Benefits of electric vehicles, direction and profitability for shareholders

DETROIT – Wall Street reacted to general motors Investor Day on Tuesday with a shrug.

Executives used the Detroit automaker’s event to focus on broad, short-term updates to the company’s operations in an attempt to separate themselves from competitors amid more challenging economic and market conditions. But it did little to move the company’s stock.

GM believes it is uniquely positioned to exceed industry and Wall Street expectations with its all-electric vehicles and traditional internal combustion engine vehicles. The company expects to improve earnings for both types of vehicles, as it aims for adjusted earnings next year to be similar to those in 2024.

“It all starts there: scale, capital efficiency and cost discipline. This will differentiate us from others in our industry and, frankly, from our own past performance,” GM CEO Mary Barra said during the roughly three-year event. hours from their manufacturing operations. in Spring Hill, Tennessee.

GM President Mark Reuss even criticized his traditional cross-town rivals. Ford engine and stellantis. Without naming them, he said GM doesn’t need a “skunkworks” team to develop affordable electric vehicles like Ford and that cutting profitability, as Stellantis appears to be doing, doesn’t work.

However, investors have largely failed to reward GM for being at the forefront of domestic electric vehicle production, as well as for surpassing many automakers in the profitability of their traditional gasoline- and diesel-powered vehicles. .

Several Wall Street analysts remained unchanged in their opinion and ratings of the automaker after the event, citing continued optimism but a lack of detail in its overall strategy.

“A missed opportunity: There is no strategy, only tactics. GM’s investor day showed many of the company’s current accomplishments, but didn’t provide much insight into strategy,” Bernstein analyst Daniel Roeska wrote in Wednesday’s blog post. A note for investors.

Others, such as Dan Levy of Barclays and John Murphy of BofA Securities, said that while the event lacked some details, it strengthened GM’s positioning compared to its competitors.

“Yesterday’s GM Investor Day didn’t provide many wild swings in strategy. However, we believe it served as a strong reminder of GM’s balanced and pragmatic approach: a thoughtful combination of ramping up electric vehicles along with a strong focus in execution while continuing to generate strong returns for shareholders,” Levy wrote in a note to investors on Wednesday.

GM shares closed Tuesday essentially unchanged at $46.01. The stock is still up nearly 30% this year, but has been under pressure lately due to several downgrades and price target adjustments by Wall Street analysts.

Here are several things investors should know about the event:

GM expects its 2025 adjusted earnings to be in a “similar range” to the company’s results this year, Chief Financial Officer Paul Jacobson said.

Its targeted adjusted earnings before interest and taxes for 2024 were between $13 billion and $15 billion, or $9.50 and $10.50 per share, up from previous guidance of $12.5 billion to $10.50 per share. 14.5 billion, or $9 to $10 per share, earlier this year.

During the first half of 2024, GM earned $8.3 billion in adjusted EBIT and generated $6.4 billion in adjusted automotive free cash flow.

Jacobson said GM’s capital spending in 2025 is also expected to be consistent with this year. GM’s 2024 financial guidance includes expected capital spending of between $10.5 billion and $11.5 billion.

Jacobson said GM’s earnings next year are also expected to show narrower losses for electric vehicles, projecting they will decline between $2 billion and $4 billion.

Tailwinds for EVs next year for GM are split between savings from increases in volume and emissions and EV production credits, as well as lower costs, including for raw materials and battery production.

“We believe our electric vehicle losses peaked this year and we are focused on significantly improving profitability next year,” Barra said.

GM said it has reduced its battery costs by $60 per kilowatt hour this year starting in 2023. It expects to cut another $30 per kilowatt hour next year.

Barra said the automaker is on track to produce and wholesale about 200,000 electric vehicles for North America in 2024, achieving profitability in terms of production, or contribution margin, by the end of this year. That guidance is down from a previous target of 200,000 to 250,000 electric vehicles, which had been reduced from a high of 300,000 units.

Ultium, which GM once touted as the ultimate solution for electric vehicles, is finally dead.

GM will drop the “Ultium” name for its electric vehicle batteries and supporting technologies after spending years promoting the brand as it rethinks its electric vehicle and battery operations.

The company said the batteries and technologies will remain, but the name will disappear, except in manufacturing operations such as its joint “Ultium Cells” plants with LG Energy Solution.

Instead, GM plans to use a variety of battery chemistries and cell designs, said Kurt Kelty, former tesla executive who joined GM as vice president of batteries earlier this year.

“GM is evolving toward a multifaceted approach,” he said. “This should only help GM strengthen our position of producing more electric vehicle models than any other automaker.”

GM also expects to continue growing its sales and profits of traditional vehicles with internal combustion engines, or ICE, in the coming years.

“We expect the ICE industry to have a long tail and be an important part of our future,” Jacobson said.

Profit increases are expected to be helped by some cost cuts, including consolidation of parts and options.

On average, GM is seeing about a 10% reduction in the total number of parts per vehicle, Reuss said.

Jacobson said GM will remain “active” in buying back shares following the conclusion this quarter of a previously announced initiative that is expected to retire approximately 250 million shares of the automaker.

From 2022 to the end of 2024, GM will have returned about $20 billion to shareholders through share buybacks and dividends, Barra said.

The automaker aims to have fewer than 1 billion shares outstanding by early 2025, Jacobson said. According to FactSet, it had more than 1.1 billion shares outstanding as of Wednesday morning.

Wall Street was disappointed with GM’s updates on its Cruise autonomous vehicle unit and its operations in China.

GM’s China operations have seen declining profits for a decade, and executives said they are discussing restructuring options with their China-based partners.

“In China, you will begin to see evidence of a turnaround this year, with a significant reduction in distributor inventory and modest improvements in sales and share,” Barra said.

As for Cruise, GM said its spending next year is not expected to exceed this year’s. It did not provide updates on its long-term plans for the troubled robotaxi business.

With GM Investor Day coming two days before Tesla’s highly anticipated Robotaxi Day, Wall Street analysts were expecting some sort of update on the company, especially regarding future financing or capital spending of the company.

• HyundaiMotor: When asked about the non-binding memorandum of understanding announced by GM with Hyundai, Barra said the teams “are working closely and making progress each week on what will become definitive agreements.”
• Chevy Bolt: GM said its next-generation Chevrolet Bolt EV expected next year will be only slightly higher than the 2023 Bolt, which started at $28,795.
• PHEV: GM reconfirmed its plans to introduce PHEV plug-in hybrid electric vehicles in 2027. Meanwhile, Reuss, citing single-digit market share, said GM is “not missing anything right now without PHEV.”

-CNBC Michael Bloom contributed to this report.