The operator welcomes participants to the General Motors Company Third Quarter 2023 Earnings Conference Call, where they will review GM's financial results. Mary Barra, GM's Chair and CEO, and Paul Jacobson, GM's Executive Vice President and CFO, will be joined by Dan Berce, President and CEO of GM Financial, for the Q&A portion of the call. Management will make forward-looking statements and remind participants of the risks and uncertainties involved. Mary Barra thanks the GM team for strong results and acknowledges the efforts of the supply chain team and logistics partners in improving the flow of vehicles to dealers.

GM has been performing well in the market, thanks to their strong ATPs and flat incentives provided by dealers. They have been profitable in all regions, including China, and are expected to have higher earnings in 2023. The company is focused on four key fundamentals to strengthen their position in the industry, such as delivering popular vehicles, maintaining a competitive cost structure, efficient marketing and incentives, and matching production to demand. GM has led the industry in full-size pickup and SUV sales, while also reducing their overall incentives. They plan to launch new, more profitable SUVs and are taking steps to improve the profitability of their EV portfolio. This includes moderating the pace of their EV acceleration and making changes to improve efficiency and reduce production costs.

The company is focusing on maintaining strong margins and EBIT in a competitive market by expanding their presence in high-margin segments such as full-size pickups, SUVs, and luxury SUVs. They plan to launch a range of new SUVs with higher margins, starting with the Chevrolet Trax and Buick Envista. These SUVs are expected to drive profits through growth in the segments, superior product offerings, and efficient development processes. The company also remains committed to their goal of having 1 million units of EV capacity in North America by 2025.

The company's participation in the EV market is in line with their operating discipline and their battery cell manufacturing joint venture in Ohio is making great progress. They plan to produce 36 million cells this year and 100 million cells next year. They are also improving their battery module constraint and are installing high-capacity module assembly lines. The software aspect of their strategy is also being actively addressed, with a new executive team with experience from top tech companies leading the software organization.

The team is optimizing software and fine-tuning plans for new vehicles to ensure success and drive revenue growth from subscriptions. The launches of three products will be delayed by a few months to allow for this. The cost per cell has decreased and significant margin improvement is expected for battery electric trucks. The next-generation Chevrolet Bolt EV will be built efficiently to capitalize on the brand's equity. Cruise, a company owned by GM, has logged over 5 million driverless miles and is expanding, with plans to bring driverless rides to Tokyo in 2027 using their purpose-built vehicle, the Origin.

Cruise is constantly improving the safety of their AV technology and having ongoing discussions with government partners and regulators. They are also addressing concerns about strikes at some of their U.S. facilities and believe that their offer to the UAW is better than other companies. The offer includes a significant increase in wages, cost of living reinstatement, increased 401(k) contributions, world-class healthcare, enhanced paid time off, and other benefits. Negotiations have been ongoing and the company is committed to reaching a mutually beneficial contract.

The company has offered a historic contract with record wages, job security, and healthcare that rewards team members without putting the company at risk. They are working towards achieving low-to mid-single digit EBIT on EV margins targets by optimizing their ICE portfolio and cost structure and strengthening their EV business. The company remains optimistic about their future and has assembled a strong team to deliver new high-margin revenue streams. The CFO thanks employees for their dedication and commitment during the UAW strike.

In Q3, the UAW strike had a $200 million EBIT impact, and in Q4, the estimated impact is $600 million. The company has withdrawn their 2023 full-year guidance due to the uncertainty of the strike's duration. They will provide an update after a ratified contract is reached. Despite the challenges, the company is working to offset the costs through cost-saving initiatives and focusing on margin accretive parts of the business. In Q3, total company revenue increased by 5%, driven by consistent pricing and higher wholesale volumes. However, this was offset by other factors such as normalization in certain areas and investments in EVs and crews, resulting in a $700 million decrease in comparison to the previous year.

In the third quarter, adjusted auto free cash flow increased by $0.3 billion due to strong core auto operating performance, particularly in North America. Despite headwinds from pension income, warranty costs, and the impact of the UAW strike, EBIT-adjusted margin was at the top of the target range. In the U.S., market share grew and incentive and marketing spend were reduced. In 2021, incentive spend as a percentage of ATP was slightly above the industry average, but in 2023, it is trending below the industry average.

In the third quarter of 2021, General Motors saw a $1,500 per vehicle improvement in performance, resulting in a $3.5 billion increase in annualized EBIT. This was due to a strong product portfolio and disciplined inventory strategy. The company also expects continued profitability and growth in 2024 with new and updated products. Despite challenges such as the UAW strike and logistics issues, GM International had a solid performance, with a $350 million EBIT-adjusted. GM Financial also had a strong quarter, with a $750 million EBT-adjusted, while corporate expenses remained consistent and Cruise expenses are expected to have a similar quarterly run rate.

The company's expenses increased by $200 million due to a larger fleet of AVs and additional resources. They have also made decisions to adjust their EV production targets and prioritize profitability over volume. They have flexibility in their manufacturing facilities to produce both ICE and EV vehicles. The company expects to retime capital spending and improve EV profitability before accelerating production of battery electric trucks. They are confident in their EV momentum and have the ability to adjust their transition to meet customer preferences.

The company is facing challenges such as higher labor costs, but they are confident in finding solutions to grow EPS. They are implementing cost initiatives that will drive efficiencies for years to come. The Q&A portion of the call has begun, and the first question is about the slower demand growth for EVs. The company is not seeing this in their portfolio, and they continue to see strong demand for their products. They are making progress in increasing Ultium EV production.

The company has seen an opportunity to slow down their scaling and use the lessons learned in the early stages of engineering and manufacturing to build a stronger foundation before aggressively scaling upwards. This is not necessarily due to price, but rather a focus on building a more resilient portfolio. The $2 billion net fixed cost reduction remains a priority and will not significantly impact the company's product strategy. The company is committed to adapting to the transformation to electric vehicles and is focused on having the right entries in their portfolio to meet demand. The example of the Bolt EV showcases their ability to be agile and deploy capital efficiently.

The company is confident in achieving their low-to-mid single-digit EV margin target in 2025 due to various factors, including having the right products, being well into the scale of battery cells, and making engineering changes to enhance profitability. The company is also on track to have their Lordstown plant fully ramped and their other plant on track.

GM CEO Mary Barra discusses the company's focus on simplicity and efficiency in their products, particularly in their Ultium electric vehicles. She mentions the use of "giga-castings" and the potential for improvements in future vehicles. Barra also hints at upcoming announcements for their autonomous vehicle division, Cruise, and their plans for growth and expansion. Safety remains a top priority for Cruise as they continue to work with cities for deployment.

The speaker discusses the flexibility of the Ultium platform and the potential for an Ultium 2.0 in the future. They also mention improvements in simplification and efficiency across the entire vehicle. The Ohio battery JV is expected to reach full capacity by the end of the year, and the speaker discusses how they plan to balance this with GM's own EV demand.

During a Q&A session, Mary Barra, CEO of GM, was asked if the revised EV timeline would impact any of the other battery joint ventures (JVs). She stated that the ramp at Lordstown will continue as planned, and the plant in Spring Hill will come online next year. She also mentioned that plant three in Michigan and the work with Samsung will stay on track. Barra emphasized that they will respond to demand and have the right products at the right time, without overbuilding. John Murphy from Bank of America then asked if returns on capital could potentially be higher and shorter-dated in the EV world, giving GM more flexibility to make changes. Paul Jacobson, GM's CFO, responded that they are aiming for this and that their foundation of reducing complexity and creating simpler engineering and manufacturing will give them more agility in the future.

The speaker discusses how the company is constantly making improvements and changes to their vehicles, using the recent Orion announcement as an example. They also mention the current strength in sales, driven by both fleet and retail customers, and the potential for this trend to continue in the future.

The company has consistently gained market share this year and has kept incentives low and reduced marketing spend. The North America team has performed well despite reports of weakening consumer sentiment. The company is enjoying strong demand for their vehicles and is focused on improving margins. They remain committed to low single-digit margins with the IRA sale and are waiting for final clarification from Treasury.

Paul and Emmanuel discuss GM's flexibility in their plants and how it will help them respond quickly to the demands of the market for both ICE and EV vehicles. They also clarify that the $2 billion cost reduction target does not include labor cost inflation from the new contract, and GM remains committed to finding ways to offset this increase in costs. They want to make sure the new contract allows them to compete globally and protects the company's future.

Mary Barra acknowledges that GM's stock price does not reflect the value of their cruise business. They will continue to grow and execute the business, but also explore other ways to unlock value for cruise, such as expanding globally. Barra believes in the technology and its potential for success.

Adam Jonas asks Paul Jacobson about the company's 2025 EV target and if they will disclose the current EV margins after the labor situation is resolved. Jacobson confirms that they will provide a roadmap and disclose the margins at the upcoming Investor Day in March. He also clarifies that the target is low to mid-single digits, not mid to high. The delay in Investor Day was to ensure it was not dominated by the UAW.

During the Q&A portion of the earnings call, James Picariello from BNP Paribas asks about incentive spending and pricing trends in North America. Paul Jacobson, speaking on behalf of the team, credits their approach to incentives and marketing for contributing to profitability. He expects this strategy to continue and mentions that inventories have trended higher at quarter-end, but the demand for their vehicles remains strong. James also asks about the impact of materials and freight costs in the quarter and for any visibility on these costs for next year. Paul confirms the impact in the quarter and mentions that they are managing these costs tactically, but does not provide any specific information for next year.

The speaker asks a question about the interplay between volume and price mix, noting that before the pandemic, the company had a higher volume and now it is lower due to the strike. They also mention the potential cost challenges of EVs and acknowledge the company's success in pivoting towards more profitable units.

Mary Barra and Paul Jacobson discuss the focus of General Motors on both profitable growth and volume. They emphasize the importance of creating products that customers love and mention their success with the new Trax. They also mention their focus on premium vehicles and improving margins at the unit level.

The speaker reflects on the lessons learned during the current crisis and how they will benefit the company in the future, particularly in terms of profitability and an EV strategy. They are proud of the organization's accomplishments and believe there is more to come. The speaker also discusses the progress of their battery plants, noting that Lordstown will reach full capacity by the end of the year and Spring Hill will start early next year. They believe all cells from these plants will be needed.

The Ultium team is currently negotiating with the UAW for their own agreement, separate from the master agreement. An offer was made to include the Ultium cells under the scope of the master agreement, but it is still open. The focus is currently on Ultium getting their own agreement.

Mark Delaney asked about the minimum volume needed for GM to reach its mid-single-digit EV margin target in 2025. Paul Jacobson explained that it is a step function and the decision to defer Orion is an example of not rushing to build full infrastructure before knowing it can be filled efficiently.

The speaker discusses the capacity and profitability of the company's facilities, as well as their plans to scale up production and hit their targets for EV margins. They also mention the international market, specifically the strong performance in markets outside of China and their focus on introducing new products in China.

The company is facing uncertain market conditions in China, but they have three initiatives in place to position themselves well in all segments of the market. They are committed to delivering a strong and profitable ICE business while also investing in EVs and software for future revenue opportunities. The company also sees potential in their Cruise division, but the UAW contract negotiations are a source of uncertainty. The company is committed to reaching a responsible agreement that supports their employees and shareholders and allows them to compete and succeed in the challenging EV market.

GM will schedule an event to discuss the economics and strategy for managing their growth businesses, including Cruise and software, in March. They are committed to an all-electric future and are focusing on becoming more agile and resilient. The conference call has now ended.

This summary was generated with AI and may contain some inaccuracies.