Published - July 25th, 2023 @ 4:40 PM (GMT+2)

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Revised Outlook and EV Demand:

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Following a robust Q2 2023 performance, General Motors (NYSE:GM) has revised its financial outlook for the year, marking the second revision upwards. In response to the strong results, GM's CFO Paul Jacobson expressed an urgent concern over the firm's electric vehicle (EV) operations, stating that "we can't get the vehicles to customers fast enough," highlighting the growing demand for EVs.

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Cost-Reduction Initiatives: 
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To bolster financial performance, GM has excited its cost-reduction efforts. The automaker aims to cut expenditures by $3 billion in the coming year, a significant rise from the original $2 billion target. Jacobson confirmed that these cuts would span various departments, including sales and marketing, salary employment, and other operational costs.

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The financial quarter saw GM report an unforeseen charge of $792 million due to recent agreements with LG Electronics and LG Energy Solution. This expense stems from GM sharing the costs related to the recall of Chevrolet Bolt EV models with these companies. Despite this, the firm reported adjusted earnings before interest and taxes (EBIT) of $3.23 billion in Q2.

Q2 Performance:
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GM's Q2 report card also featured adjusted earnings per share of $1.91, with revenues hitting the $44.75 billion mark. The unadjusted net income attributable to stockholders was reported at $2.57 billion, marking an impressive surge of around 52% compared to last year's $1.69 billion. GM's revenues saw a jump of 25% from the previous year's $35.76 billion.

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The company's revised full-year expectations now stand at adjusted earnings ranging from $12 billion to $14 billion, a hike from $11 billion to $13 billion. Adjusted automotive free cash flow is also expected to range between $7 billion and $9 billion, a boost from the earlier $5.5 billion to $7.5 billion. Furthermore, GM projects its net income attributable to stockholders to be $9.3 billion to $10.7 billion, a revision from the prior estimate of $8.4 billion to $9.9 billion. This upward revision is attributed to better-than-expected pricing, demand, and capital discipline.

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However, the upgraded forecast hinges on GM's ability to successfully negotiate new labor agreements with the United Auto Workers and the Canadian Unifor unions without any work stoppage or strike. These negotiations are vital as the current contracts covering about 150,000 union workers are set to expire on September 14th. GM CEO Mary Barra has expressed confidence in reaching a fair agreement to the workers and contributes positively to the company's long-term success.
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Any potential work stoppage could deepen the production woes of the auto industry, which is already grappling with the fallout from the COVID-19 pandemic and significant supply chain disruptions, such as the semiconductor chips shortage. GM experienced firsthand the impact of such disorders, with a 40-day national strike in 2019 costing the company about $3.6 billion. A similar situation could cost GM hundreds of millions of dollars per week and delay its new EV production.

EV Production and Stock Performance: 
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Despite these challenges, GM produced 50,000 EVs in North America in H1 2023. Jacobson has promised to share more details about the slow EV production in an upcoming analyst call. Despite the strong earnings, GM's stock only experienced a marginal average gain of 0.17% on earnings day but has consistently beaten expectations 86% of the time. Currently, GM shares have seen an approximate increase of 16% this year, closing at $39.30 per share on Monday.

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