days. It is well below normal inventory. Automakers like to have about a 60-day supply of dealer lots that customers can choose from.

On August 3, a task force made up of Detroit automakers and the United Auto Workers announced that factory workers would again be required to wear masks due to the delta variant. When asked if GM would require employees to be vaccinated, Barra hinted it could happen.

“We are evaluating the multiple choices we can make, but our intention is always to ensure the safety of our employees and our customers,” she said.

GM said it produced about 200,000 more vehicles in the first half of the year than in the same period in 2020, largely because factories were closed last year as the pandemic s ‘extended.

Still, consulting firm LMC Automotive estimated GM’s production from April to June was down 38% from the same quarter in 2019, the last comparable quarter of normal production.

Jacobson said the semiconductor shortage is expected to start easing in the fourth quarter, so fourth quarter production will be higher than third.

“You can see the light at the end of the tunnel as we move towards this,” he said.

Barra also announced two new electric vehicles as part of GM’s plan to introduce more than 30 to the world by 2025. She said the Chevrolet brand will roll out a full-size electric van and GM will also sell a vehicle. electric or medium hydrogen. Fuel cell truck platform that can be used for service and utility vehicles such as school buses, bucket trucks and tow trucks.