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February 1, 2024

Breakingviews: GM’s good news is that it’s still GM

by Breakingviews.

Sometimes the best news is the absence of bad news. General Motors – which weathered a bruising strike, a rocky start to its electric-vehicle makeover, and the temporary shutdown of its robo-taxi unit in 2023 – delivered precisely that on Tuesday. The Detroit automaker said that it expects up to $14 billion in operating profit in 2024, up from last year despite higher wages and fears for the future of electrification sparked by Tesla. Shares opened up 8%. A steady gas-guzzler business looks enviable right now.

Last year’s pitfalls will flatter upcoming results. Combine the costs of the United Autoworkers’ strike, an $800 million charge related to faulty batteries and spending on autonomous vehicle unit Cruise that will drop as operations pause, and it adds up to a total profit hit of roughly $3 billion. But those charges will disappear in 2024. Similarly, mounting inventory of unprofitable EVs led to a $1.7 billion charge that should diminish as GM finally gets its cheaper battery production on-track. Granted, GM expects $1.5 billion of higher labor costs in the year ahead. But that’s hardly the existential threat that loomed at the beginning of union negotiations. Look, for contrast, at United Parcel Service, which cited higher costs resulting from its own labor contract renewal alongside weak results.

That leaves GM to execute on the long-standing, simple-in-theory plan: run its internal-combustion-engine business for cash, and use its scale to quickly ramp up electrification. That has, at times, been wanting, portending trouble as Tesla’s results pointed to weakening demand. But boss Mary Barra is upbeat, forecasting a slight growth in traditional auto sales and an EV business that will constitute a bigger slice of the auto market this year. If GM can leapfrog to hitting its target of manufacturing 200,000 battery-powered rides, it reckons that its electric business should at least cover its per-unit costs.

Storm clouds still hang on the horizon. Automakers have carefully managed inventory in recent years, driving billions of profit from juiced pricing thanks to a tight market. But the year-over-year benefit of pricing has dropped to its lowest level since the pandemic’s onset, and is down three quarters in a row now. The mix of cars sold is also shifting steadily to less-profitable models. And the path to actually putting electric cars on the road has been replete with many unexpected detours and bumps, like malfunctioning software in new cars. The advantage of today’s results is that GM can absorb a few more shocks along the way.

Context News

Automaker General Motors said on Jan. 30 that it had generated around $43 billion of revenue in the fourth quarter of 2023, 11% higher than analysts expected, according to estimates gathered by LSEG. Earnings of $2.28 per share came in roughly 7% above estimates, though operating profit fell nearly 7% short. GM forecast $12 billion to $14 billion of operating profit in 2024.

 

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