Operator:

Good morning, and welcome to the General Motors Company Second Quarter 2024 Earnings Conference Call. During the opening remarks, all participants will be in a listen-only mode. After the opening remarks, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference call is being recorded Tuesday, July 23, 2024. I would now like to turn the conference over to Ashish Kohli, GM's Vice President of Investor Relations.

Mary Barra:

Thanks, Ashish, and good morning, everyone. I want to begin today's call by thanking the GM team, as well as our dealers, suppliers, and other business partners, for helping us deliver strong second quarter and first-half results, including record revenue in both periods. There are four key drivers to our performance and our new hire guidance that I'd like to highlight. First, our past investments have created a consistently high-performing portfolio of ICE trucks and SUVs from a volume, share, and margin standpoint. Next, our EV portfolio is scaling well and gaining market share. In fact, our U.S. EV deliveries grew 40% year-over-year in the second quarter, while the industry grew at 11%. We're encouraged by these early results because disciplined volume growth is key to earning positive variable profits from our EV portfolio in the fourth quarter and maintaining strong ICE margins. Third, we continue to deliver stable pricing and our incentives on average have been more than 100 basis points below the industry average for four consecutive quarters. And finally, with our new investments, we have even greater focus on margins and capital efficiency. Great vehicles and better execution will continue to differentiate us. In the first-half, Chevrolet Silverado and GMC Sierra volumes in the U.S. were up a combined 5% versus a year ago, and we gained 3.5 points of market share with disciplined production and consistent pricing. In addition, sales of our redesigned Chevrolet Colorado and GMC Canyon mid-sized pickups were up 31% year-over-year with ATPs up 9%. And SUVs were executing a full court press with eight all new redesigned compact, mid-size and full size models that began arriving in showrooms during the second quarter. They include some of our most profitable nameplates, like the Chevrolet Traverse, GMC Acadia, and the Buick Enclave, which will be available with Super Cruise for the first time. We designed Super Cruise to let customers drive hands-free for hours at a time on far more roads and with far fewer disengagements. Road testers at Edmunds.com rated Super Cruise the top hands-free driving system because it's confidence-inspiring, and its technical differences between our system and others explain why Super Cruise is so smooth. The Chevrolet Equinox, our highest volume SUV, will also be all new, and we expect it to be more profitable than the outgoing model, just like our family of mid-size Buick, GMC, and Chevrolet SUVs. This is a function of several strategic decisions we've made. First, the styling is bolder and more truck-like for the Chevrolet's and GMC's, while the Buick Enclave adopts the brand's sophisticated new design language. Next, we elevated the comfort and technology features to make them even more desirable. Then we leveraged our proven platforms and component sets for lower cost and greater efficiency. Winning with simplicity, which is our drive to eliminate unnecessary complexity in the way we engineer and equip our vehicles, will help ensure that we can continue to sustain and even improve our margins in the future. For example, through smarter contenting and optimizing selectable options, we have been able to eliminate more than 2,400 unique parts on 10 vehicles we're launching through the first quarter of 2025. On the 2025 Cadillac LYRIQ alone, we've reduced the part count 24% from the 2024 model year with no compromises to performance or features. The list of parts or subsystems that we no longer need to design, engineer, source, install, and warehouse is extensive and includes complex and relatively costly seat assemblies, consoles, door trims, and [fascias] (ph). A crucial element is reducing the number of buildable electrical combinations, which is delivering hardware and software quality improvements as well as savings. The work is helping us meet our $2 billion fixed cost reduction program this year and the savings will be even greater in the future. As I said before our EV portfolio is growing faster than the market now that our module issues are resolved and we are scaling production. Our early sales are mostly incremental about 54% of customers are new to GM and we're working to increase our conquest rate by raising awareness and launching new models. Our best-selling EV so far this year is the Cadillac LYRIQ and it is now the market leading luxury EV in 22 states including Florida, Texas, and Michigan. The GMC Hummer EV and the Chevrolet Blazer EV are also building momentum. To unleash the next cycle of EV growth we're scaling production of the Chevrolet Equinox EV with its unique combination of performance, technology, range, and affordability. We delivered our first 1,000 units late in the second quarter and the reaction from customers, dealers, and the media is very strong. One product reviewer said, Chevy seems positioned to grab a piece of the pie that no one else has quite grabbed onto yet, and we think that is spot on. Then over the next several months, GMC will launch the Sierra EV, and the Cadillac LYRIQ will be joined by the OPTIQ, Escalade IQ and CELESTIQ. We're especially excited about the OPTIQ. Car and driver said it nails the compact luxury SUV formula. Then next year, when we follow with the CELESTIQ, Cadillac will have a beautifully designed EV in every global luxury SUV segment. We're going to focus on winning new customers with these nameplates, as well as with the next generation Chevrolet Bolt EV because they represent the largest growth opportunities for us. But we've also made adjustments to ensure we have a balanced approach as the market develops. This includes deferring Buick's first EV which had been planned for 2024. As we're expanding choice, other barriers to EV adoption like public charging access are also improving. We are working to finalize commercial agreements with Tesla to give our customers access to their charging network. The IONNA fast charging venture we joined is expected to bring its first chargers online before the end of the year, and customers are telling us the drive-through plazas we're rolling out with Pilot company are the best public charging experience out there. As excited as we are about our portfolio, we are committed to growing responsibly and profitably in any demand environment. Over the next few years, third-party forecasters now see the EV market growing steadily, but more slowly than it did over the last few years. As a result, we are adjusting our spending plans to make sure we're capital efficient and moving in lockstep with customers. For example, our Altium cells joint venture continues to ramp up domestic battery cell supply this year, which is helping drive profit improvement in our EV portfolio. As we go forward, we're going to bring additional capacity online in a measured cadence. This will enable us to better optimize our battery chemistry and form factors to meet our customers' needs on cost and range. We've also decided to reopen the Orion assembly as a battery electric truck plant in mid-2026. The new timing is six months later than our plan heading into the year. We're confident that we can meet customer demand for standout EV trucks in the interim by leveraging the production capability and flexibility we have in factory zero. We will also continue to take advantage of the flexibility we have to mix production between ICE and EV at key plants. Next I'd like to discuss our results in China. As you know, the market has significant excess capacity, and many startups and established competitors continue to prioritize production over profitability. We have been taking steps to reduce our inventory, align our production to demand, protect our pricing and reduce fixed costs. But it's clear the steps we have taken, while significant, have not been enough. We had expected to return to profitability in China in the second quarter. However, we reported a loss and we expect the rest of the year will remain challenging, because the headwinds are not easy. We are working closely with our JV partner to restructure the business to make it profitable and sustainable. I'll close my opening comments by recognizing the progress Cruise has made over the last several months. As you know, Cruise has returned to the road in Houston, Phoenix, and Dallas, and we recently provided them with bridge financing to support their operational cash needs. We've also made several significant leadership appointments, including hiring Marc Whitten as CEO. Mark has decades of experience on the front lines of technology transformations, which will be crucial as we move forward. Our vision to transform mobility using autonomous technology is unchanged. And every mile traveled and every simulation brings us closer, because Cruise is an AI first company. We have some of the best engineers in tech building a cutting edge AI platform, harnessing the power of large scale foundation models to continuously improve safe AV performance. The Cruise team will also simplify their path to scale by focusing their next autonomous vehicle on the next generation Chevrolet Bolt EV instead of the Origin. It's a win-win for both GM and Cruise. It addresses the regulatory uncertainty we face with the Origin, because of its unique design. Per unit costs will be much lower, which will help Cruise optimize resources and enable them to deliver AV tech at scale as quickly as possible. And the change will help GM fully leverage our investment in the Bolt EV with a major new customer for the product. We think all of these are important steps that will help us attract those who believe in the Cruise mission and see the incredible long-term business opportunity of autonomous driving. With that, I will turn the call over to Paul to walk you through our financial results.

Operator:

[Operator Instructions] Our first question comes from the line of Dan Levy with Barclays. Your line is open.

Paul Jacobson:

Yes, good morning, Dan. Thanks for the question, first of all. So what I would say is that obviously we've been very disciplined about our commercial strategy in going to market, and despite the fact that we've seen a little bit of pressure year-over-year on incentives, we've actually widened the gap in the quarter against our competitive set. So demand for our vehicles is strong. I think some of the offsets are our truck sales were up 5% in the quarter where we continue to pick up share. And that's helped to offset some of the lower ATP vehicles and we've seen in the growth in the tracks, for example. So I think we've been saying for a long time that our consumer has held up really well and it's been resilient. And we expect that to continue to be the same way. I think a big part of that is the strategy that we've undertaken about being very disciplined in inventory and the more data flow about producing the vehicles that we know that customers are demanding. And when you combine that with the incredibly strong portfolio we have, I think this is the result.

Mary Barra:

So thanks for the question. Our strategy is to offer our consumers choice. We've got an incredible portfolio of vehicles, both EV and ICE, and we've got flexibility. So we know we can win more customers as they embrace EVs. We're seeing that right now with 54% of the EV sales being customers that are new to GM. And so we do think the market for EVs will continue to grow and we've got the performance, the technology and the range that customers want, especially when you look at our portfolio with the Equinox coming out right now, the affordability of that vehicle along with when we have the Bolt next year, if we're giving consumers that choice. And as I've said, EVs are fun to drive, instant torque. I think our EVs have beautiful designs, the right range, the right performance. So again, we'll be guided by the consumer and regardless of what the regulatory environment is, regardless we're going to work to maximize, because we've got that flexibility between ICE and EV. So I think we're in a very strong position. I think we also have to look at though, the investments GMs made in EVs, we're creating 1,000s of jobs all over the country including Ohio, Michigan, and Tennessee. So I'm pleased with where our strategy is. I think regardless of what happens from a regulatory perspective, we're going to be well positioned with our ICE and with our EV portfolio.

Operator:

Thank you. Our next question comes from Itay Michaeli with Citi. Your line is open.

Paul Jacobson:

Thanks, Itay. I'll go ahead and start with the first questions. On the second-half, we tend to stay very, very focused on what we see for pricing for ourselves. Obviously, there's a lot of noise going on with different incentive strategies, different inventory levels, et cetera. So that's an assumption that we bake in based on what we're seeing in the market and making sure that we're projecting the right amount of conservatism against our cash flow targets and plans. So we started the year saying down 2% to 2%. We got through the first-half of the year essentially flat. And what I would say is July to-date looks very similar to June. So we're going continue to push through month-by-month, quarter-by-quarter on the portfolio that works for us. So we've managed to do that through various incentive strategies and various inventory pushes that we've seen from our competitors. And we're going to just be focused on meeting our customer demand the best way we can.

Itay Michaeli:

Perfect. That's all very helpful. Thank you.

Itay Michaeli:

Terrific. Thank you.

Joseph Spak:

Thank you. Good morning everyone. Paul, thanks for all the additional color on cost and back half. I guess to counter some of those higher costs you mentioned, right, you still have the fixed cost savings program, you're on track for the $2 billion. If we're sort of tracking this, it looks like you did maybe $1 billion last year and maybe $400 million in the first-half, so another $600 million in the back half. I just want to make sure that's sort of ballpark correct? And if it is, just maybe some color on why it's actually accelerating or higher because I think like if we think about last year, the costs also were more back-end loaded. So it's sort of a tougher comp. So what else is being done here to drive the cost savings higher?

Joseph Spak:

Okay. Thanks for that first-half, second-half clarification on the marketing. And then, Mary, just on the Origin decision, obviously, some cost savings. But I guess, is there also -- and I know I think you're still undergoing the strategic review for Cruise. But does this also indicate a change in go-to-market strategy and sort of not having that purpose-built vehicle? Like what were some of the other considerations? Is sharing just not really, you think, viable for that business model? Or are there other use cases versus what you're originally planning for?

Joseph Spak:

Okay. Thank you very much.

Daniel Roeska:

Hey, good morning, everybody. Thanks for taking my questions, Dan from Bernstein. Maybe following on, on the EV questions we've had. Could you elaborate a bit on your outlook for emissions compliance? Kind of if we stay within the current EPA framework, kind of what level of drivetrain mix credit would you expect to need to have to achieve the 2027 target? And then following on from Dan's question earlier, if any administration or either administration should decide to revisit the EPA targets, could you outline what you would expect, what the timeline would be to actually be effective for 2027? So what is the latest point in time when an administration then EPA would need to kick off kind of that process to revisit the 2027 target? Thanks.

Daniel Roeska:

Thanks, Mary. And maybe following up, if the regulations for 2027 kind of stay as they are right now with a more ambitious path, what role could mild or full hybrids kind of play in your portfolio? And if they stay as ambitious as they are right now, would you consider to kind of increase your focus on hybrid drivetrains in the U.S.?

Daniel Roeska:

Great, thanks for confirming that.

Ryan Brinkman:

Good morning. Thanks for taking my question. Obviously, there's the strong performance in North America that is the driver of the total company results. Certainly, congrats on that. I do think to ask, though, on the performance in China, including after it was a little surprising to see the equity loss fairly consistent with 1Q despite a solid rebound in both wholesales and non-consolidated revenue. I know you don't provide a detailed bridge for the nonconsolidated ops specifically. But from the sequential volume change, it would seem to imply in either price or mix or cost headwind quarter-over-quarter. I'm guessing price, given some of the comments from other automakers in that country, but perhaps you can fill us in there? And then I'm not sure if you're able to comment on what actions might be being considered in connection with your partner, but should we expect more that you are readying a portfolio of vehicles, maybe NEVs that you expect could gain greater traction? Or are you contemplating more rightsizing actions or some combination? And if you were to undertake rightsizing actions, I can't really remember you reducing capacity in that country before, at least not structurally. So perhaps you could update us on what kind of flexibility you might have in that market to take capacity out. How does it compare to North America today, for example, or maybe to Europe in the past when you operated in that region?

Ryan Brinkman:

Great. Thank you. And maybe you could comment quickly, too, on the trends in your other international operations, including in the consolidated operations in Korea and Brazil to. I'm curious on the trend there. Thank you.

Ryan Brinkman:

The trend in the profitability in those markets for you?

Ryan Brinkman:

Very helpful. Thank you.

Dan Ives:

Yes, thanks. I have a question with -- when you think about new GM customers looking at EVs, and that trend has been high, is that something that you expect to continue or maybe even could accelerate depending on the models and the price points when you look out the next, call, one to two years?

Dan Ives:

Great, thanks.

John Murphy:

Good morning everybody. I just wanted to follow-up on pricing. And Paul, I mean, you guys updated your guidance and a little bit optimistic -- more optimistic about what's going on in the second half and you had been full-year and had good performance in the first-half? But as we think about pricing, there's two components that are, I think, being left out of the equation. I mean the first is over the last two years, we've seen a 400 basis point increase in loan rates, right? Dumb guys math on $50,000 ATP, that's $2,000 a year, four-year ownership cycle, it's $8,000 headwind to your consumer. And you have dealers earning twice as much as they did in 2019 now. So they have $2,000 to kind of potentially throw in to the equation to help get deals done. So there's -- as rates come down and dealers get more realistic about what they can earn on your vehicles, I mean, is there a lot of room to support pricing where it is and potentially God forbid as rates come down, pricing to go up, right? I think everybody kind of has this view that it's going to fade, but it might be much more resilient and stronger over the next year or two than people are expecting. What's your take on sort of those two points?

John Murphy:

So we really should think about this as a planning assumption as opposed to an actual forecast. Is that a fair statement?

John Murphy:

Okay. And then just one follow-up. CAPU when we look at your tables, I always ask about this, is 108% in North America, two-shifts straight time. God forbid, we saw an actual increase in unit volume, up 5% to 10% for you and maybe the industry alike? What kind of cost would flow back into the system? Will we be thinking about mostly variable costs? I mean, I see with that high CAPU, you might think that you might have a little bit of fixed cost that could come in as well. But I'm just curious how you would think about that cost flow if we got a real volume lift of up 5% to 10%.

John Murphy:

Super helpful. Thank you so much, guys.

Chris McNally:

Thanks so much, team. Great quarter. Paul, maybe just a question around the variance that maybe remains in the guide. So as been discussed, just high level, the pricing has gone from 2% assumption for the full-year to sort of 0.75%, given your second-half comment. If I just run that pricing variance of 50 basis points for the -- for just the second-half, about $400 million of variance? Maybe you can go through some of the other aspects that are sort of left to be determined because it seems like there's a lot in your control, so maybe China and any of the cost reductions just how we sort of fill that other $1.5 billion in the variance in the guide?

Chris McNally:

That's a great summary because that was my second question. Okay. So pricing from the beginning of the year, $2 billion better, $1 billion is now reflected in the guide. And the $1 billion offset is a combination of some China variance that's underperforming. Probably second half is a little bit left to be determined and also EV volumes. Is that a fair summary?

Chris McNally:

Perfect. Thanks so much, team.

Mark Delaney:

Yes, good morning. Congratulations on the strong results and thanks for taking my question. You mentioned watching EV inventory levels closely and using demand as a guide for how fast you ramp up EV production? To the extent GM does less than the 200,000 EV wholesales this year you're currently contemplating, could the company still be variable profit positive in the fourth quarter perhaps with incremental cost actions?

Mark Delaney:

Understood, thanks. My other question was on GM Financial. It looks like you slightly raised the EBIT outlook for the year to $2.75 billion to $3 billion. I think as of the first quarter, you were thinking $2.5 billion to $3 billion. Maybe talk about what's driving the slight uptick in GM Financial. And more broadly on the financial market in auto finance, we've heard and read about some rising delinquencies for the industry more generally. Maybe speak about GM Financial and any change in delinquency rates. Thank you.

Mark Delaney:

Thank you.

Tom Narayan:

Hi, yes. Thanks for taking the questions. My first one is on Level 2 plus subscription take rates. Tesla is seeing what many would describe as somewhat disappointing, I think, single-digit percentage take rates of its FSE product. BMW told us last week they're seeing 30% plus take rates on its five series in California, and its pricing is a lot lower than Tesla's. Just curious if you've given your take rates from Super Cruise or if you had any commentary on what you think drives demand there. There's a saying that safety is boring. Perhaps it was all about pricing. Just love to hear any thoughts there, and then I have a follow-up. Thanks.

Paul Jacobson:

Yes. And Tom, I'll just add. It's just -- it's a little bit too early because we're coming through that trial period in significant volumes. So we should have a lot more color, I would say, over the next 12 to 18 months as we start to see people lapse out of their three-year period and getting to that. But it's obviously something that we're watching in the commercial teams all over it.

Mary Barra:

Yes. We definitely will be looking for, frankly, more than just what the vehicle is, but to have the right regulatory environment to release this technology that we believe definitely improved safety of miles traveled for everyone. So we're going to continue to work hard to continue to allow autonomous technology, both rideshare and from a PAB perspective to continue. And frankly -- switching to the Bolt at this time because of the regulatory environment actually improves Cruise's costs. So we think it's a win-win. But we're in the early, early phases of what rideshare is going to be and how we're going to leverage autonomous technology. I do think in the future, there's going to be opportunity for a vehicle like the Origin. And so that remains open to us at the right time. This was about getting cost down at Cruise and being able to scale without regulatory uncertainty.

Operator:

Thank you. Our last question comes from James Picariello with BNP Paribas. Your line is open.

Mary Barra:

Well, I think critical is we've got to get the -- our structural cost right to the new realities of this market. And so we are fully recognizing that we -- the ongoing challenges that we have. And so we're going to -- there's a three-pronged strategy we've got to execute the plan to align production to the current retail reality, get rid of the existing higher inventories and then aggressively reduce the structural cost. From an SGMW perspective, we actually maintained a stable market share as this operation is very important and also support some of the global emerging markets through exports from our General Motors perspective. And then as we've talked about in the past and Paul mentioned it, we have the premium channel, where we believe we have an opportunity to export with very low capital investment, very capital efficient, I should say, to take some of our most iconic products and export them into the market at the top end. So I think when we look at the strength of the Buick brand and the China brand, there's a path forward in this market that we do believe over the course of the midterm is going to resume to growth. So that is our plan, and I'm not going to predict where we're going to be exactly in the second quarter. I will just tell you, we're working aggressively to improve that situation and leverage what we have in GMW and also the opportunity that we'll have with the premium channel.

Paul Jacobson:

Yes, James. So the biggest piece of it to be highlighted is about $400 million of marketing spend, which is seasonally weighted towards the second half of the year in conjunction with a number of the launches that we have. We knew that going into the year. The other big piece of it, I would say there are some commodities and EV cost retimes. So these are a little bit new, just as we've kind of pivoted on our assumptions going forward. The commodities, look, we're going to respond to that, and we always do. But those are the 3 biggest categories, I would say, on the second-half. And the team is working through it and feel good about our performance so far.

Operator:

Thank you. I'd now like to turn the call over to Mary Barra for her closing comments.

Operator:

Thank you. That concludes the conference call for today. Thank you for joining. You may disconnect.

Operator:

Good morning and welcome to the General Motors Company First Quarter 2024 Earnings Conference Call. During the opening remarks, all participants will be in a listen-only mode. After the opening remarks, we will conduct a question-and-answer session. We are asking analysts to limit their questions to one and a brief follow-up. [Operator Instructions] As a reminder, this conference call is being recorded Tuesday, April 23rd, 2024. I would now like to turn the conference over to Ashish Kohli, GM's Vice President of Investor Relations.

Mary Barra:

Thanks, Ashish, and good morning, everyone. In January, we outlined clear priorities for 2024 that are designed to build on our strength and learn from the challenges we faced in 2023. I'm very pleased to share that the team is executing well against all of them. Around the world, we are very focused on growth and profitability, which means taking full advantage of our winning product portfolio to grow share without chasing unprofitable business. In North America, the fundamental strengths of Chevrolet, Buick, GMC and Cadillac truly stand out. The team delivered a 10.6% EBIT margin in the quarter, thanks to our industry-leading full-size pickups, the momentum we're building in midsized pickups, the growth we are seeing in our SUV business, profit improvement in our EV portfolio and our overall operating discipline. We again grew retail shares and market share in the US during the quarter with incentives that remained well below the industry average, especially in our truck business. We grew our combined Chevrolet and GMC full-size pickup sales by 3% year-over-year and grew our retail market share 1.8 points to 43.8% with much lower incentives than our closest competitors whose sales were down. In March, we doubled sales of the GMC Canyon year-over-year. And the Chevrolet Colorado was the fastest-growing truck in the midsize pickup segment, thanks to its purity of function, simple elegance in execution and value. Those are MotorTrend's words, not mine. We also continue to gain market share and grow EBIT with our new small SUVs, including the Chevrolet Trax and the Buick Envista. These vehicles are helping us win new customers, and we will continue to excel at customer retention. During the quarter, S&P Global Mobility announced that GM has now had the highest loyalty of any OEM for nine consecutive years. That's a powerful competitive advantage. In our EV business, we are building momentum in production and profitability. For example, we have increased battery module production by 300% over the last six months. Quality is very good and continuing to improve. And the installation and validation of our new high-speed module assembly lines is on track. We are projecting to double our current capacity by the end of the summer. EV production rose sharply during the quarter, and our dealers translated that into a 21% year-over-year increase in EV retail customer deliveries. For example, the Cadillac LYRIQ outsold all of the EVs from European luxury brands in the first quarter. And since mid-March, we are now delivering Chevrolet Blazer EVs with updated and improved software. All of our product programs are benefiting from the end-to-end improvements we've made in software, including the increased rigor we have instilled in our quality and validation processes. More importantly, the talented executives and engineers we've hired from the tech industry are raising the bar for software design and execution, which will help us truly differentiate our customer experience and the suite of software-driven products and services we offer. We're also making progress at Cruise. The team is back on the road in Phoenix updating mapping, gathering more road information. This is a critical step for validating our improved self-driving system and building upon the more than 5 million driverless miles we've logged before the pause. We are engaging frequently with regulators and stakeholders and building trust as we regain momentum. Safety will remain front and center and will guide our progress. I am pleased with our ICE performance, our progress in EV execution and growth, our new software organization's performance and the steps we're taking to regain momentum at Cruise. In addition, I'm very proud of the GM team and all of our stakeholders for really leaning in to keep our momentum going. Their commitment and tenacity helped give us the confidence to raise our full year 2024 EBIT, EPS and automotive adjusted free cash flow guidance. In our ICE business, the redesigned Chevrolet Traverse, GMC Acadia and Chevrolet Equinox are all launching in high-volume segments starting this quarter. So are the Chevrolet Spin and the S10 in South America, and they have higher margins than the outgoing models. Then this summer, the stunning new Buick Enclave will arrive. It's the first Enclave to offer Super Cruise. Later in the year, we will make important design and technology upgrades to our best-selling GMC Yukon, Chevrolet Tahoe and Chevrolet Suburban full-size SUVs. They include redesigned, tech-focused interiors, safety and security features that include a suite of connected cameras, riding handling improvements, styling enhancements and more. Mark and our performance team also have the unbelievable Corvette ZR1 coming and we can't wait to put customers behind the wheel. And we've already begun installing equipment at our Fort Wayne assembly plant to produce our next-generation full-size ICE pickups. In our EV business, the Ultium Cell plant in Spring Hill is shipping sales and scaling production through the year. The Chevrolet Equinox EV will arrive in showrooms this quarter, and we're very excited because it will be the most affordable long-range EV in the market. It will also offer Super Cruise like all of our Chevrolet GMC and Cadillac EVs on the Ultium platform. We will then introduce more affordable trim series for the Chevrolet Equinox EV, the Blazer EV and the Silverado EV in the second half of the year, which will help grow volume and share. Also in the second half of the year, Cadillac will expand its EV lineup to include the OPTIQ and the Escalade IQ. This is important because EV adoption in luxury segments is higher and more resilient than in the broader market. Two of our most highly anticipated launches are the GMC Sierra EV Denali and the Chevrolet Silverado EV RST. They are best-in-class in ways that truly matter to truck customers. By optimizing the battery, aerodynamics and other systems, we were able to increase the range of the RST and the Denali by 10% to an estimated 440 miles, which is about 40 miles better than the median range of ICE vehicles on the road today. No EV pickup on the road today even comes close and it's possible to go even further. A few weeks ago, two road testers took the RST on a drive from Las Vegas to Phoenix. And they drove it like customers do on paved and gravel roads at freeway speeds at different temperatures and different elevations. At the end, they managed to travel 460 miles on a single charge. It's the same story for towing. One journalist drove a Silverado EV work truck and three competing battery electric trucks on a 500-mile trip over the Rocky Mountains while towing trailers. It wasn't even a competition. The Silverado EV stopped once to charge, while every other truck had to stop four to five times. Chevrolet and GMC are also the only pickup brands that allow drivers to tow while using Super Cruise, our hands-free driving technology. That's just one of the several features that uniquely differentiates our products. This is exactly the kind of design and engineering functionality that excites people, motivates them and turns them into customers. It's the same formula for Chevrolet and GMC have filed with ICE trucks, and those results speak for themselves. Based on the feedback we're hearing from customers and dealers, the early sales momentum we are seeing, we're confident that continuing to scale EV production is the right move. We know that transparency matters in every transformation. So Paul and I will give you regular updates throughout the year, including at our Investor Day we're planning for this fall as we achieve our EV production, sales and profitability milestones. All of these great ICE and EV products were made possible by the investments we made to drive transformation and growth. As a result, our spending was above historic levels for several years. Now that the foundation is largely built and we're starting to see results, our focus has turned back to driving free cash flow through enhanced profitability and capital discipline, finding ways to spend less for the same results and with an unwavering focus on the customer. You're already seeing some examples of this. Our winning with simplicity discipline is a great example of how we're improving capital efficiency and lowering costs. The next-generation Ultium-based Chevrolet Bolt EV is another. It's a profitable and capital-efficient program that will deliver one of the most affordable electric vehicles around when it arrives in late 2025. There will be many more examples as we move forward. With that said, I'd now like to turn the call over to Paul to take you through our results and our new higher guidance for the calendar year.

Operator:

Thank you. [Operator Instructions] Our first question comes from the line of Joe Spak with UBS. You may proceed.

Mary Barra:

Good morning.

Paul Jacobson:

Good morning, Joe. You're right that at the end of the day, 2% to 2.5% for the rest of the year is in our assumptions. So essentially what we have done with the guidance is taken the outperformance that we saw in Q1 and built it into the full year. So really not much has changed on the assumption going forward. So when you look at seasonality and you look at trend lines, keep in mind, in the second half of the year, we've got more EV volume coming in. And also we've got some of those pricing headwinds that we've built in. So we feel like this is a good move to go ahead and take it up from where we are. But we're still sort of guided by the same principles as when we put out our initial guidance for the year going forward. So as far as mix goes, we've talked about that a lot. We've obviously been trending fairly strong. We are lapping some price increases that we took last year. So as I said, the year-over-year comps get a little bit more difficult. But overall, I think the market is holding up fairly well. And as we said before, if we see pricing continuing with this momentum, we expect that we'd be in a position to take up guidance again.

Mary Barra:

Sure. Well, first, Cruise, we're very excited that they're back on the roads in Phoenix. As we said, it is manual, but then we'll progress to supervised and then to unsupervised. And the core tech stack, what we've been doing since we made the decision to pause is continuing to work and improving it. So we've actually strengthened the safety of the system by continuing to make sure we comprehend, I would say, a low probability but higher severity type issues. Because what we recognized in October although I think mainly it was an issue of not having built the right relationship with the regulatory agencies at all levels as well as the public and then being transparent, but we also realized even though we demonstrated and externally validated that the technology was safer than an average human driver, we need to do more. And so that's what we've been focused on. That's why we're -- as we're going back to Phoenix, we're making sure we're up to date. But very excited about where we are in the technology and very much believe in it. For what we plan to do this year of getting back on the road and demonstrating that the model works in one city, as I've said in the past and then expanding from there. We believe it's comprehended in the budget that we have. And then as you look at how we plan to fund the business, we're exploring quite a few options right now, including potentially outside -- taking outside investments as well. And so we'll have more to say about that as we move through the year. But I'm very excited to be back on the road. We believe in the technology. We're making it even better. That didn't stop through this whole period since last October.

Operator:

Thank you. Our next question comes from Itay Michaeli with Citi. Your line is open.

Paul Jacobson:

Yeah. Good morning, Itay. Thanks for the question. On our crossovers, we've talked about the new Chevy Trax and Buick Envista, both of which are significantly improved from their prior profitability of the -- before the upgrades. And we've seen, particularly the Chevy Trax, really take off. Sales were up 500% in the quarter, and it's really performing well for us. So some of the trends in average transaction prices, I think, are muddied by the fact that the volume on those crossovers are going up considerably. But we've still seen strength in our truck pricing and our SUV pricing as well. So we continue to think that, that's accretive and additive to the portfolio and it's built into our strong guidance that we're updating today.

Itay Michaeli:

Perfect. That's all very helpful. Thank you.

John Murphy:

Good morning, everybody. Mary, I just wanted to ask one strategic question on China. At this point, it's really not a moneymaker for you. And there's a lot of, obviously, noise on a geopolitical basis and sort of our relationship or the US relationship with China. I'm just curious, is it time to really start thinking about strategic alternatives over there to potentially closing or selling the business? How do you kind of think about that in the context of sort of the broader portfolio over the next few years?

John Murphy:

Okay. And then I just have one quick follow-up on pricing. Saying 2% to 2.5%, I understand is your best estimate right now. But calling pricing is difficult. So I'm just curious, maybe, Paul, if you could give us sort of a high level how you think about pricing because there's a lot of cross currents. I mean there's EV price cutting, but there seems like there is resilience on the ICE side. When you look at your cap, you're at 100% capacity utilization, which means you're kind of tight on your sort of structural supply. Look at zero to six-year old vehicles, they're going to continue to shrink through the next two years probably. So like the used vehicle market is going to stay relatively tight. So I mean I think people are looking at this dealer inventory and saying, hey, things are getting a little bit toppy. There's risk on pricing. But when you look at some of the structural aspects of supply, they're reasonably constrained. And it seems like even in a Tier 2 and 3 supply base, they're constrained and on labor. I mean I just -- it just seems like its resilience may be with us a little bit longer than people are fearing. I mean the Colorado Canyon as well as your vans you said you were short on some stuff that you're getting to fleets that you'll catch up later in the year. So there's – and there's just all these kind of pockets of shortages that still persist. And it seems like the kind of things going to last for longer than people are fearing. How do you really kind of concoct or come up with that estimate of 2% to 2.5%? And where do you think things will kind of land over the next couple of years?

John Murphy:

Okay. All right. Thank you very much.

Operator:

Thank you. Our next question comes from Mark Delaney with Goldman Sachs. Your line is open.

Paul Jacobson:

Yes. Good morning, Mark. So I would say it comes down to a couple of things. One is there's still the assumption in there of the down 2% to 2.5%. And as we scale up EVs and we continue to make progress about getting them to variable profit positive, the margins on those are not as strong as ICE, obviously. So we see a little bit of pressure in the back half from that. But overall we'll remain consistent. And as I've said, if we don't see that pricing softness, I would expect that there's an opportunity to outperform these numbers.

Paul Jacobson:

Sure. Well, obviously, the early results here as we're ramping up Ultium are pretty strong with retail sales up about 20% year-over-year despite the fact that the Bolt, which is sunsetting the prior generation was down about 60% during the quarter. So retail demand remained strong. We've obviously seen a lot of softness in fleet, particularly on the rental side for EVs, but we see customers responding. Now these are on admittedly lower volumes as we scale up, but we're building that momentum that I think we need with the products to be able to show consumers what our capabilities are. When you look at the statistics that Mary cited in the script about the range and what's in our earnings deck, you see that the purpose-built EVs are actually better in terms of performance, range, charging speed, towing capabilities, et cetera, than many of the other products that are out there on the market. And I think as consumers continue to see that, we'll be well positioned as EV demands at the retail side continue to trend. So we're obviously going to watch it closely, but the early indications are strong.

Operator:

Thank you. Our next question comes from Dan Ives with Wedbush. Your line is open.

Mary Barra:

No, I think you make a really good point, Dan. We do -- I feel much better of where we are, as I mentioned. We now have -- we're ramping up and the module issue is behind us. All the additional lines that we were scaling are all on track. So we feel very good about that. Obviously, we're pleased that we were able to get an agreement with UAW. We continue to work with them on a number of fronts and build the relationship with the new leadership team as they were named pretty close to when we started negotiations last year. So I feel that we're continuing to talk, raise issues with each other and problem solve where we have challenges. So I feel much better about that. And as Paul said, we're seeing good progress with our Ultium-based EVs because they are purpose-built and they do have -- there's -- customer's not making a trade-off. And we also see the charging infrastructure get better every quarter. So I feel very good about where we are and I think we've got momentum. And believe me, we have a very aligned team across GM that is going to seize all these opportunities. I would also add, Dan, that I feel very good, as I mentioned earlier, about where we are with software. The work and the talent that is in the company now and the progress that we've made gives me confidence we're going to be in a good position there as well. So from last year to now, much better, much more positive.

Mary Barra:

Thank you.

James Picariello:

Hi. Good morning, everybody. Just thinking about wholesale growth for the full year. Global volumes were up almost 4% in the quarter. Can you help dimension the impact for this current quarter's full-size pickup downtime? And just what the full -- what the first half versus second half split might look like for the Ultium volumes relative to that 200,000 to 300,000 units targeted? Thanks.

Paul Jacobson:

Yes. So on the EV growth, obviously, supply is going to increase throughout the year as we ramp up to the 200,000 to 300,000 units of production that we've talked about. Spring Hill is coming online in -- came online in Q1 and we're ramping up production pretty steadily and that's Ultium Cell plant too. And as module production kicks up, we see an exit rate that's significantly greater. Now of course, we're all going to be paced -- we're going to be paced by where the consumer is from that standpoint. Early indications are that the ramp is going well, and we should expect to see that consistently growing throughout the year.

Paul Jacobson:

Yes, sure. So as China -- I think it's progressing as we articulated at the initial guidance range. We did trend slightly better than what we expected, but we foreshadowed the loss in Q1. We do expect that to reverse and be profitable for the rest of the year. And we said results that were similar to slightly down from last year in China. So the rest of the year is we'll have to manage it. But like I said, Q1 was a little bit ahead of expectations, but generally in line, so we'll be profitable. For the rest of GMI, we had some downtime in South America in particular. We're watching Argentina fairly closely as we continue to see the reforms that are going on there. But overall we see that improving from kind of where we were and not overly concerned about that just yet, but that's a market that we're continuing to watch.

Operator:

Thank you. Our next question comes from Alex Potter with Piper Sandler. You may proceed. Alex, you may need to unmute your line.

Operator:

We can hear you now.

Paul Jacobson:

We got you, Alex.

Mary Barra:

We're never going to build -- just build products come hell or high water because the number is out there. We're always going to be responsive to the customer. But we do believe that we're going to be in that $200,000 to $300,000 range with the number of EVs that we have launching off of Ultium. We're seeing strength with HUMMER as we're ramping that up. We're seeing strength with LYRIQ and Blazer is just now ramping up. We've got the Equinox coming and there's several more. So I think when you look at the fact that these are all going to meet customers exactly with the performance and functionality that they need, we think we're well positioned there. So I would also say though as you look across our portfolio, we are well positioned, whether it's ICE or EV from a -- with the strength of our ICE portfolio. So we're well positioned to respond to the customer. Like I said, we are very focused on making sure that we don't overbuild, that we're able to maintain our price, our margins. And we think we've got the strength. And specifically, if you look at Spring Hill, we can build EV or ICE in that plant. So I think we're well positioned. We think we're going to be in the 200,000 to 300,000 range by customer demand, and we'll just continue to adapt.

Mary Barra:

Yes. I think it's a great question. And first of all, I think in general, we want to have our best products. And if there's a level playing field, then it's -- we want to compete based on products. I think you have to look at where is there a level playing field, and what's happening around the world. But there's a lot that can happen from a regulatory or a trade perspective, but we're focused on is making sure we have great vehicles at the right price, so what is going to help GM maintain its share around the world. When you look at South America, the Chevy brand is incredibly strong. And we're going to continue to focus on having great designs with great product portfolio with the right features and functions, and we're constantly working on taking cost out of the system. So it's a -- there's value there as well. And that's the way we're going to compete around the world. But I think the focus has got to be on a level playing field.

Operator:

Thank you. Our next question comes from Rod Lache with Wolfe Research. Your line is open.

Paul Jacobson:

Yes. Good morning, Bruno. Thanks for the question. So if you go back to a presentation that we did back in November, we kind of highlighted the road map for 60 points of EBIT improvement in 2024 with about 60% of that driven by scale benefits. So if you think about where we are, we've invested a lot into the infrastructure, battery plants and manufacturing facilities, supply chain, et cetera, to ramp up production. So some of our EBIT losses are really driven by the fact that we need to grow into what we've built. And so that's about 60% of that 60 points improvement. The rest is really kind of split evenly between trims and launches and also material cost reductions. So we've gotten off to a good start as we've seen battery raw materials start to come into the cell costs this year. We've done a good job of reducing cell costs. And as we said, the LYRIQ is down $12,000 in cost year-over-year. So that's the type of progress that we expect. And then as we get into 2025, scale becomes a lower driver, and we get into more of material cost reductions in the vehicles that we're producing as they get out of their early years and we start to harness savings in each vehicle line in the second, third year of production, et cetera. So there's a pretty good road map there. Pricing, obviously, we're going to continue to watch and see where the market is. As we talked about, what we did on the Blazer was built into our expectations. So we're not changing off of those targets. And we're just a quarter in on the Ultium ramp, but the early indications are positive.

Paul Jacobson:

Well, I think you've seen us take steps before. We had a delay in the Orion plant where we've really kind of taken advantage of some of the slowdown to put improvements into that plant that are going to help us lower the cost that came out of some of the early learnings from production at Factory ZERO and things that we can do going forward. So I think you're going to see us be very nimble. And we're trying to build as much flexibility as we can to navigate from here to significantly higher EV adoption going forward. But when you look at our portfolio across both an ICE, EV, it's probably the best portfolio in our history and customers are responding to that. So we're going to meet the customer where they are and continue to endeavor to exceed their expectations and really reward them for that loyalty that they have to us going forward. And we think that, that can translate into the EV market as well. But as Mary said, we're going to continue to be guided by demand for our products and our vehicles. And the early indications are that it's going quite well.

Christopher McNally:

Thanks so much team. Just wanted to dive into some of the questions on seasonality following on to some of Mark's questions prior. Paul, could you talk about the seasonality in wholesale? I think you've talked about full year being up sort of mid-single-digits, which would imply somewhere in the low to mid-800,000 range for the rest of the year. But if you could just help us with just a little bit of the cadence, given some of the downtime you mentioned in Q2.

Christopher McNally:

Perfect. All makes sense. And then maybe just on the actual production side, should we think of sort of truck T1 production as maybe at a tight end in Q1? Do we get back to this level in Q4, just looking at the overall yield and inventory build?

Christopher McNally:

Okay. Great. Thanks so much team.

Paul Jacobson:

Thank you.

Ryan Brinkman:

Good morning. Thanks for all the detail on your planned upcoming BEV launches in the US. It does seem likely you will gain share there with the number and attractiveness of the offerings. I'm curious if you have a similarly aggressive EV rollout strategy planned for China, including because it seems your share in China has declined amidst the industry transition there to EVs. I heard you citing earlier the increased competitiveness of the domestic Chinese automakers as another contributing factor. And there may be still other factors. But would a blitz of new EVs be sufficient? Do you think at this stage to stabilize the share trend in China? Do you have such a blitz planned over the next one to two years? And would that be a pathway to improved financial performance or given some of the recent pricing trends represent maybe more of an investment with the payoff some years further out?

Ryan Brinkman:

Okay. Great. Thanks. And with all these questions about the new vehicle operations in China, maybe just highlight some of the attractiveness if it is that you can draw from the installed base of vehicles there, the OnStar, the financing, sales service, GM Goodwrench and sort of how do you feel about that element of the China business?

Ryan Brinkman:

Very helpful. Thank you.

Tom Narayan:

Yes, good morning. Thanks for taking the question. Paul, just a follow-up on that comment on the EV margin. So 60% of the 60 basis point improvement is coming from scale benefits. So if BEVs were kind of closer, let's say, to the 200,000 versus the 300,000, is that a net negative or positive to overall margins? Presumably BEVs come at lower margins, but if you're selling a few of them, then there's a negative impact from less scale benefit. So just trying to understand that like how do we think about that volume number impact to the company's margins.

Tom Narayan:

Thanks. And a quick follow-up. On the battery raws, obviously, we've seen lithium down like something like 80% or since the peaks. Just curious how your contracts work. When -- have we seen the best of that reduction or is there -- is kind of a lag where you see the -- is there more benefits to come given the lag in your battery raw mat contracts? Thanks.

Tom Narayan:

Great. Thank you so much.

Mary Barra:

Thank you, and thanks, everyone, for your question. As we've talked today, we are making extremely good progress across the board. We're driving revenue growth. We've got great margins, our free cash flow is strong, and that's enabling us to reinvest in the business and our employees. So we plan to efficiently invest between $10.5 billion and $11.5 billion in capital this year to leverage the strength of not only our ICE business but also grow our EV business profitably. And we're also advancing our software-defined vehicle capability. So I feel very good about the key areas of focus and how we're doing there. In addition, we've set aside more than $160 million in profit sharing for the first quarter to recognize the contributions of the manufacturing team members in the US, which were significant, both in terms of production volumes and quality. And our shareholders are also benefiting from the progress too, thanks to our improved execution, a higher dividend and the value-enhancing benefits of the ASR we launched in November. We are on track to reduce our shares outstanding to fewer than 1 billion. So I can say to everyone with confidence and conviction that our team is very much on point. We're focused and we're going to do everything in our power to keep this momentum going. 2024 can be a very strong year for GM. So thank you all for your time.

Operator:

Good morning, and welcome to the General Motors Company Fourth Quarter and Calendar Year 2023 Earnings Conference Call. During the open remarks, all participants will be in a listen-only mode. After the open remarks, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference call is being recorded Tuesday, January 30, 2024. I would now like to turn the conference over to Ashish Kohli, GM's Vice President of Investor Relations.

Mary Barra:

Thanks, Ashish, and good morning, everyone. As we begin 2024, I believe GM is well positioned for a year of strong financial performance that builds on everything we accomplished and importantly learned in 2023. Consensus is growing that the US economy, the job market, and auto sales will continue to be resilient. At GM we expect healthy industry sales of about 16 million units. We have an unmatched ICE portfolio in North America, rising EV production on the LTM platform and GM Financial continues to perform well. We're building on a foundation of products that our customers love. In 2023, GM sold more vehicles in the US than anyone else. All of our US brands grew their sales year-over-year and gained US market share with healthy margins, thanks to stable pricing and incentives that were more than 20% below the industry average. The Chevrolet Bolt EV and EUV had record sales. We led the industry in initial quality for the second year in a row according to J.D. Power. And we now have led the industry in combined pickup, full-size van, and full-size SUV sales for 10 consecutive years, making us the leader in the highest ATP quadrant of the market and helping us lead the commercial fleet market. And we have passed Honda and Toyota in the most affordable quadrant, thanks to attractive and profitable vehicles like the Chevrolet Trax, which is one of Car and Driver's 10 best trucks and SUVs, and the Buick Envista, which is winning with younger buyers. In fact, more than one in four Envista customers are between the ages of 18 and 35. The broad-based momentum we have today is important for our future because our customers are the most loyal in the industry. All of this success contributed to full year EBIT-adjusted of $12.4 billion and adjusted auto-free cash flow of $11.7 billion in 2023, which brings our total to more than $22 billion for 2022 and 2023. Almost two-thirds of that cash is being returned to shareholders through dividends and share repurchases, including the impact of the $10 billion accelerated share repurchase program that we announced in November. Through the ASR, we immediately retired 215 million common shares in the fourth quarter. Our current share count is less than 1.2 billion and we are working to reduce this even further to less than 1 billion common shares outstanding, which would be about 600 million fewer than at our peak. As we look ahead, our priorities and our commitments are clear. They are to maximize the opportunities we have with our winning ICE portfolio, grow our EV business profitably, deliver strong margins and cash flow, and refocus and relaunch crews. Across the enterprise, we are taking important steps to deliver on each priority. Let's start with our ICE portfolio. Chevrolet's crossover lineup had record sales last year, and this year we're enhancing two of its most important models which compete in growing segments. For example, Super Cruise will be available on the Traverse for the first time and we will introduce a new premium Z71 off-road model. The 2025 Chevrolet Equinox that we unveiled last week is another great example. It has more standard safety equipment, new truck-inspired styling, and a strong focus on technology. And importantly, both the Traverse and Equinox will have higher projected margins than the outgoing model. Buick and GMC are also launching new crossovers this year to keep our momentum going. In our EV business, we expect our US portfolio to be variable profit positive in the second half of the year based on our current expectations for EV demand and production growth. Strong interest in our vehicles, lower commodity prices and other factors will support this. Our plan is to produce in wholesale 200,000 to 300,000 Altium-based Chevrolet, GMC, Cadillac and BrightDrop EVs in North America this year, but we will be guided by customer demand. It's true, the pace of EV growth has slowed, which has created some uncertainty. We will build to demand and we are encouraged that many third party forecasts have US EV deliveries rising from about 7% of the industry in 2023 to at least 10% in 2024, which would mean another year of record EV sales. We believe our competitive position will improve throughout the year based on higher production of the Cadillac LYRIQ, the GMC Hummer EV, the Chevrolet Blazer EV, and the Silverado EV work truck. We're also excited to have the Chevrolet Equinox EV and the Silverado EV RST, the GMC Sierra EV Denali, and the Cadillac Escalade IQ arriving in showrooms over the course of the year. We are confident in the design and performance of these vehicles. For example, the LYRIQ is driving growth at Cadillac. Its sales have increased sequentially every month since September and January deliveries should be in line with December despite winter storms across the country. We also have more than 10,000 -- excuse me, 100,000 reservations and orders for EV pickups that we expect to fulfill in 2024 and 2025. However, if demand conditions change, we'll take advantage of our manufacturing flexibility in Spring Hill and Ramos to build more ICE models and fewer EVs. We can also mix between different EV products at Factory ZERO. Ultimately, we will follow the customer. The supply chain, manufacturing, and software changes we have made will support our growth. On the battery front, our Ultium Cells joint venture is at full production in Ohio, and the new plant in Tennessee will begin shipping cells this quarter. In addition, our supply chain team has moved very quickly to resource two minor cell components after the US Treasury published its updated IRA guidelines in December. This change means that new production going forward of the Chevrolet Blazer EV and the Cadillac LYRIQ will qualify for the full $7,500 consumer credit. We work closely with our dealers to ensure consistent pricing for our customers, which we estimate will impact no more than about 25,000 vehicles. Our battery module production is on schedule. The team has improved the automated equipment at our assembly plant used to build modules and installation of new high capacity assembly lines should be complete by mid-year. Our software and services team is also in the process of resolving the stability issues some customers have experienced with the Chevrolet Blazer EV that impacted their screens and charging experience. And they are working with a huge sense of urgency to lift the stop sales soon. We disappointed these customers and we know it. We are determined to get the software right and we will. We have made several organizational and process improvements that will help us deliver the best possible customer experience going forward. Among several important organizational realignments, we established a software quality division within the software and services team that has been performing a retrospective on the Blazer EV and has improved the current software development and test processes across the enterprise. Outcomes of this activity are getting applied to all programs going forward and they include improved standardization of the software development and release process, increased focus on test automation at the vehicle level, and additional quality gates and metrics for software at the vehicle level. From a margin and cash flow perspective, we are making good progress on cost reduction and capital efficiency. Compared with 2022, our fixed cost net of depreciation and amortization will be down $2 billion as we exit 2024, which will offset the higher impact -- the impact of higher labor costs. We are also beginning to see savings from winning with simplicity, and all of our current and future programs have embraced this very important way of designing products. Each team is responsible for creating trim series that make vehicles easy to order with the content customers want and far fewer standalone options. By making more equipment standard in trim series with logical price swaps, we can eliminate literally thousands of unique part numbers and dozens of software releases. For example, we have eliminated over 1,000 selectable options across our current and near-term product programs, which is reducing hardware, software, ordering and manufacturing complexity, and importantly, all the costs associated with them. In 2024, the savings are expected to be about $200 million. To be clear, we're talking about $200 million of savings to execute the same product plan. These savings will grow over time as we apply the discipline to future products like our next generation full-size pickups. We're also continuing to balance capital priorities and consistent free cash flow generation. We expect that our 2024 capital spending will be in the $10.5 billion to $11.5 billion, which is roughly flat year-over-year and down considerably from the $13 billion top of our end initial 2023 guidance. Our forward plans include bringing our plug-in hybrid technology to select vehicles in North America. Let me be clear, GM remains committed to eliminating tailpipe emissions from our light duty vehicles by 2035. But in the interim, deploying plug-in technology in strategic segments will deliver some of the environmental benefits of EVs as the nation continues to build its charging infrastructure. We are timing the launches to help us comply with the more stringent fuel economy and tailpipe emission standards that are being proposed. And we plan to deliver the program in a capital and cost-efficient way because the technology is already in production in other markets. We'll have more to share about this down the road. Moving to Cruise. Last week we released the results of the third-party reviews and we've already begun to implement significant changes to build a better Cruise. We are committed to earning back the trust with our regulators and the public through our actions. Our plan 2024 investment in Cruise reflects our more deliberate and cadence go-to-market strategy and we are developing new financial targets and a new roadmap. Spending will be down considerably this year, but we will continue to invest in the people who are advancing the software, specialized hardware, and AI capabilities. This reflects our commitment to our vision, which is to deliver the safety benefits of self-driving technology and a scalable, profitable business. I look forward to sharing our timetable for returning Cruise EVs to the road soon. To summarize, we learned a lot in 2023, and those learnings are helping us build our strengths and addressing our challenges. Everyone on the team is committed to building on our momentum and creating shareholding value. You'll see in our proxy statement this spring, executive compensation is tied even more closely to delivering our comprehensive ICE, EV, AV, and software plans, while meeting our financial targets. So our goals are truly aligned with yours. Before I turn the call over to Paul, I would like to share some thoughts about our next Investor Day. Because of the significant changes that are underway at GM and Cruise, we think it makes sense to wait until later in the year to host an event. This will give our software team the time to focus on software for our upcoming launches, and we will be able to share more tangible proof points on all four pillars of our strategy, ICE, EV, AV, and software. When we do get together, we will show you what we've done, not just tell you what we're going to do. In the meantime, we've already provided a roadmap for EV profitability in 2025, and we'll share updates on Cruise as we finalize the technology and relaunch plans. With that, I'll turn it over to Paul to go through our 2023 financials and provide more details on our 2024 outlook. Then we'll take your questions.

Operator:

Thank you. [Operator Instructions] Our first question from the line comes from Itay Michaeli with Citi. Your line is open.

Paul Jacobson:

Yes, good morning, Itay, and thanks for your comments and your questions. First on the inventory question, what I would say is, we're continuing to pursue our targeted range of 50 to 60 days on hand of inventory. I think the team has done a really good job of balancing that, and I think that's provided some of the ability to be disciplined with incentives, and clearly is, I think, resulted in a competitive advantage for us that we've utilized for the last couple of years. As we think about that 2% to 2.5%, similar to what we've done for the last couple of years, I would call that a planning assumption rather than an expectation of where we see pricing. We want to make sure that we do that to make sure -- to ensure that we can hit our targets, generate the cash flow that's needed for investment and drive the free cash flow performance. So, as similar to years past, if we don't see that, I would expect that we can get some upside into the numbers that we've talked about. So, we haven't gone through and assigned an expectation to any particular categories that's just something top-sided we do in the planning process. I hope that helps.

Paul Jacobson:

So without getting into very detailed specifics, because, obviously, it can get quite complicated. What I would say is, we feel confident about hitting that variable profit positive target in the -- in probably the low 200,000 units of the range that Mary mentioned. That's based on a pretty consistent demand profile, so as we've seen the demand for the vehicles that we're producing and the way that customers have received them, we think we can keep that up. So to the extent that we see any pricing softness or demand retreat we might have to revisit that, but we feel very good about the trajectory that we are on right now.

Operator:

Thank you. Our next question comes from Rod Lache with Wolfe Research. You may go head.

Mary Barra:

Hi Rod, thanks for your comments. I wouldn't necessarily say change in our strategy, I think as we've continued to progress in the EV transformation we have found more ways to be much more efficient with capital. And I do want to correct a statement I made earlier where I said, we'd eliminated 1,000 selectable options across our portfolio. It was really a hundred. Although, I think I have a new stretch target for the team as we take the initiative global. But its initiatives like that of continue to look for ways to optimize the capital. When you look at our ICE portfolio, the investment that we made in the last part of the last decade really sets us up well to have all new products coming off the existing platforms, whether it's full-size trucks, full-size SUVs, mid-size SUVs, etc. And so, we're looking to continue to be very focused with capital to make sure it's going to generate the right return. And I would also say we are prioritizing, continuing to return cash to our shareholders as we go through this transformation, because we think the strength of our business, especially our ICE business allows us to do that. So it's not a change in strategy. I would say on some of the business you mentioned like BrightDrop and others, as we look at the business. I think it’s important is we started them to give them some room, but as we got clarity on where the real opportunity for GM was, we could make those businesses much more efficient. And we're going to continue to do that to work on our cost structure to make every dollar a capital count. But we still see growth opportunity. I mean, we had a revenue growth of 10% last year. So we still have many initiatives in which to grow. We're just going to do it in a very optimized way.

Dan Ives:

Yes, thanks. So can you just talk about Cruise? What are some of the targets for this year that we should think about that would just give more confidence that we've turned the corner there? I mean, from an investor perspective. And how you look into that long term, you are committed to Cruise, right? That's the best way to think about that once get through some of these situations.

Operator:

Thank you. Our next question comes from Joseph Spak with UBS. Your line is open.

Paul Jacobson:

Hey, Joe, it's Paul. Good morning. Thanks for the questions. Probably just to digress for a second on the lower of cost or market adjustment on the EV inventory. So a couple of things. Number one, that's not in any of the metrics that I think are important. Clearly it is a year-over-year benefit for us on our journey. But when you think about the two metrics that we're looking at, there isn't an impact from that. So first is variable profit positive. This relates a lot more to sort of EBIT, how we think about that going forward. But variable profit is mainly benefiting from scale and lower material costs going forward. So not a contributor to that. And then when you think about getting to the mid-single digit margin target in 2025, we would expect that there isn't really going to be inventory that’s necessarily carrying that. If there is, we will call that out as we go forward. But it's not in our calculations. They are not a part of what we think our journey is going to be. So I appreciate the question and not surprised by it, but we're continuing to march along. When you think about the -- sorry, the second part of your question was on -- apologies, what’s the second part of your question. Oh, on tracking? Yes, on when we'll disclose. We'll continue to talk about our journey and give confidence as far as specific data points. Not sure that we're going to do it quarterly yet, but we'll continue to update on our progress. Thanks. I'm sorry for that hiccup.

Adam Jonas:

Thanks. Just one question and one follow-up. I want to follow up on Rod's question first on strategy. Can you confirm what portion of your forward year CapEx and R&D is dedicated to EV battery, AV projects, the Auto 2.0? Any reason to think that this -- that you may have scope to dial back the vertical integration, given the changing market? And then my follow-up, and again, because I think in the past where you've talked about well over half, I think you said in recent years of your spending was on that, but I just wanted to know if that was changing. And then the follow-up was on Elon Musk recently said that in the absence of trade barriers that China will demolish most of the Western EV players. Curious your reaction to that comment, whether you'd agree? Thanks.

Adam Jonas:

Thanks, Mary.

John Murphy:

Good morning, guys. Mary, I just wanted to follow up on the strategy line that Adam and Rod have breached here. I mean we're seeing fits and starts in technology, and it will eventually get there. But at the same time, we are seeing this tectonic shift in competition, particularly coming from China, as Adam alluded to. You made sort of pronouncements on how the business strategy will be set up for a few years not too long ago. But these shifts have been pretty extreme more recently. So I'm just curious, as you think about strategy and the position of the company, you haven't been shy from making big changes in the past like exiting Europe. Can we think about the potential for real shifts in strategy of focus where the highest margin and highest return is sort of in the business truly five to 10 years down the line, which might include things like exiting China, which sounds like heresy, but might be the best move to make for five years out, maybe rebranding Cruise and really kind of taking a new sort of approach to where the company will land in five to 10 years. It's really protect profitability and cash flow from a position of strength instead of maybe a position in five to 10 years where it might be a weaker position.

John Murphy:

And if I could just sneak one follow-up on the plug-in hybrid comment of potentially bringing those here to the U.S. to fill sort of maybe this interim gap. What kind of capacity or volume could you hit there here in the U.S.? I know the dealers are clamoring for those vehicles.

John Murphy:

Great. Thank you very much.

Ryan Brinkman:

Good morning and thanks for taking my question. Obviously, the 2024 outlook is far stronger than investors expected. How much of the higher outlook versus consensus do you think stems from different industry-related factors that are a matter of debate, such as expectations for volume or pricing in different markets versus how much do you think stems from company-specific factors that you would naturally have a better handle on internal to the company such as lower Cruise spending, a potential for more structural cost reduction, the magnitude of guidance [indiscernible] you may be more positive on industry factors, but your pricing comments also seems pretty in line. So not really sure. How are you thinking about like how much of your meeting this great guide in 2024 will come down to factors under your control versus out of your control?

Ryan Brinkman:

Okay. Great. I just wanted to ask on Cruise too, starting with whether the guided $1 billion of lower spending in 2024 versus the 2023 full year $2.7 billion figure or maybe the 4Q run rate of $3.2 billion. And then what has the response been so far? I realize there hasn't been a lot of time passed, but from the regulators to the recently released comprehensive review. Previously, I think you've guided to potentially significantly less than the non-Cruise, maybe on the business update call, but then followed a day or two later at Barclays by saying several hundred million, now it's $1 billion. So of course, you were still waiting for the review at that point. Is there anything to read into the $1 billion being higher than several hundred million? Is that maybe the reception of the review could lead to a more prolonged suspension of commercial operations? And then just finally, the outlook for the EBIT loss in 2024 or whatever is $1.7 billion [indiscernible] it's greater than the $1.3 billion of cash that Cruise had at year-end, right, on, I think, Slide 26 or so. So it’s that just capital raise, curious on the thoughts there?

Ryan Brinkman:

Very helpful. Thank you.

Dan Levy:

Hi. Good morning. Thanks for taking the questions. Two questions on cash. One is, you're guiding to $8 billion to $10 billion of free cash. And that pro forma gets your cash balance on the balance sheet to something like $28 billion to $30 billion at the end of 2024. To what extent are you willing to put forward another share buyback plan beyond what you have -- if the target is to have cash balance of $20 billion? And the second question is on Cruise on cash. They're at roughly $1.3 billion. I think that gives you a little less than a year of runway on cash. So what's the plan on further funding for Cruise? Thank you.

Paul Jacobson:

And Dan, on your question on cash, I think the simple math is correct. We would obviously see a sizable increase in our cash balance. Our capital allocation stance remains the same, which is to invest in the business. And we've talked about $10.5 billion to $11.5 billion of CapEx this year. We have been streamlining that and making that efficient and a priority to drive free cash flow. And as we look at the balance sheet, I think the balance sheet is in really good shape. And there's no change to our stance of, call it, $18 billion or about $20 billion of cash on hand. So clearly, we've demonstrated a renewed commitment and prioritization of returning cash to shareholders. And we'll maintain that flexibility going forward.

Paul Jacobson:

That's kind of been our floor/targeted range. Obviously, we've carried quite a bit more than that over the last few years as we dealt with some of the uncertainty. But as we imagine -- or as we said in November when we announced the share repurchase with a lot of that uncertainty behind us, lower CapEx spending, we felt comfortable operating at that lower balance. So $18 billion to $20 billion feels very comfortable as the targeted range.

Operator:

Thank you. Our next question comes from Emmanuel Rosner with Deutsche Bank. Your line is open.

Paul Jacobson:

Good morning Emmanuel. Thanks for the questions. On the 2024 numbers, I think they're wholly consistent with the 200,000 to 300,000 range that we've articulated here. And as I mentioned earlier in response to a question around EVs, the low 200,000 is kind of what gets us to the point where we feel comfortable about getting the variable profit positive from there. Obviously, growth is a component, but it's a much smaller component of the walk from 2024 to 2025 than it is from 2023 to 2024. But it will require some growth. We're not going to commit to that other than just to say kind of that's where we stand, and we'll see where customer demand is going forward. And the other point, if I didn't make it earlier on the lower battery raw material costs, keep in mind that we don't start to see meaningful benefit from that until we get to the middle part of the year, because a lot of the cells that we have in inventory were built with higher raw materials costs. So while we're producing cells today, we're going first in, first out on the cells. So we have a little bit of a lag before we realize that. That lower battery raw material cost of about $4,000 a vehicle that we articulated, we'll also have some annualization benefits in 2025 since we're not getting the full benefit here in 2024. I hope that's helpful.

Mary Barra:

Emmanuel, I would consider it right now it's our best estimate for this year. Obviously, as we develop a much more detailed plan that will inform over the next couple of years what the spending needs to be, so more to come.

Operator:

Thank you. Our next question comes from Chris McNally with Evercore. Your line is open.

Mary Barra:

Yes. Chris, appreciate the question. I think back in the 2018 time frame, I think we should have, in hindsight, put it across the portfolio much more quickly. It's not a number of models. I don't have it off the top of my head. Ashish, we can provide that. But it's on a number of models across the portfolio right now. As we launch the Traverse this year will be added to the Traverse. Again, we're seeing extremely strong response from customers where I think it's over 80%, 85% of customers once they experience the technology say they would never -- they would not want a car without it or they would strongly prefer it on their vehicle, which, in my experience, is a pretty high interest rate for a single technology. So we're committed. We're going to continue to develop. And we have been, along the way, adding more roads and adding more capability, whether it's lane change, whether it's trailering. So there's a robust plan to continue to improve Super Cruise, and we'll stay on that. And we are seeing the profitability benefits. And the more vehicles to your point, we get it on, the better it will be. And we're committed to do that. And frankly, have done quite a bit already. And we can provide that.

Mary Barra:

Yes. No, we are committed to getting it on many vehicles as possible. In some cases, we had planned to make it standard. The semiconductor shortage kind of slowed us down on that because if [indiscernible] building a vehicle at all or waiting to build it with Super Cruise. So we are very committed to getting across many vehicles. We've dramatically taken the cost down on the technology. So it's a really good value. And in my opinion, we're deploying it as quickly as we can. And it's really just with -- there is engineering required and some sensors required when you add it to a new vehicle, but we're doing that in a very cadenced but as quick as possible fashion.

Operator:

Thank you. Our last question comes from the line of Tom Narayan with RBC. Your line is open.

Paul Jacobson:

Tom, I'll suggest that we take that off-line, work through any modeling details. But at the end of the day, clearly, the commercial market, as we talked about, we expect to be relatively stable and pricing down 2% to 2.5%. Not going to get into the specifics about how we're thinking about market share gains other than to say, fairly consistent about what we've been doing for the last few years going forward. And then on EVs, a lot of that, we will continue to talk about as we come to sort of later Investor Day and subsequent calls going forward. I think we've given good detail on the overall walk on vehicle program level.

Paul Jacobson:

So Tom, I think our -- we've got great relationships with our suppliers and a team that works very, very closely with them. They have been, I would say, very patient with us over the last few years, because we've had a lot of volatility. And in those situations where we need to help, we've been willing to do that going forward. And we always look at both efficiencies and any challenges in our annual budget process, and this year is no different.

Operator:

Thank you. I'd now like to turn the call over to Mary Barra for her closing remarks.

Operator:

That concludes the conference call for today. Thank you for joining.

Operator:

Good morning, and welcome to General Motors Company Third Quarter 2023 Earnings Conference Call. During the opening remarks, all participants will be in a listen-only mode. After the opening remarks, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, the conference call is being recorded, Tuesday, October 24, 2023. I would now like to turn the conference over to Ashish Kohli, GM's Vice President of Investor Relations.

Mary Barra:

Thanks, Ashish, and good morning, everyone. Thank you for joining us. I'd like to begin by thanking the entire GM team for once again delivering very strong results, including $3.6 billion of EBIT-adjusted in the third quarter. Our supply chain team and logistics partners in North America have done great work improving the flow of vehicles from our assembly plants to our dealers. Our U.S. dealers have helped us outperform the market from a share standpoint with strong ATPs, and essentially flat incentives. We were profitable in every region, including China. And GM International is on track to deliver significantly higher EBIT in 2023 compared to a year ago thanks to our operating discipline and the lift we're getting from successful vehicles like the Chevrolet Montana and the Trax. I'd also like to recognize our teams in Canada and Korea. They reached new competitive labor agreements and ratified them with little or no disruption to our operations. Because we are in a highly competitive cyclical industry, we have been laser-focused on four fundamentals to strengthen our position; they are delivering vehicles that customers love and are willing to pay for, a competitive cost structure, marketing efficiency and incentive discipline, and matching production to demand. Driving these fundamentals has been and will continue to be the foundation of our consistently strong earnings. For example, GM has now led the industry in full-size pickup sales for three consecutive years, and we have led full-size SUVs for nearly 50 years. Our overall incentives have gone from consistently above the industry average to consistently below. And we are on track to exit 2024 with fixed costs that are $2 billion lower net of increased depreciation and amortization than 2022. And we're launching several new SUVs this year and next year that will be more profitable than the models they replace. We're also taking immediate steps to enhance the profitability of our EV portfolio and adjust to slowing near-term growth. These steps include moderating the pace of our EV acceleration in 2024 and 2025 to maintain strong pricing. The new launching timing at Orion Assembly also enables us to make engineering and other changes that will make the trucks more efficient and less expensive to produce, and therefore more profitable. Let's dig a little deeper into the steps we're taking with our ICE portfolio to keep margins and EBIT strong in a very competitive environment. Over the last several years, we have bolstered our position in high-margin segments, including full-size pickups, full-size SUVs, and large luxury SUVs. We did this by managing capacity to meet demand, expanding the range of premium trim series that we offer, and with innovations like Super Cruise and the MultiPro Tailgate, and factory-lifted trucks. And we're not going to let up. As I said, we're launching a wide range of SUVs that will have automotive gross margins up to five points higher than the models they replace. The first two are the Chevrolet Trax and Buick Envista. These affordable small SUVs are rapidly gaining market share, and more than 50% of the Chevrolet Trax customers are new to GM. Then, in the first-half of 2024, we begin launching the new Chevrolet Traverse, GMC Acadia, and Buick Enclave, followed by the next generation of the ICE Chevrolet Equinox and GMC Terrain, which begin launching mid year. Here are the profit drivers. First, they are in growth segments. The larger SUVs compete with in a segment that we expect to grow by 25%, to three million units, over the next three years, and the smaller SUVs compete in the industry's largest segment, which we expect to grow 9% to 3.4 million over that same period. Second, they're outstanding products. They offer more comfort and interior roominess, better cargo space, enhanced safety features, and innovative technologies, including Super Cruise, which will be a segment exclusive in the Traverse. And third, we develop them efficiently. We have simplified the powertrain lineups where we're using 60% of the power and reduce build combination by 80% to 90%. Now, let's look at EVs. Our commitment to an all-EV future is as strong as ever, and we continue to plan to have annual EV capacity of 1 million units in North America as we exit 2025. This will allow us to participate in the EV market upside, but we are also scaling in a way that's consistent with the operating discipline I mentioned. Over the course of 2023, our battery cell manufacturing joint venture in Ohio has made tremendous progress. The plant will be running at full capacity next month, as planned, and they are targeting the production of 36 million cells this year. Next year, production in Ohio is expected to rise to 100 million cells. At the same time, our battery module constraint is getting better, which helped us more than double the Ultium platform production in the third quarter compared to the second quarter. And we are now in the process of installing and testing our high-capacity module assembly lines, which will continue into the first part of next year. We are currently challenged getting some of the critical equipment components, but we have a dedicated team working with our suppliers to resolve all issues and get these lines running at rate. By mid-year, we expect that modules will no longer be a constraint, and we will be focused on building to customer demand rather than setting new production targets. Software is another critical piece of the strategy, and Mike Abbott and his team are actively engaged in the early assessment and in each of these launches. Since he joined our team this summer, Mike has been moving aggressively to build a world-class software organization to fully execute our software-defined vehicle strategy while accelerating our vision. We now have executives with experience from Apple, Google, Microsoft, Amazon, Uber, and other leading tech companies heading up our human interface design group, our product software and services group, our software engineering, and our software strategy group. The team is optimizing the software strategy and fine-tuning the plans for our new vehicles to help make sure we executive with the highest possible quality and customer experience, while positioning the company to drive significant revenue growth from subscriptions in the future. To give the team time to do this, we'll move out the launches of three products, the Chevrolet Equinox EV, the Silverado EV RST, and the GMC Sierra EV Denali, each by only a few months. This will ensure their success. We believe our products will succeed, and the costs are coming out quickly. For example, our cost per cell has already decreased 45% over the last 12 months as production volume in Ohio has ramped up. We also expect to achieve significant margin improvement on our battery electric trucks through engineering efficiency and improvement, supplier cost, and reducing order complexity, buildable combinations, and manufacturing. Another key launch for us is the next-generation Chevrolet Bolt EV. I know there has been some speculation in the market as to why we are developing a new Bolt EV. Our strategy is to build -- is to build on the tremendous equity we have in the brand and to do it as efficiently as possible. Our prior portfolio plans included several newly designed vehicles in the entry level segments and a capital commitment of $5 billion over the next several years.

Paul Jacobson:

Thank you, Mary, and good morning, everyone. I would like to start by thanking our team members for once again delivering strong results in the face of several challenges. To those employees that continue to build vehicles through the uncertainties of the UAW strike, thank you for your focus, your commitment to quality, and passion to deliver great products to our customers. In Q3, the UAW strike had a roughly $200 million EBIT impact, and so far in Q4, we estimate the lost production has had an incremental $600 million EBIT impact. Moving forward, we estimate that the impact of the UAW strike to be approximately $200 million per week based on the facilities impacted as of yesterday. We're not going to speculate on the duration and the extent of the UAW strike, and because of this uncertainty, we've chosen to withdraw our 2023 full-year guidance metrics even though our strong underlying business fundamentals were pushing us towards the upper half of the range prior to any strike impacts. After we have a ratified contract, we will provide an investor update to quantify the final impact of the strike as well as labor costs moving forward. Despite these challenges, we're already working to offset the incremental costs. Mary mentioned the great work the team is doing with the net $2 billion fixed cost program announced earlier in the year, and the winning with simplicity initiative to drive further efficiencies and cost savings. Higher labor costs will make it even more imperative that we continue to focus on the most significant and margin accretive parts of the business. Let's move now to the Q3 results. Total company revenue was up 5% to more than $44 billion, driven primarily by our consistent pricing and higher wholesale volumes, which were up 2% year-over-year. We achieved $3.6 billion in EBIT-adjusted, 8.1% EBIT-adjusted margins, and $2.28 in EPS diluted adjusted, inclusive of the $200 million UAW strike impact during the quarter. Production volumes and pricing were up year-over-year. However, these benefits were more than offset from other parts of the business normalizing, including mix and GM financial, along with our continued investments in EVs and crews, resulting in a $700 million decrease year-over-year. Adjusted auto free cash flow was $4.9 billion, up $0.3 billion year-over-year, driven by the continued strength of our core auto operating performance. North America continued to deliver strong results, with $3.5 billion in EBIT-adjusted. Pricing continued to be robust, and we are starting to see the benefits of our fixed cost reduction program, realizing about $500 million year-over-year savings in Q3 from lower people cost and marketing savings. Expected headwinds from pension income, warranty costs, and mix, along with the impact of the UAW strike, more than offset these tailwinds, resulting in a $400 million decrease year-over-year. As we shared in our prior quarter's update on warranty costs, the quality of our vehicles continues to be strong, as demonstrated by the decrease in claim rates year-over-year. However, we have experienced an increase in the cost of repairing vehicles due to inflationary factors. We are committed to reducing the number of claims and finding efficiencies to minimize costs and are optimistic that year-over-year warranty headwinds will begin moderating in Q4. EBIT-adjusted margin was 9.8%, and at the top of our 8% to 10% target range. In the U.S., we continue to drive profitable market share growth with 0.7 percentage points year-over-year in Q3, growing both retail and fleet share. At the same time, we continue to hold incentive spend consistently low and reduce marketing spend by $200 million year-over-year. We have completely modified our approach to incentives over the last few years. J.D. Power PIN data shows our 2021 U.S. incentive spent as a percentage of ATP was one percentage point above the industry average of 6%. In 2023, we are trending about a half a percentage point below the industry average of 3.7%. This $1,500 per vehicle relative performance improvement from 2021 to 2023 equates to more than $3.5 billion in annualized EBIT improvements and is attributable to our strong product portfolio and disciplined inventory strategy. And as Mary mentioned, new and updated products coming in 2024 will have improved profitability, bold designs, and new technology to help continue our sales and pricing momentum. Total U.S. inventory has remained within our 50 to 60-day range, with a slight sequential increase to 443,000 units at the end of Q3. This is a testament to the hard work of our team who have navigated through the continued logistics challenges and uncertainties related to the UAW strike. GM International had a solid Q3 performance with Q3 EBIT-adjusted of $350 million, which was consistent year-over-year. Despite a decrease of $150 million in China equity income, which amounted to $300 million for the quarter, GM International ex-China EBIT adjusted, was $150 million, a significant improvement from breakeven, in 2022. I want to take a moment to take the entire International team for the work they're doing to deliver profitable results, including the actions in China to help mitigate some of the industry challenges. GM Financial had a strong quarter, with an EBT-adjusted of $750 million, their fourth highest Q3 ever in spite of higher interest rates and lower used car values. This performance was in line with expectations and primarily due to lower net leased vehicle income. We also saw increased finance charge income associated with portfolio growth, and a higher effective yield offset by that increased interest expense. Corporate expenses were $300 million in the quarter, and consistent with the prior year. Cruise expenses were $700 million in the quarter, and we expect a similar quarterly run rate moving forward as they balance expanding operations with further efficiencies. A larger fleet of AVs and additional resources drove the incremental $200 million of expenses year-over-year. I also want to highlight a few items Mary on our retimed EV volume and product production decisions. These actions will impact our previous EV production targets, including the 100,000 EV target we had for the second-half of 2023, and cumulative 400,000 EVs from 2022 to the first-half of 2024. We are not providing new targets, but are moving to a more agile approach to continually evaluate EV demand and adjust production schedules to maximize profitability. We purposely built flexibility into our manufacturing facilities, and are uniquely positioned among our competitors to be able to flex our production between ICE and EVs. For example, our Ramos facility builds both ICE and EV variants of the Blazer and the Equinox, along with Spring Hill, which builds the Cadillac LYRIQ along with existing ICE vehicles. These actions prioritize Ultium profitability versus volume, which helps solidify our North America EBIT-adjusted margin target of 8% to 10% through 2025, and the cash flows funding our future in EVs, AVs, software-defined vehicles, and other new businesses. Given a more agile approach to our EV transition, we now expect to retime at least $1.5 billion of capital spending at our Orion plant, implement engineering improvements, and improve EV profitability prior to accelerating production of battery electric trucks. We'll provide more detail around EV profitability once we have clarity on labor costs. In closing, I want to emphasize that our EV momentum is building. We see it in everything from cell production, to manufacturing, to software. We continue to install significant EV capacity, and have the agility and decisiveness to make further adjustments to both accelerate or moderate our transition to adapt to customer preferences. Higher labor costs are at the top of everyone's mind, but will likely be another example of the numerous challenges this team has tackled over the last few years. And I remain confident we'll continue to execute and find solutions to grow EPS moving forward. The cost initiatives we're implementing are not one and done, but rather a change in mindset that we expect will drive efficiencies for years to come, fundamentally strengthening the company. This concludes our opening statements. And we'll now move to the Q&A portion of the call.

Rod Lache:

Morning, everybody.

Rod Lache:

I was hoping you could provide a little bit more color on the slower demand growth for EVs. Obviously, GM is just getting started now with mass market Ultium products, still the fastest growth segment within the market. And just at a high level, is this kind of an assessment of the premium that you think EV buyers are willing to pay or are you less optimistic on the IRA becoming a point of sale benefit next year? And just given the investments that you're making, why wouldn't lower volume or pricing assumptions affect the 2025 EV earnings expectations?

Rod Lache:

Great, thanks, Paul. And just secondly, obviously there's consequences to almost any change that affects the business. At a high level, do you think that GM will need to make adjustments to the company's product strategy to adjust for higher labor costs than some of your competitors? And can you clarify whether this $2 billion net fixed cost reduction contemplates a scenario for UAW costs?

Rod Lache:

Great, thank you.

Itay Michaeli:

Great, thank you. Good morning, everyone. So just first going back to the Ultium targets in 2025, could you just review the factors that are allowing you to maintain that low-to-mid single-digit EV margin target? Given the lower volume, maybe you could touch upon any changes to the LG relationship, from maybe recent changes there? And also, if you could quantify a bit some of the engineering changes you alluded to that can enhance profitability?

Itay Michaeli:

That's all very helpful. And as a quick follow-up, maybe wanted to touch upon Cruise, with Cruise really scaling now to multiple cities and making a lot of progress, any just thoughts on funding going forward, as well as any strategic thoughts you can share as Cruise goes into the next stage of growth?

Itay Michaeli:

Perfect, that's very helpful. Thank you.

Joseph Spak:

Thanks. Good morning, everyone. Just to follow up again on the Ultium strategy and some of these changes here. How flexible are you finding that program is to be able to make these changes? And are some of these learnings you talked about that you plan to implement on Silverado also scalable to the other products or should we think that -- basically, should we think about there being a need for like an Ultium 2.0 platform in the couple of years versus what we're seeing today in the market?

Joseph Spak:

Okay. And then, Mary, on the -- there was a comment about the Ohio battery JV being able to be at full capacity by the end of this year. I think that's like 35 gigawatt-hours if I recall correctly. So, how does that JV, which I know you're only part owner, plan to balance that with GM's own EV demand? Is there going to be a continued ramp there and produce, and maybe build some stock or look for additional offtake? And also, does this revised EV timeline impact any of the other battery JVs coming online?

Joseph Spak:

Okay, thank you.

Joseph Spak:

Perfect. Thank you.

John Murphy:

Good morning everybody. Mary and Paul, when you think about the capital commitment that's going on in the business lobby, it's always very large, but with EVs and things that are shifting on technology and products, product plans, it seems a little bit more uncertain, a little bit more dynamic, and it has historically. Do you think about returns on capital as we shift into this EV world? Can they potentially be higher and shorter-dated? So, they give you more flexibility to make changes like you just did with the vault, or are we still thinking about sort of seven to 10 year decisions like we did on the ICE side? I think there's a lot of folks that think this is a real risk, but it sounds like it also might be an opportunity to be more flexible?

John Murphy:

And then just one follow-up on the strength in sales year-to-date, the U.S. market really seems to be buoyed by fleet sales more than retail at the moment and you guys usually have a better line of sight and visibility into orders from your fleet customers. So, one, if you can confirm that strength has really been driven by fleet relative to expectations at the beginning of the year. And two, is there visibility that this is going to last kind of like it did in '10, '11, and '12 sort of as a consistent driver of the upside of the cycle early in the cyclical recovery?

John Murphy:

Okay. Thank you very much.

Emmanuel Rosner:

Thank you very much. Good morning. First, a couple of clarifications on the 2025 targets for the EV business, so, low to mid-single-digits margin. I think when you initiated that guidance, this was excluding the IRA sale manufacturing credit, but I think including them, you could have gone to mid to high single-digits. Is that still very much the case, or are you saying that now including IRA, you would be at the low to mid-single-digits? And then on the volume piece, or I guess the capacity piece, to the extent that your capacity is flexible between EVs and ICE, would you consider reducing the 2025 EV capacity target in the future of the industry dynamics or demand that was weaker than expected?

Emmanuel Rosner:

Okay, that's helpful. And then, I guess more broadly for the overall business, just clarifying your net cost reduction target of $2 billion. This is, I assume this is before any labor cost inflation expected from the new contract. But can you please clarify this? And assuming that this does not include that inflation in the net reduction, what sort of actions are you contemplating to try and offset that labor cost inflation? What could be done above and beyond the $2 billion to offset any additional cost increase?

Emmanuel Rosner:

Great, thank you very much.

Adam Jonas:

Hi, good morning. Mary, you've acknowledged for some time that the General Motors share price is not really getting any credit for the cruise business. I think many would argue that at $29 a stock might even be implying a negative value for cruise, which I think you'd reckon would be pretty ridiculous. So, my question is, besides continuing on growing and executing on the business, I know we're going to learn a lot in the next year. Is there anything else that your management team or board could possibly do to unlock value for the cruise business?

Adam Jonas:

It's really amazing to see the growth in San Francisco. I know people that use it every day. Just a follow-up for Paul, you guys have been very specific, I think within a range at least of a 2025 EV target of the mid to high single digit without IRA. You're obviously not disclosing where EV margins are today. So, I'm not going to press you on that because you would have disclosed it. You're choosing not to. But I think in some of your comments, if I heard you correctly, Paul, you said you're not doing it today because of the labor situation or you know until you get the clearer picture on labor but when we get through this standoff with the UAW, can we expect that you will be specific of what the starting point is in the next year? So, we could understand the delta from how loss-making the EVs are today clearly they're loss making but had to put a number on it, so that investors can have greater transparency the delta. Is that something you can commit to please?

Adam Jonas:

Thanks, Paul.

Operator:

Thank you. Our next question comes from James Picariello with BNP Paribas. Your line is open.

Paul Jacobson:

Yes, good morning, James. So, in terms of incentive strategy, like I said in my prepared remarks, I think the team deserves a lot of credit for really transforming the approach and the go-to-market strategies, not just around incentives, but how we market the vehicles and really across the board that has been a huge contributor to some of the profitability that we've had on the backs of the strength and the consumers and the products that we're producing across the board. So, I expect that strategy to continue. Certainly as we looked at quarter-end, inventories had trended a little bit higher, and of course this varies on a product-by-product basis. And we're watching that very closely in partnership with our dealers to try to make sure in light of the work stoppage that we are getting vehicles to market where we have them. So, we're going to continue to manage that very tactically across the board, but everything that we're seeing in the demand set right now is pretty strong for our vehicles, and we expect that to continue through the rest of the year.

Paul Jacobson:

Yes, it's a little early to get into that. We're in the midst of our budget process right now, but what I would say is we have seen some logistics and delivery pressure that we've talked about before, particularly with vehicles coming into North America from Mexico with rail challenges, et cetera. So, I expect there will be parts where there's some inflationary pressure, but as we've said over the last couple of years, the amount that we spend on expedited logistics, et cetera has been coming down as the chip shortage and some of the supply chain shortages have been tempered from the peaks in 2021 and 2022. I will say that there's a bit of concern on my mind in terms of the supply chain's ability to ramp up after the work stoppage. Obviously, we're focused on getting this finalized as quickly as we can. But it's important that we don't end up in a situation where we can't ramp up to full production because the supply chain has to rebuild, et cetera. So, we're watching that closely and making sure that we're in a position, but more to come on 2024 as we work through that and work through the budget.

Operator:

Thank you. Our next question comes from Dan Levy with Barclays. Your line is open.

Mary Barra:

Well, Dan, I appreciate the question. We really want to focus on both, but it's got to be profitable growth. When you look at the EVs and even our ICE vehicles, I just mentioned that the Trax 50% of the customers for the new Trax are new to General Motors. So, from an EV's point specifically, we think that along the coast where EV adoption is higher, that's going to be a growth opportunity for us over the next several years. And we're going to just focus on continuing to have winning ICE and winning EV products that people want to buy. And so, I don't I felt like your question is saying, are you just going to shrink? And the answer is no. That's not our intent. Our intent is to be profitable and then grow and expand, and we think we have the opportunity to do that.

Dan Levy:

Great. Thank you. And then, second question, I wanted to just go into the dynamics behind the battery plants. Thank you for the commentary earlier that you're starting to run at capacity on Lordstown. Spring Hill that sounds like that's a slight delay. I think that was just the launch this year staying at 2024. Lansing is after that. Maybe you could just give us a sense on where the other two battery plants stand? And to what extent is the gating factor more on supply versus more so listening to the near-term demand. And if you need to, you can delay some investment to ramp on the other two battery plants?

Dan Levy:

Great, thank you.

Colin Langan:

Great. Thanks for taking my questions. The UAW made a big announcement -- big deal about the concessions at the battery plant. Just wondering if you have any color there because I was a bit surprised because that's in a joint venture, so I wasn't sure how you actually could give concessions. Any color on what the nature of that agreement is and how you're able to kind of come to terms with them there?

Colin Langan:

Got it. Just we're still in early days at EVs. There seems like demand is eased already and it's great that you have the flexibility to kind of switch between EV and ICE, but the regulations in the U.S. kind of push easy at least at some point in the future, do you think there's any change in the tone of Washington of potentially pushing out some of those targets, doesn't it become a bit of a challenge of consumers aren't interested in buying EVs and you're just the only way to sell them would be to hit your margins, right?

Colin Langan:

Got it. All right, thanks for taking my questions.

Operator:

Thank you. Our next question comes from Mark Delaney with Goldman Sachs. Your line is open.

Paul Jacobson:

Yes. Good morning, Mark. So, what I would say is it's a little bit of a step function, right? So, as we build a plant or transform a plant, we've got to fill that up to maximize efficiency, so the decision to defer Orion is really an example of not rushing to build that full infrastructure before we know that we can fill it up. So, ultimately it leads to more of an efficient transition. So, what I would say is we've got good capacity at the facilities that we've already transformed and we're working to scale those to that capacity as quickly as we can. So, it remains a big part of it but I think you're going to see a little bit of step changes through the transformation as we bring that incremental capacity online, but that's part of our plans, it's all rolled into the targets that we've outlined on our ability to hit the load of mid-single-digit margins on EVs in 2025 and then grow from there.

Mary Barra:

Well, if we first start with the GMI market X China, again, we see a really strong improvement across all of the countries that we're in from South America to the Middle East to Korea et cetera. We're going to continue to focus on and the -- one again it's operating disciple. It's also having the right products for those markets and understanding in some cases especially in markets like South America where we price for what's happening from a current foreign currency exchange perspective. And we are seeing the products because of the strength of them hold up. So, very pleased with where the GMI markets are. And as you focus on China, China is still -- we are looking for potentially a modest recovery continuing into Q4. But the real focus for General Motors in China is to make sure we get our Ultium products out there from a Buick and a Cadillac perspective. And then, also focus on the right products from an SGM Wuling perspective. And then, remember we are also expanding for premium import. And we think those three initiatives are going to position us well even in uncertain market that we are facing in China that gives us a lot of optionality at the -- I'll say the entry level on value part of the market, the mid part of the market, and then at the top part of the market.

Operator:

Thank you. I would now like to turn the call over to -- back to Mary Barra for closing comments.

Operator:

Thank you. That concludes the conference call for today. Thank you for joining.

Operator:

Good morning, and welcome to General Motors Company Second Quarter 2023 Earnings Conference Call. During the opening remarks, all participants will be in a listen-only mode. After the opening remarks, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, the conference call is being recorded, Tuesday, July 25, 2023. I would now like to turn the conference over to Ashish Kohli, GM Vice President of Investor Relations.

Mary Barra:

Thanks, Ashish, and good morning, everyone. Our operating results continue to demonstrate strong growth, thanks to an incredible customer response to our new trucks and SUVs around the world and strong execution of our business plan by the GM team, our dealers, and suppliers. Together we delivered $3.2 billion in EBIT adjusted in the second quarter, including an $800 million charge for new commercial agreements we have with LGE and LGES. The charge reflects the conscious decision we made during the Chevrolet Bolt EV recalled to serve our customers in ways that go beyond traditional remedies, and we're taking new steps that will reduce our costs and improve our margins over time. We'll provide more details about EV margin improvement and IRA benefits at the Investor Day in November. Our momentum is broad-based. Year-over-year, we have now delivered four consecutive quarters of higher retail market share in the U.S. and our total share was up almost one full point in the first half, with strong pricing and incentive discipline. We lead the U.S. industry in both commercial and total fleet deliveries calendar year to date. We now have led the U.S. industry in initial quality for the second year in a row. We are focused on strong cost discipline and we are taking additional steps to lower our capital spending. All of this impacts the bottom line, so we are raising our full year earnings, free cash flow, and EPS guidance for the second time this year. We now expect full year EBIT adjusted earnings to be in the range of $12 billion to $14 billion up $1 billion from our guidance. Adjusted automotive free cash flow is now expected to be up $1.5 billion in a range of $7 billion to $9 billion, and EPS is now expected to be in a range of $7.15 to $8.15 per share. The actions we are taking to be more efficient are also having an immediate effect on capital spending. We now expect capital spending in 2023 to be in the $11 billion to $12 billion range, which is about a billion less than the high end of our prior guidance, and we are working on more reductions. This guidance assumes that we successfully negotiate new labor agreements without work stoppage. Our results in our new guidance underscore the strength of our products today. Last quarter we talked about new vehicles we're launching to support strong margins. All of them are connecting with customers. At the higher end of the pickup market, the GMC Sierra 84 and Denali models are now 70% of heavy duty retail sales. Premium models also account for more than 70% of sales for the new GMC Canyon mid-sized pickup. For the Chevrolet Colorado, our high performance off-road models, the Z71 Trail Boss and ZR2 represent more than half of retail sales. The new Chevrolet Trax is also off to a very fast start and it's driving solidly profitable growth. In the U.S., we delivered more than 20,000 Trax in the second quarter and we expect that to keep growing. Half of these customers are new to General Motors. All of these new vehicles help us deliver more than a $1,600 per unit increase in the ATPs U.S. compared to first quarter, with flat incentives and essentially flat inventory. We have the largest ATP increase in the industry by far. The other growth products I highlighted last quarter is Chevrolet Montana in South America and the tracks in Korea also continue to build momentum. The Montana is our first compact pickup for the Brazil market and in just four months it has earned one third of the segment. We're now expanding distribution to other markets in South America. In Korea the Trax is an unqualified success just like it is in the U.S. Pricing is strong and has earned more than 50% market share in its segment and two thirds of the customers are new to GM. These hits in the great work the team has done on cost have us on track to deliver significantly higher EBIT adjusted in GM International this year excluding China equity income. Looking ahead we have several launches and growing segments around the world that will keep our momentum going. In North America these include the 2024 Chevrolet Traverse, which we revealed earlier this month. It goes into production in Lansing, Michigan late this year. In the EV market, we achieved our target to produce 50,000 electric vehicles in North America in the first half. About 80% were the Chevrolet Bolt EV and EUV platform, but the Ultium platform production is increasing. We've had more than 2,000 customer reserve GMC Hummer, EVs and Cadillac LYRIQ in transit to dealers at the end of June. With both cell and vehicle production increasing, we continue to target production of roughly 100,000 EVs in the second half of the year and will continue to grow from there. Demand for our EVs remains very strong because the Ultium Platform is purpose-built for electric vehicles and it does not force customers to compromise on style, performance, utility, range or towing. We have experienced unexpected delays in the ramp because our automation equipment supplier has been struggling with delivery issues that are constraining module assembly capacity. We are working on multiple fronts to put this behind us as quickly as possible and things are already improving. For example we have deployed teams from GM manufacturing engineering to work on site with our automation supplier to improve delivery times. We've also added manual module assembly lines and we're installing more module capacity at our North American EV plants beginning with factory zero and spring hill this summer; Ramos Arizpe in the fall and CAMI in the second quarter of next year. And to address pent-up demand among our Hummer EV customers, we are planning to increase second half production by thousands of units. In the meantime Ultium Cells LLC is delivering great quality and production is ahead of schedule. Looking ahead the next phase of our EV acceleration is coming into sharper focus. For example we have now secured more than half of our 2030 direct sourcing target for many critical raw and process materials we need with significant on-shoring. During the quarter, this included an expansion of our Cathode Active Material joint venture in Canada and an investment to bring manganese sulfate processing to a new facility in Louisiana. As with other recent announcements, these agreements provide us with significant off-take and favorable commercial terms, which is a key component of the EV margin improvement strategy we outlined last quarter. Now let's talk about fixed costs. Due to the success of the $2 billion fixed cost reduction plan we announced earlier this year, we have identified another billion in fixed costs that we will deliver over the same 2023 to 2024 timeframe. This new action will offset about $1 billion in depreciation and amortization, which means that relative to 2022, our automotive fixed costs will be down $2 billion on a net basis as we exit '24. Key components include about $1 billion from the voluntary separation program, another $800 million in reduced sales and marketing expense and the remainder coming from significant reduction in all areas of the business, including engineering expense, travel, and administrative costs. We're not done by any stretch. Mark and I have asked Norm de Greve, our new Chief Marketing Officer to take a fresh review of our spending and put us on a course to deliver world-class levels of marketing efficiency. Our product teams are also embracing a strategy we call winning with simplicity that will reduce design and engineering expense, supplier cost, order complexity, buildable combinations, and manufacturing complexity. For example, our teams are applying even greater discipline around our color and trim pallets, the way we package features and options and reuse. For our EV and ICE vehicles, we are targeting a 50% reduction in trim levels through a smart bundling of customer features and options. This results in fewer part numbers to simplify marketing, engineering, manufacturing, while maintaining the best features customers want. Yet we are maintaining market coverage for all major segments and price points and the U.S. will compete in ICE and EV segments that represent about 90% of the industry volumes in 2030. Our next generation full-size pickup and SUVs will show just how powerful winning with simplicity will be. We are investing significantly less capital and expect to deliver vehicles that will have much higher levels of customer-facing content and even better margins than today. Another great example of a capital efficient program is the next generation Chevrolet Bolt that we plan to execute. Our customers love today's Bolt. It has been delivering record sales in some of the highest customer satisfaction and loyalty scores in the industry. It's also important source of conquest sales for the company and for Chevrolet, more than 70% of customers are new to GM. We will keep some momentum going by delivering a new Bolt that delivers what customers have come to expect, which is great affordability, range and technology and we will execute it more quickly compared to an all-new program and with significantly lower engineering expense and capital investment by updating the vehicle with Ultium and Ultifi technologies and by applying our winning with simplicity discipline. We will have more details to share soon. Now, before we move to Paul's comments and Q&A, I'd like to invite Kyle to update you on the important steps Cruise has taken to scale its business and make it profitable. So, Kyle over to you.

Mary Barra:

Thanks, Kyle, and thanks for sharing the progress that the Cruise team is making is just incredible. So, before we move into Paul's remarks, I'd like to address our negotiations with the UAW, which just kicked off and with Uniform. First and most importantly, I want to say how proud I am of our talented and experienced manufacturing workforce. There's a direct connection between their hard work and our success, and we have a great future ahead of us. As we've talked about today, the future includes continued investment in strategic ICE vehicles, like the full-sized trucks, full-sized SUVs, and mid-sized SUVs. Our future also includes retooling existing assembly plans and upscaling the team as we transform the company to grow rapidly in EVs. We have a long history of negotiating fair contracts with both unions that reward our employees and support our long-term success of the business. Our goal this time will be no different. That's the best possible outcome for all of our employees, plant communities, dealers, suppliers, and investors, and we look forward to constructive talks. So, thank you and now let me turn the call over to Paul.

Operator:

[Operator Instructions] Our first question comes from the line of Rod Lache with Wolfe Research. You may go ahead.

Mary Barra:

Thanks, Rod, for the question. I would say we're doing a lot in that space. Our -- what we said last year at Investor Day, it gets low to mid-single-digit margins for our EV portfolio by 2025 remains unchanged. Even with all the things that are moving in that, we're committed to getting there. I think when you look at the incredible cost discipline that we're demonstrating right now as well as winning with simplicity. It's just going to take cost out of every part of the business and make everything more efficient. And we think actually be better from a consumer perspective. . As it relates specifically to manufacturing costs, there's quite a bit of work. We have a special team that is looking at how do we continue to drive efficiency, especially in the body shop. And of course, the battery team is working on how do we take cost out from an LTM perspective with what we've learned by now having that up and running. So I think there are several areas we're working on. We intend to have industry-leading margins, and we're not going to stop until we get there and we still have a lot of levers to pull. I don't know, Paul, if you want to add anything.

Rod Lache:

Okay. And just a follow-up on that. Just it sounds like you're not changing your expectations for mid-decade pricing. Just wanted to clarify whether there's been any changes based on observations that you've made on capacity growth and competitive actions? And then secondly, can you just maybe elaborate a little bit on this $800 million LG charge? And what that actually means you alluded to lower cost, but it wasn't clear whether that was a one-timer or was that launch cost or something else?

Operator:

Our next question comes from Itay Michaeli with Citi.

Mary Barra:

Yes, we so we're not walking away from any of the targets we put out, whether it's 100,000 in the second half of this year, leading them to 400,000 by middle of next year. And what you're going to see in the second half of this year and then really crank up in the first half of next year is a lot more Ultium-based product. . We were surprised the supplier, we thought they were in better on track for the delivery that they had. So we have seen in our teams to help them get the automation up and running. We've already seen a lot of improvement from I'll say, the last four to six weeks, we're going to continue on that path. But to derisk it, we've also added additional lines because we don't want module production to gate our launch of all the products that we have coming in the second half of this year and continuing into next. And we know we're going to need that module assembly capability anyway as we continue to grow beyond the 400,000. So disappointing, I've personally been reviewing the lines. As you know, I've spent time in ME earlier in my career running. So we'll get this behind us. I'm very confident of the teams we have in place. So you'll see it improve as we get through I would say, into the end of third quarter, beginning of fourth quarter, and then I think it will primarily be behind us by the end of the year, if not a month or so sooner.

Mary Barra:

Yes. So I think from the recent competitive action, if you look at the Silverado work truck, the range, the telling capability, the overall performance. It's a true truck. So when people aren't having to make compromises or trade-offs. So I'm very confident, and we have strong demand for the Silverado work truck as well as the RST, which will be -- that's from a retail perspective out toward the end of the year. So I'm very confident with where we are in the pricing for the Silverado EV. And that's -- your first question, Itay, was...

Mary Barra:

Yes. Again, we're seeing with LYRIQ, we're seeing with the HUMMER truck and SUV, Frankly, the Bolt, I mean these vehicles are getting to the dealers' lots. And if they're not already sold, the -- they've got a list of people who are waiting for them. So -- and we still have a lot of reservations and people who put deposits down. The churn on that is very, very low. And for the rare customer who decides they're not going to wait for the vehicle, there are several more waiting in line. So again, we're very confident. And it's not by accident. It's because we -- there's been some criticism that we should have been faster with our EVs. We're going as fast as we can, but we wanted to make sure we were leveraging a platform that's going to give us efficiency with Ultium and that consumers weren't going to have to compromise. So I'm very confident with the product portfolio we have coming, the pricing and the demand.

Mark Delaney:

GM had strong pricing and mix again in the second quarter even as supply and inventory for the industry are gradually recovering and borrowing costs for consumers are higher. You talk about how you expect the market environment to evolve in the second half of the year? And are there any levers for GM in particular in order to help to sustain some of the strong core automotive performance that you've been seeing? .

Mark Delaney:

That's helpful. And on Cruise and good to hear all of the updates on the progress that Cruise is making. I recall you mentioned Cruise vehicles being safer by 54%. Maybe you can elaborate a bit on how you're measuring the safety of the vehicles that Cruise has with its AVs relative to a human driver. And are there any specific features on the origin as it relates to safety that you could point out as perhaps drivers of additional improvement going forward?

Operator:

Our next question comes from John Murphy with Bank of America.

Paul Jacobson:

Yes. So certainly, that has been part of what's been working for us for the first six months. And despite that higher capacity utilization, you're seeing inventory remaining pretty much flat with a lot of the inventory growth or inventory still strapped in that in-transit bucket. As vehicles are making their way to the dealers, we see them still turning very, very quickly, and that's allowed us to continue to lean into the pricing and make sure that we've got consistent incentive performance. And I think you've seen some outperformance from GM over the last several months in that space compared to the industry as a whole. So I think we've shown a willingness to balance supply with demand as we did in the first quarter, where we cut some of the capacity utilization intentionally to make sure that we kept margins flat or kept -- sorry, inventory flat and margins strong. So we're going to continue to watch that. But as we've seen, it's provided tremendous benefits for us so far, and we're going to continue to manage it that way.

Paul Jacobson:

Yes, it would be mostly variable costs. But when you think about where the company is being utilized, it's at the higher end now, with the demand that we've seen for the higher trim levels on the full-size trucks, SUVs, et cetera. So we might not be able to do it in a linear way. where you've got some mix if you're increasing production on some of the lower-priced smaller vehicles across the board. So we watch that and try to maintain as much balance as we can.

Paul Jacobson:

Yes. I think you captured it well, John. Obviously, we've got a lot of pent-up demand from the last few years where fleet took the brunt of some of the capacity challenges due to COVID and due to the semiconductor challenges. In fact, if you look at the first half of the year, year-to-date, it was the best fleet performance since 2007, largely fueled by the commercial side of the business. And as we've said before, the fleet business is very different than it was in the past, where it was very, very thin margins in an effort to drive volume. Our fleet business is performing very, very well with margins similar to the retail side. So the business continues to perform, the team is doing a great job, and we expect that to continue for the short and medium term.

Paul Jacobson:

It's contemplated a guidance raise itself. It wasn't contemplated as we came into the year.

Paul Jacobson:

Yes. Like we said, the business continues to perform going back to what we said in the first quarter as long as the consumer held up and strong, we expected that we'd be able to surpass the guidance we put out and that certainly what you've seen through the second quarter and what we can see July month-to-date has held up very well as well.

Adam Jonas:

So a question on the new Bolt. I think in your prepared remarks, you said it will be updated with Ultium and Ultifi technology. Sorry to be pedantic here, but I just want to know, are you using attributes of Ultium? Or is this a full ground-up Ultium platform?

Adam Jonas:

Okay. Just a follow-up. Audi announced it's going to use SAIC's next-gen EV platform for China and possibly, elsewhere. Since SAIC is your biggest Chinese JV partner. I'm just wondering, could GM also consider using SAIC's EV platform to address the specific needs of the Chinese EV consumer? Or is the strategy there kind of Ultium only for China? Like are you open to a potential use of another non-Ultium platform even if you could adapt some technology.

Operator:

Our next question comes from Dan Levy with Barclays.

Mary Barra:

As there was no market-driven slowdown, this was really us looking and making sure we had the absolute right portfolio entries. And as I mentioned, for both EV and ICE we're going to -- by 2030, we'll be covering 90% of the segments, but we looked and found ways to do that more efficiently. The Bolt is a good example, instead of doing an all-new vehicle really leveraging the capital that's already there and the benefits we have by having the Ultium platform. And then I think the winning with simplicity, in the past, we've gone in and done complexity reduction. But if you don't do it as you design the vehicle, you drive a lot of capital in vendor tooling and in the plant. And frankly, this is something we've been working on for the last several months. Mark Reuss is leading this initiative with the marketing and manufacturing teams. And we are finding, there's a lot of ways to take cost out of manufacturing and from a capital perspective as well. So it's pretty significant. You'll hear and see more about it. But just the comment I made about getting rid of trims that directly correlates to spending less capital, especially on the vendor tooling side.

Mary Barra:

Yes. I would say if you go back, the Bolt's been in market for several years now and actually had very good warranty performance. Remember, this was two specific manufacturing defects that have occurred at the same time, caused the issue on the Bolt that was in the LG ES process. We -- our team worked hand-in-hand with them. We understand exactly what happened. When you look at what we're doing at the Ultium plants from a cell perspective and the amount of error proofing and the fact that we're following the quality process and have the traceability that if there were an issue, we wouldn't have to do the whole population. All of that's been put in place. So I think all those lessons learnt. Then when you look at what we've got from an Ultium perspective already and what we're seeing, I think we're very confident that we're going to see strong or I would say, good warranty performance, strong warranty performance on these vehicles because, again, using General Motors manufacturing quality systems and processes across the board. So I don't think that because it's new, I think some of the things we're struggling with to start up with our suppliers is the modules, that's not going to necessarily drive a quality issue. Again, we have quality checks and processes and using the appropriate error proofing to know that when we have a cell, when we have a module when we have a pack, it's measured and checked for quality.

Chris McNally:

I wanted to quickly go back to the $30 billion autonomous elephant in the room. And just a quick tech question for Kyle. So Assuming that the San Francisco policy update goes in sort of the industry's favor, do you just have a broad sense for when the 24x7 rollout will happen in San Francisco quarter, the consumer rides, I know there's internal testing where you're blanketing the city, but just curious on the consumer side. And then just how many AVs would it take to sort of blanket a city like San Francisco to have a disruptive service similar to Uber. Can you do it with under 1,000 to 2,000 origin?

Chris McNally:

Much appreciate it. And then just a high-level question on the strategy for whoever comes to capital funding. Mary, it looks like there's about 3-plus type quarters before you'd have to sort of consider funding Cruise? Just any thoughts on internal versus external funding given the environment.

Operator:

Our next question comes from Tom Narayan with RBC.

Mary Barra:

We definitely see the Level 2 plus product as revenue-generating and profit-generating and very pleased with what we have with Super Cruise, and we're going to continue to enhance as we move forward. And we'll have more to share about this when we get to Investor Day in the fall.

Mary Barra:

I think as we continue to grow in miles, but first of all, we're not arguing with the regulators. We're talking to the regulators and sharing the information, which we've been doing for several years now. And so they understand how we're measuring safe with what Kyle referred to with what we did with outside groups and continuing to share the information. I think it's very goal aligned with what the Department of Transportation and NYCTA is looking for us to improve road safety. So of course, we're going to continue that dialogue, share the information, and we're very optimistic of where we're headed. .

Ryan Brinkman:

Okay. Great. It looks like the China equity income in 2Q was similar to 1Q, rounding to $21 billion, down from sort of $0.2 billion a year ago and of course, $0.5 billion quarterly pre-pandemic. What is required, do you think to restore China profitability to where you would like it to be, I don't know, from a sales or a share or perspective? It seems like you've got really great traction in that market for lower-priced EVs, such as for the Wuling brand. How should we think about your strategy for electrifying your high-end brands in China? Is that the catalyst do you think to higher profits in that market?

Ryan Brinkman:

Okay. Great. And then just maybe lastly on the Bolt charge. Is the charge driven more by something differently being done for the consumer versus what was previously communicated? Or is it more of a like rejiggering of the cost-sharing agreement between GM and LG for the previously announced actions?

Operator:

I'd now like to turn the call over to Mary Barra for closing comments.

Operator:

That concludes the conference for today. Thank you for joining. You may disconnect.

Operator:

Good morning, and welcome to General Motors Company First Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, the conference call is being recorded, Tuesday, April 25, 2023. I would now like to turn the conference over to Ashish Kohli, GM Vice President of Investor Relations. Thank you. You may begin.

Mary Barra:

Thanks, Ashish, and good morning, everyone. Thank you for joining us. Paul, Kyle, Dan and I are glad to have this opportunity to discuss our first quarter results with you. Once again, we delivered strong earnings, and I appreciate the efforts of everyone involved, including the GM team, our dealers, our suppliers, our unions, that all helped us meet strong customer demand for our products.

Mary Barra:

Well, thanks, Kyle. And now I'm going to turn it over to Paul for a deeper dive into the quarter.

Operator:

[Operator Instructions] Our first question comes from John Murphy with Bank of America.

Mary Barra:

Yes. I would just add, John, that we also -- you have to have the right portfolio for the market. We're doing really well at the very high end, especially in trucks that Paul mentioned. But having the Trax and the Envista, the Buick Envista at affordable levels, and we've been able to do that profitably because of the work we've done to reduce complexity leverage the scale of components across the vehicles.

John Murphy:

And maybe if I could just ask one follow-up. The CAPU of 96% in North America that was outlined in the financial data, it was based on a 2-shift straight time. That's given where absolute lines are. That's actually much higher than I would have thought. Taking that higher is going to require adding extra shifts. I mean, how do you do that? And how do you sort of balance sort of this maybe step up in volume that you might execute on later this year?

Paul Jacobson:

Yes. So John, it obviously varies by vehicle type and where we are, and we've been running pretty much as flat out as we can on full-size SUVs and pickup trucks over time. So there's a little bit of the margins, but that's something that we've got to really manage aggressively across the board. So there are opportunities to be able to do that. Should we see demand pick up. But balancing it to demand, I think, is the most important piece of that as we can. So if we need to take down to moderate some of the growth, I think you'll see us do that. Opportunities to make up for it are really centered around making sure that we've got those shift capacities as well as the parts and components and logistics to be able to move the inventory when it's finished, too.

Paul Jacobson:

Absolutely.

Itay Michaeli:

Congrats. just 2 questions for me. First, maybe, Paul, I was hoping you could maybe talk a bit about the -- how we should think about the cadence for North America earnings for the rest of the year, particularly with the strong start you mentioned in April, an in terms of the production and any product ramp that you'll have for the trucks?

Paul Jacobson:

Yes, thanks for the question. So on the cadence side, I think we alluded to on the full year guidance. The original guidance was that we thought the second half was going to be more challenging. So as we lap the price increases of last year as well as building in a little bit of time, if there are any downturns in demand, that's where we kind of see it. So I would say it's a little bit of a first half, second half story. We still got time to be able to manage the second half. We're watching it closely. As we said in the prepared remarks, April has been very strong for us as well and has continued to be strong. So I would say that the risk still lies a little bit in the second half, but it's one that even with that out there, we felt comfortable raising our guidance today.

Kyle Vogt:

Sure. Yes, I can do that. So we are in this rapid scaling phase right now. And on the safety side, our performance is strong. We're very happy with how that's going. We'll have some more to share on that soon. But for scaling, we've almost doubled our fleet size just in the last quarter, and we expect that kind of rate of improvement to continue. And as we do that, it surfaces just one bottleneck after another that we continuously burn down and move out of the way so we can keep scaling up the fleet.

Rod Lache:

It's great to hear the comments about changing the EV margin narrative. I'm hoping you can maybe just broadly address the developments that we're seeing in North America and China in the EV market. It does look like competition is pretty aggressive in both areas. So I was wondering if anything that you're seeing is surprising to you? And are there strategic adjustments that you are making as you kind of observe the market dynamics in both markets, North America and China? Maybe you could just provide a little color on how you adjust strategy in real time.

Rod Lache:

Great. And just kind of keying off of the comment on costs, can you talk a little bit about the components of that $1 billion cost increase that we saw in North America? And obviously, over time, just given the amount of spending on growth initiatives, your structural costs are going to go up, certainly through mid-decade. Can you just provide some thoughts on how we should be thinking about the trajectory of that and the extent to which that changes breakeven points in the business?

Rod Lache:

Just any color, Paul, on the kind of intermediate term outlook for structural costs? Is that something that you think can be sort of held at this level with the amount of capital that you're spending and the growth initiatives, who would think that there'd be some uplift to that.

Operator:

Our next question comes from Dan Levy with Barclays.

Mary Barra:

Well, I think what you saw in the first quarter, when you look -- and our cash generation is cyclical as we move through the year, but we're following our capital allocation framework at, first, reinvesting in the business. And we think we've optimized that to have the right products, both from an ICE and an EV perspective as we make this transformation, along with the focus that we have on some growth businesses like BrightDrop and Cruise that are -- we really think are going to lead to tremendous growth and margin expansion as well.

Dan Levy:

Great. And then the second question, I know you've laid out the 2025 low- to mid-single-digit EV margin target. One of your competitors obviously has put out -- they've laid out more clearly where they are in EVs today. I don't know if you're in a position to disclose more thoroughly where you are in terms of the contribution margin standpoint or on an absolute EBIT standpoint. If so, that would be great. But beyond that, in light of the current environment, I think this touches on Rod's question. You have this 400,000 EV target. But given the ongoing cost dynamics, are you going to be nimble with that target or balancing profit dynamics with volume? Or is that purely going to be a function of the supply, and you're going to be very firm on that 400,000 target?

Operator:

Our next question comes from Adam Jonas with Morgan Stanley.

Mary Barra:

Yes. Adam, I mean, I think we're going to work toward profitable growth. I'm not going to say, as we're sitting in 2025, second, third or fourth quarter, that we're going to do this or that, depending on the situation. When you look at the portfolio that we'll have, and I believe it's the right portfolio, we're not duplicating our ICE portfolio. We are very targeted in having the right vehicles from different price points. Because to get to a point where there's that many EVs being sold in the U.S., recognizing competition as well, you have to meet the customer where they're at from an affordability perspective.

Adam Jonas:

And I just had a follow-up for Kyle. A lot of tech companies are undergoing cost saving or restructuring kind of actions to give themselves a bit of a lower breakeven point, maybe some more runway given the changing capital markets environment. Now you obviously you have the luxury of having GM as a partner on a lot of levels. That's a huge advantage. But I'm just wondering if you also would have identified some actions that could be taken to maybe reduce that burn rate going forward in a new environment.

Operator:

Our next question comes from Dan Ives with Wedbush.

Mary Barra:

Great question. And I would say it's multiple that I've been extremely pleased with the organization on how we keep finding ways to drive efficiency. When I talked about the fact that our screen configurations were reducing by 60%, so really dialing in on how do we reduce complexity on EVs, by the way, it benefits ICE as well. To be able to have the right models with the right features and then the ability to really start taking advantage of the software platform, that's what's really being rolled out now that we have Ultium and Altify. And so that is something that I'm really proud of the team of what they're doing.

Emmanuel Rosner:

My first question, Paul, I was hoping you could put maybe a little bit of a finer point in terms of what are the puts and takes you're assuming for the balance of the year in terms of, I guess, revenue and cost. I mean it seems, based on your previous comments, maybe an assumption of some moderation in pricing in North America. But then I think your costs should be going down as a result of some of the headcount reduction. Is that directionally the right way? Are there any other important pieces?

Emmanuel Rosner:

Okay. And then I guess as we're trying to figure out your progress towards some of the EV margin targets, and I understand you're not prepared to share some of the current economics. Are you able to tell us, I guess, what portion of the company's CapEx and engineering is currently spent on EV? And what would be the targets for that EV share of CapEx and engineering maybe by mid-decade?

Operator:

Our next question comes from James Picariello with BNP Paribas.

Paul Jacobson:

So fair question. As we said, when we launched the program last quarter, 30% to 50%, we expected to get in the first year. We're now guiding to the high end of that range. So I think we'll come in about 50%. That ultimately is going to offset some of the pressures that we've seen. So we may not see a full $1 billion come off of structural costs. But certainly, we'll get the savings from where we were going forward.

James Picariello:

Got it. That's helpful. And then as we think about fleet mix and the general rule of thumb for the U.S. -- for the industry in the U.S., I think the fleet channels have been starved of, of product for almost 3 years. Is this potentially helping the profitability of your fleet mix of the industry's fleet mix for at least this year, just thinking about that dynamic?

Operator:

Our next question comes from Ryan Brinkman with JPMorgan.

Mary Barra:

So great question. And from a China perspective, I think COVID definitely had an impact, and COVID across the country very impacted from a Shanghai-specific perspective, that impacted our business. But I think what is really important for us right now on the low end, we need to build on the strength we've had with the Hong Guang Mini EV. And we're repositioning with SGMW, the Baojun brand to be the right -- have the right brand characteristics from an EV perspective. And so that's very important that we execute that in the Wuling -- SGM Wuling joint venture.

Ryan Brinkman:

Okay. Great. And then just lastly, with regard to the reiterated low to mid-single-digit EV margin target in 2025, which I think is encouraging in light of the recent pricing action, this target continues to exclude any benefit from the energy tax credit portion of the Inflation Reduction Act. When you introduce that target -- '25 target at the EV Investor Day last November, it excluded the benefits in part. Because I thought that the act wasn't yet law and there were uncertainties about whether the credit would be refundable against the -- applicable against the manufacturing cost or if it was only against the taxable income, and then possibly maybe you had yet to finalize negotiations with your JV battery partner, LG Energy Solution, how those credits would be shared.

Paul Jacobson:

So Ryan, I'll take a shot at that. I think when you look at the guidance that we gave around EVs back in November, yes, we drew sort of 2 lines around it, just to help show you where we're going. So the first was the low to mid-single digits without any tax credits. That's to make sure that you know that we're focused on the vehicle profitability. We've obviously are in this for the long term, and we've got to make sure that we're hitting goals for the long term, assuming that we get a normal world where maybe there aren't EV tax credits. So the vehicle program is one thing.

Operator:

Our last question comes from Colin Langan with Wells Fargo.

Mary Barra:

I'll let Paul talk about -- specifically about lithium. But when we look at the '27 through '32 targets what EPA has put out, we're still digesting them, understanding what it means, and we'll provide comment as appropriate. We do support continuing to increase to combat climate change. But we've got to dig into the details a little bit more on what's being put out there to make sure that we're -- this is being driven -- able to be driven by customer demand, because anything else is not going to be productive. And then Paul, you can talk about the lithium specifically.

Colin Langan:

Got it. And you're ahead of your $2 billion annual target for the next 2 years. I just wanted to check, does that incorporate the potential changes in the UAW contract, because that could sort of add some costs? And as also the guidance contemplate things like the signing bonus and stuff like that in terms of cash flow that might occur this year from the UAW contract?

Operator:

Good morning, and welcome to the General Motors Company Fourth Quarter 2022 Earnings Conference Call. During the opening remarks, all participants will be in a listen-only mode. After the opening remarks, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference call is being recorded, Tuesday, January 31, 2023. I would now like to turn the conference over to Ashish Kohli, GM's Vice President of Investor Relations.

Mary Barra:

Thanks, Ashish, and good morning, and thank you all for joining us this morning. I want to begin today's call by recognizing the General Motors team, all of our employees and including our dealers and suppliers. It takes experience, skill land teamwork to adjust to external factors like higher interest rates, commodity price increases and supply chain disruptions and deliver our commitments year in and year out. Our team rose to meet every challenge thrown at them in 2022 and they delivered record EBIT-adjusted and a year of first that really sets us apart from our competition. For exam, GM led the U.S. industry in total sales and delivered the largest year-over-year increase in market share of any OEM alongside record ATPs. This reflects the strength of our product portfolio including our clear leadership in full-size pickups and full-size SUVs, great quality, and improved availability. Chevrolet and GMC delivered more than 1.1 million full-size pickups, full-size SUVs and mid-size pickups in the U.S. which is about 350,000 units more than our closest competitor. Our commercial fleet business is another area where we gain considerable, profitable market share. The team has earned a business of more than 300 major commercial accounts over the last several years which led to our best year for commercial deliveries since 2006. The inflexion point was driven by our investment in mid-size and full-size pickups including our capacity expansions to build more crew cabs and heavy-duty pickups. Our growing portfolio of EVs will enhance our strong sales and share performance across the board because we are targeting the most popular segment at multiple price points. This year we will have nine EVs in the market in North America including the Chevrolet Bolt EV and EUV which saw record sales. In fact they were the bestselling mainstream EVs in the second half of the year and we plan to build more than 70,000 this year for North America and other markets. Quality is another area where our team deserves recognition. In the latest J.D. Power U.S. Initial Quality Study, GM improved while the industry went backwards. Not only did we get better, GM and the Buick brand led the industry. Chevrolet had six top-ranked vehicles and the Corvette was the highest-ranked nameplate in the industry. This commitment to satisfying customers and delivering industry leading quality, helped our eligible U.S. hourly employees earn record profit sharing totaling $500 million, which brings the three-year total to $1.2 billion. Looking ahead, we expect that 2023 will be another strong year for GM. We expect to deliver EBIT-adjusted in the range of $10.5 billion to $12.5 billion which reflects operating performance similar to 2022 when you include the normalization of GM Financial's results and pension accounting. Our guidance includes a total of $2 billion in cost savings in the automotive business over the next two years. The areas we are focusing on include continuing to reduce complexity at all of our products and reducing corporate overhead expenses across the board. I do want to be clear that we're not planning layoffs. We are limiting our hiring to only the most strategically important roles and we will use attrition to help manage overall headcount.

We are especially excited about the Trax and so are our dealers in North America, Korea and other international markets.:

The third generation, Chevrolet Montana pickup that we're launching in South America and Mexico starting next month, follows the same formula. The Montana's design is inspired by products like the Blazer and Trailblazer, and it will offer customers more room, the best combination of fuel economy and performance in its segment, and a comprehensive suite of safety features and an innovative reconfigurable bit. So let's talk about our growing EV portfolio. At our November Investor Day, we took you deep into the products and supporting strategies that will help us achieve solid EV profitability in 2025 and this is a breakout year for the Ultium Platform. Production at our Ultium Cells joint venture in Ohio is on track and the plant in Spring Hill will open later this year. Ultium Cells started hiring and training launch team members in October and they began equipment installation in November. These plants will help us meet pent up demand for the Cadillac LYRIQ. The GMC HUMMER EV pickup, and the BrightDrop Zevo 600, and it keeps our other EV launches on track. For example, BrightDrop continues to add new customers, including DHL Canada and they are on track to achieve the goal of $1 billion in revenue for the year. Excuse me. In April, we launched the Silverado EV work truck at Factory Zero for fleets. So we have opened up the order banks to begin converting initial demand for more than 200 customers into firm orders for 2023 production with the first deliveries in the spring. Interest is so strong that we believe demand will exceed supply in 2023 and into 2024. In the fall we will begin building the sold out Silverado RST First Edition, Chevrolet's flagship electric pickup, which will feature trailing capable super crews, four-wheel steering and a multi-flex midgate and up to 400 miles of range. We'll follow with other retail focused models in 2024, including the Silverado EV Trail Boss. This summer will also see the launches of the Chevrolet Blazer EV and Equinox EV. More than 40% of Blazer's reservation holders are new to EVs. Among the 60% who have owned an EV or hybrid, most are either Tesla customers or are our loyal Bolt EV and Bolt customers. What's common to everyone is they want an all-electric SUV that's stylish and roomy with enough range and fast charging capability to make it their daily driver, and they want it from a brand like Chevrolet with a proven record and reputation for quality. The Equinox EV has many of the same attributes and an even more affordable package, which makes it unique and another growth opportunity for GM. More than one third of the customers interested in the Equinox EV say affordability is their key consideration, and the latest data says nearly half live on the east or west coast or in Texas, which are all growth markets for us. This cadence of self-production and product launches combined with strong demand for the Bolt EV and EUV keeps us on track to produce 400,000 EVs in North America from 2022 to mid-2024 with the Ultium platform, volumes increasing significantly in the second half of this year.

Mary Barra:

Well, thanks Kyle, and now let me turn the call over to Paul, who is going to go into a detailed discussion of our results and our outlook.

Edition 1:

GM International delivered Q4 EBIT-adjusted of $300 million, flat year-over-year, as the team did an impressive job executing in a volatile environment. This included $200 million of equity income in China, down slightly year-over-year due to lower volume and pricing pressure, partially offset by cost actions. EBIT-adjusted in GM International, excluding China equity income was a $100 million, up slightly year-over-year and profitable in all four quarters. These consistent results were driven by favorable pricing and volume, partially offset by mix and commodity costs. I want to take a moment and recognize the transformation this team has executed over the last few years, achieving over $2 billion of EBIT-adjusted improvements since 2018. This was done by exiting unprofitable markets, strengthening the portfolio, leveraging our strong brands to significantly improve pricing and mix, all while simultaneously driving down costs. They've done amazing work as a team and they should be lauded for that. GM Financial delivered strong results with Q4 EBIT-adjusted of $800 million, down $400 million year-over-year, primarily due to lower net lease vehicle income and higher cost of funds, partially offset by growth in the retail and commercial loan portfolios. Used vehicle prices have declined but continue to run above the contract residual value with a Q4 off lease return rate below 10%. Overall portfolio credit metrics continue to be strong in part due to a predominantly prime credit mix with net charge-offs up slightly due to moderation and credit performance, but still running below pre-pandemic levels. GM Financial paid dividends of $1.7 billion in 2022, and we expect similar dividends in 2023. Corporate expenses were $400 million in the quarter, flat year-over-year as we continue to invest in growth initiatives and drive productivity. Cruise expenses were $500 million in the quarter, up $200 million year-over-year, driven mainly by modifications to equity awards resulting in an accounting change in compensation expense. Our optimism continues to grow based on the great progress Cruise made in 2022, and their plans for rapid scaling and operationalizing of the business will result in a modest increase in cost during 2023. Let's now look towards 2023 for GM overall, which I know is a key focal point for everyone. While the environment remains uncertain, at a high level I'm pleased to report that when you exclude the impacts of lower pension income and GM Financial contribution, we expect to drive consistently strong core auto operating performance in 2023. This continues the trend we saw in 2022 and highlights the strong execution throughout the organization. Our plan is to continue to prioritize growth initiatives such as Cruise and BrightDrop, while investing to accelerate our transition to EVs to take advantage of our vertical integration and local sourcing strategies. Assuming a 15 million total industry volume and under current conditions, we expect EBIT-adjusted in the $10.5 billion to $12.5 billion range, EPS diluted-adjusted in the $6 to $7 per share range, and adjusted automotive free cash flow in the $5 billion to $7 billion range. At GM Financial the strong credit performance in historically high used vehicle prices resulted in extraordinary results over the last two years. For 2023, we expect earnings to normalize in the mid $2 billion range. We expect volume and mix combined to be a slight tailwind with volumes up 5% to 10% year-over-year, and mix partially offsetting as we continue to increase production in the sedan, small SUV and crossover segments along with GM International volume growth. Regarding North America pricing, while we anticipate incentives will increase from the record low levels we saw in 2022, we expect this headwind to be partially offset by realizing the full year benefit of MSRP increases on many model year 2023 vehicles, particularly full-sized SUVs and trucks, as well as pricing we expect to achieve on our new launches in 2023. We're also anticipating pricing actions outside North America primarily to help offset FX headwinds. Overall, we see commodities and logistics costs as a slight tailwind. Our longer-term steel and logistics contracts, which help protect us from higher market costs over the last two years, renewed at higher rates in the second half of last year. This combined with the strategic initiatives to locally source battery raw materials is expected to largely offset the tailwind we're seeing from lower raw material prices on our spot and indexed exposures. The $1 billion lower pension income impacts our fixed costs. This non-cash item does not impact our core auto operating results, but will be a headwind when comparing year-over-year in 2023. As Mary mentioned, we are very focused on keeping automotive controllable fixed costs in check despite our growth initiatives, which is why we are announcing a cost reduction program to take out $2 billion of costs over the next two years. Included in our guidance is the expectation to achieve 30% to 50% of that in 2023 and the remainder in 2024. This initiative is the result of several factors and demonstrates our continued commitment to closely manage our operations through this transformation and achieve North American margins in the 8% to 10% range through 2025. We expect capital spend to be in the $11 billion to $13 billion range inclusive of $1 billion invested in our Ultium Cells JV. We continue to shift resources to EVs with around 75% of our product specific capital dedicated to EVs and AVs. Even with the increase in capital spending, we expect our adjusted free cash flow to remain strong in 2023. As we said back in November, we expect that clean energy tax credits will be a material tailwind for GM over time because of the work we've been doing on vertically integrating the supply chain. For 2023, we anticipate at least $300 million in EBIT-adjusted benefit and expect this tailwind to increase significantly over the next few years as our cell production ramps and our North America focused supply chain comes fully into place. We're closely monitoring the dynamic macro environment as well as customer demand to make sure we're appropriately matching supply with demand. We will take quick and decisive actions on both the supply and the cost side to actively manage the business. What gives us confidence in our 2023 and long-term objectives is the work we've already done to position ourselves for success, repeatedly executing on our commitments and our ability to manage through a very challenging and dynamic environment. With a compelling EV and ICE product portfolio, long-term supply chain commitments, extraordinary manufacturing capabilities, a strong balance sheet, and our amazing team, I'm confident we'll continue to enhance the customer experience and deliver compelling growth on both the top and the bottom line. Mary?

Operator:

Thank you. [Operator Instructions] Our first questions come from the line of Dan Ives with Wedbush. You may go ahead, sir.

Paul Jacobson:

Yes, good morning, Dan. I'm really proud of what the team has done. You know, our collaborative effort across supply chain finance, business development have led to a, what I think is the strongest portfolio of battery raw materials going forward. We've fully secured all of our battery raw materials through 2025 and as you can see from the announcement today with the investment in Lithium Americas and the supply that we'll be able to get from the Thacker Pass, we're making rapid improvements and increases in our battery raw materials for 2026 and beyond. That is core to our strategy. What we've done, we've talked about being creative because what we're really trying to do is to create a portfolio that is in it for the long-term. So whether it's a combination of spot price movements, fixed price contracts across the board, we're looking at ways to creatively manage that and make sure that we're running it as a partnership. We want our partners to be successful too, especially in this space as we're developing new sources of these raw materials and this is such a great example of that partnership mentality coming to fruition.

Mary Barra:

Sure. When we look at our strong product portfolio and the interest that we have at the prices that we've already announced, we feel that we're well positioned. Even going into the first month of the year, we've seen a very strong customer interest in our products and so we think right now we're priced where we need to be. Of course we're going to monitor it and we'll make sure we remain competitive, but we really think with the strength of our product portfolio and what we have coming, we're positioned well.

Mary Barra:

Thank you.

Operator:

Thank you. And our next caller is Rod Lache with Wolfe Research. You may go ahead, sir.

Paul Jacobson:

Hey, Rod, Paul and thanks for the question. Thanks for being on. You know, I think it's important to note that as we look across the competitive landscape, that competitor you referenced wasn't there in the beginning either, right? There's a lot of scaling that we're doing across the board. So as we're running concurrent operations with ICE and EV there's obviously some frictional costs on utilization, et cetera, that we expect to be able to scale as we go through this transformation. The ICE portfolio remains really strong, but we're also building the EV factories for the future. And clearly the production levels that we see now and as we're ramping up aren't there yet. So we expect a tremendous level of operational synergies. We're also going to manage the business aggressively. I think the $2 billion cost reduction program that we're announcing today is a strong testament to that and making sure that we're driving efficiencies as we ramp up those productions. So it's not a, I don't think a direct apples-to-apples comparison, but one that we're obviously aware of. On the pricing front the demand is really, really strong for all of our vehicle programs going forward and we feel good about where we're going in the trajectory that we're on.

Paul Jacobson:

I would characterize it a little bit differently, Rod. So success is going to be driven by, when we look at our fixed cost lines being down $2 billion, that's what we're looking for across the board, and we can get there and I think it comes across all areas of the business. What I would say is we're being prudent about what we see out in the macro environment. Again, we continue to see strength in demand for our vehicles and strength in pricing. But we want to make sure that we're driving efficiency where we can and felt like this was the right time to be able to do that. So we're going to be measuring how we do it. We're still focused on the growth areas of the portfolio, but we recognize that there are ways that we can do things more efficiently and we expect to be able to drive that into margin performance. We’re not doing anything to prepare for a price war or we’re not doing anything in anticipation of a recession. I would say, it’s prudent cost management and just being aware of what’s around us.

Paul Jacobson:

Net of…

Mary Barra:

For our automotive business, we’re expecting our structural costs to go down $2 billion. So it is that.

Rod Lache:

That is very clear. All right thank you.

Mary Barra:

Thanks, Rod.

Itay Michaeli:

Great, thanks. Good morning everyone, and congratulations. Just two questions on the outlook. First, can you maybe share kind of what you’re expecting for the company’s revenue growth in 2023 to just kind of want to calibrate that with the 12% CAGR for 2025? And secondly, I was hoping you could also maybe quantify the drag this year from some of the investments like the Ultium ramp and some of the other investments that you’re making as well. It sounds like, while the guidance certainly looks robust, there’s certainly a lot of investments still flowing through, so I was hoping maybe you could quantify that as well? And maybe also just provide a quick update on the Lordstown ramp as well?

Paul Jacobson:

The first one was on the revenue growth Itay, so I’ll just jump in and say that we obviously experienced pretty significant revenue growth in 2022, driven by 25% increase in wholesale. We’re not expecting that similar jump in production in 2023. So we’re not giving any specific revenue guidance, but I would say that we would expect the growth rate to be below 2022 levels in line volume.

Paul Jacobson:

Yes.

Operator:

And our next caller is John Murphy with Bank of America.

Mary Barra:

So our strategy all along for a very long time has been to build where we sell. And I think when you look at the work that we’ve done with the battery plants in this country and all of the supply investments that we’ve made, that helps us have I’ll say supply chain resiliency more certain, it gives us the opportunity with some of the deals we’ve made to, I think, have a better cost advantage. And also it’s good for the country and creates jobs, and that’s what IRA was meant to do. And so we’re waiting to see what the final rules and are going to be from treasury. I think regardless of some of the issues still to be clarified from a lease perspective, General Motors is still going to benefit greatly because if you look at the production tax credits from sales and module perspective, and then where we’ll be from a battery component in critical minerals, we think we’re well positioned again. The deal that we announced today, or the partnership, the equity investment, I think continues to reinforce it. So yes, we’re waiting to see what it is going to be, but our focus is on having a strong supply chain here. Obviously, when we get the final rules, we’ll look because, we do have a global footprint, but I think we’re focused on supporting North America production primarily from North America and to a certain extent from Korea. So again, we’re waiting to see, but I think you have to go back to what the intent of IRA was.

Mary Barra:

Well, I think it’s an important part, and I think when you look at BrightDrop, it’s a true just all growth opportunity for us. I think when you look at the Silverado EV work truck, I think that’s going to be very important as well. And so we’re going to make sure that as we grow our fleet commercial rental business, it has an appropriate profitability profile, not from the days 10, 15 years ago when we really stepped back from that. But I think whether it’s what we announced with Hertz and the number of customers that we have interested, every company is working to reduce their carbon footprint. And so the EVs that we have just to help support that I think are going to be very strong, and I think we’re going to have a good portfolio. So I think that allows us to grow, especially in areas where we weren’t involved in the past, EVs is a fresh start there.

Mary Barra:

I think when we talk about a 5% to 10% increase we’re talking across the board. When you look at the EV launches that we have, the fact that we have brand new Chevrolet Silverado and GMC Sierra heavy-duty pickups, the fact that we have the new midsize, which is just an outstanding midsized truck with the Chevrolet Colorado and the GMC Canyon as well as the Trax. So we think from an ICE perspective, we have an opportunity. We think from clearly the EV ramp-up that we’re going to have this year; it’s a part of it. And some of that -- both of those exciting products will be in the fleet business. So I think it’s a both answer, John, not a single one or the other.

Operator:

Thank you. Our next caller is Ryan Brinkman with JPMorgan.

Paul Jacobson:

Yes. So Ryan, a lot of detail in your question. I’ll take it back to what we said at Investor Day was we expect EV benefits, tax benefits to be $3,500 to $5,500 per vehicle. The $300 million in 2023 is obviously a function of our ramp rate of our cell production. We’re not going to go into any details on how that works across the board. It’s our best expectation of where we’re going to land is at least $300 million this year and ramping up rapidly as our production increases across our Ultium plants.

Operator:

Thank you. Our next caller is James Picariello with BNP Paribas. You may go ahead sir.

Mary Barra:

Sure. Well, I think that’s the strength of what General Motors is planning to launch this year. Many of the products that we have are going to be below the caps because we have a full portfolio of EVs at multiple price points. When you think about the Equinox EV, the Blazer EV and then the Silverado as well as the LYRIQ, I think we’re really well positioned. And these are brand-new products into the marketplace that we have really strong interest. So that’s why both Paul and I feel that right now, based on the interest and the fact that the pricing that we put out even before the IRA came out, was very appropriate. We’re going to -- and because of the strength of the Ultium platform, that’s what enables us to do that along with the fact that we’re ahead from most of the, I’ll say, the traditional OEMs and getting battery cells produced in this country. So I think if you look at the strategy we’ve been executing we’re well positioned, and the strength of our product portfolio, I think is what is giving us the confidence to where we sit right now with feeling that we're priced appropriately.

Mary Barra:

We haven’t provided that kind of specific analysis, but the fact that the HUMMER to begin with, and that will ramp significantly this year and even more next year as we’re completely sold out. And then the Silverado that we think we’re going to -- the Silverado EV work truck and then the RST [ph] comes at the -- toward the end of the year. I mean I think all of those are very significant products that are going to do very well, but we’re not giving specific numbers.

Operator:

Thank you. Mark Delaney with Goldman Sachs. You may go ahead.

Mary Barra:

So first, one of the strong points of the LCM platform is that it’s chemistry agnostic, and it can take pouch, prismatic or cylindrical cells. And so we can look to what is going to be the right battery for the specific vehicle from a performance perspective. So we have that complete flexibility. We have very important work going on with LG Energy Solution. They’re an incredibly important partner to us. And we’re working well together as we mentioned, with the launch of the Orion or excuse me, the Lordstown plant and then Spring Hill and then the plant in Michigan. So we’re working well together, and we are going to need a fourth plant and more plants beyond that. And as we have those details to share, we will share them. But right now, there’s nothing that’s really changed in our plan to have battery manufacturing capability here in the U.S. and broadly in North America as well.

Mary Barra:

Kyle, do you want to take that one?

Mark Delaney:

Thank you.

Adam Jonas:

Hi, thanks everyone. I just want to follow up on Mark’s question about the -- about Ultium and the form factor. I appreciate that there’s room for flexibility. And you’ve mentioned in the past, Mary, that the Ultium system was kind of form factor and chemistry agnostic. But if you did change to cylindrical, the 46/80 form factor as reported in some of these sources what kind of thing would drive such a change? I’m not saying that you have made that decision, but it seems like it is potential -- there’s potential to do that. What kind of -- would it be driven by safety or cost and kind of how difficult would it be to make that flip?

Adam Jonas:

Thanks, Mary. And I just have a follow-up for Paul on the pricing. You mentioned higher incentives, but offset by the increase in step-up in the MSRPs. I just want to make sure we’re interpreting that correctly that those are kind of a wash that you think one more or less compensates for the other to leave the pricing element more or less stable from 202s2 to 2023. Is that -- is that the correct way to think about it broadly? I know it’s a volatile environment, but just want to as a starting point, is that the message, a wash?

Adam Jonas:

Thanks, Paul. Thanks Mary.

Mary Barra:

Thanks.

Christopher McNally:

Thanks so much. I just want to revisit Ryan’s question on the IRA $300 million, and thanks so much for giving that number. Just our math is that, that would be something like 10 to 12 gigawatts from the two facilities in Ohio and Tennessee and without sort of confirming the explicit math, can we just talk about maybe how long it may take to ramp Ohio? And then obviously, Tennessee is only starting at the end of this year, but I think they’re about 40 gigawatts each. So it seems like there is a material amount to grow at that capacity growth, but just anything you could talk about the time line on Ohio and Tennessee Giga?

Christopher McNally:

Perfect. That’s super helpful. And just the follow-on, just from a modeling perspective, should we assume the 300 flows through EBIT or is there any benefit that also is going to start to benefit taxes as well? Just it is more we’re going to see the benefit of IRA if it’s only in EBIT or if there is actually some tax component as well?

Christopher McNally:

Okay, thanks so much Paul.

Emmanuel Rosner:

Thank you so much. Two fairly quick ones, first one is back on pricing. I think you said you’re trying to be conservative in your assumptions. So I was just hoping you could be a little bit more specific or explicit around what sort of incentive environment you’re assuming, because I understand the MSRP going up, just not super clear from the outside, what sort of macro and/or industry environment you’re assuming and the impact on the overall industry incentives?

Emmanuel Rosner:

Okay. So then just affirming in terms of macro environment, if that’s okay. Are you assuming some sort of recession in the second half impact on sort of like consumer demand for vehicles or are you assuming sort of current conditions continue? And then I just have a follow-up on free cash flow.

Emmanuel Rosner:

Okay. Thanks for that. And then just quickly on free cash flow. Can you just provide a high-level walk between the 2022 strong performance in 2023? Because obviously, the two sort of elements you would exclude to make them comparable the pension income, this is noncash, right? So yes, walk between 2022 and 2023 would be helpful.

Emmanuel Rosner:

Great. Thank you so much.

Paul Jacobson:

Absolutely.

Mary Barra:

Great. Well, thank you, Michelle, and thanks to everyone for your questions. We, at General Motors, are really excited about the opportunities ahead of us in 2023, especially with all the new vehicles that we’re launching. Chevrolet and GMC will build on their leadership in pickup trucks and Chevrolet is giving customers around the world compelling entry-level products too. And this is the breakout year for the Ultium platform. So when you look at the products we’ll have by the end of this year, again, they’re all outstanding. Again, we expect another year of strong financial results and our confidence reflects the determination of the GMT -- of the GM Team, the strength of our vehicles we’re delivering and the valuable relationships we’ve developed with our dealers, our suppliers and our other partners. So I hope you see with what we did in 2022 and what we’re indicating we’re going to be able to achieve in 2023 that we continue to have your confidence, and we look forward to continuing to tell you more about this year as we go forward. So I hope everyone has a great rest of the day.

Operator:

Good morning, and welcome to the General Motors Company Third Quarter 2022 Earnings Conference Call. During the opening remarks, all participants will be in a listen-only mode. After the opening remarks, we will conduct a question-and-answer session. We’re asking analysts to limit their questions to one and a brief follow-up. [Operator Instructions] As a reminder, this conference is being recorded, Tuesday, October 25, 2022. I would now like to turn the conference over to Ashish Kohli, GM's Vice President of Investor Relations.

Mary Barra:

Thanks, Ashish, and good morning, everyone and thanks for joining the call. During the third quarter, the GM team, once again, demonstrated our ability to deliver strong results while executing our growth strategy and managing multiple headwinds. The third quarter brings our EBIT-adjusted earnings for the first nine months of the year to $10.7 billion, which keeps us on track to deliver our full year guidance. We translated improved supply chain performance into another quarter of full-size pickup and full-size SUV sales leadership with very strong mix and pricing. The Cadillac Escalade also continues to lead its segment by a wide margin. Chevrolet and GMC unveiled new mid-size and heavy-duty pickups to help maintain our strong position when they launch. And the Chevrolet Bolt EV and EUV are selling at record levels, thanks to their range, technology and value. And in September, they outsold the Ford Mustang Mach-E more than 2:1. BrightDrop is generating revenue in the last-mile delivery segment. And later this year, CAMI Assembly is set to launch BrightDrop production, making it Canada's first large-scale EV plant. Production will ramp up in 2023 to begin fulfilling major orders from our customers, including Walmart, FedEx and Merchants Fleet. In addition, BrightDrop launched Trace Grocery eCart last month to help speed up online grocery order fulfillment, with Kroger slated to be the first customer. And as Kyle shared last month, Cruise has begun its expansion into Austin and Phoenix and he'll share an update in a few minutes. So it has been a great team effort by everyone, and I really want to thank and recognize the GM team, our suppliers and our dealers. While the operating environment remains challenging, our team continues to adjust quickly when and where it needs to. This is especially true of our supply chain and manufacturing teams. During the quarter, we completed and shipped nearly 75% of the unfinished vehicles we held in the company inventory in June. That's well ahead of the plan we shared at our last earnings call. As we've moved through the year, we have seen gradual improvement in the supply chain, including semiconductors. Short-term disruptions will continue to happen, but we're taking concrete steps to minimize them and build long-term resiliency. This includes signing several strategic supply agreements for mature nodes where supply is most constrained. We are also working directly with semiconductor suppliers, ensuring long-term forecast to increase transparency and ensure their planning cycles include our volume. I'd also like to recognize the GM China team. Despite disruptions caused by COVID lockdowns, morale is strong, and the business has returned to profitability, and they are building momentum in China's fast-growing EV market. This includes strong sales of the Wuling Hong Guang MINI EV, which remains China's best-selling electric vehicle; the September launch of the Cadillac LYRIQ and the debut later this year of the first Buick EUV on the Ultium platform. As we grow EV volumes, we continue to benefit from investments we have made in new ICE products and manufacturing capacity, especially in our truck portfolio, where we are the industry leader. In fact, we took full-size pickup leadership from the Ford F-Series in 2020 and have held it ever since. We'll press our advantage with the new 2024 Chevrolet Silverado HD and GMC Sierra HD, which will be available in the first half of 2023. The far-ranging improvements to these trucks, including redesigned interiors, enhanced trailering technology and new high-feature models like the ZR2 for Chevrolet and the Denali Ultimate for GMC, are designed to support continued strong pricing. We are also launching all-new Chevrolet Colorados and GMC Canyons in the first half of 2023, which will include new premium off-road offerings. Importantly, the launches will be accompanied by significant reductions in complexity. For example, we reduced the number of cab and bed configurations from 3 to 1 to focus on the fastest turning model, and we've also reduced our engine options from 3 to 1. Going forward, all Colorados and Canyons will be powered by the Silverado and Sierra's high output 2.7-liter turbo engine, which is a great solution for customers and our business. The new engine offers more horsepower and torque than the outgoing gas powertrains, and we expect a one - to two-mile per gallon fuel economy improvement on most models. Let's turn next to our EV supply chain and manufacturing base, where we are vertically integrating and scaling. To meet strong demand, we will soon be transitioning production of the Cadillac LYRIQ and GMC HUMMER EV from using imported cells to cells produced at our Ultium Cells joint venture plant in Ohio. At the same time, work is underway for higher production at Factory ZERO as well as volume production at CAMI Assembly in Ramos Arizpe starting in 2023 and Orion Assembly in 2024. Construction is also underway on two more Ultium cell plants that will open in 2023 and 2024, respectively. This will help us meet strong and growing demand for the GMC HUMMER EV, the Chevrolet Silverado EV and Chevrolet Equinox EV and Blazer EV, along with the GMC Sierra EV and BrightDrop vans. All of our 2023 launches are progressing well. However, due to a slightly slower launch of cell and pack production than we expected, our plan is now to produce 400,000 EVs in North America over the course of 2022, 2023 and the first half of 2024. We are always gated by quality, and everything we've learned will help us scale more than -- to more than 1 million units of annual capacity in 2025 with even greater confidence. For growth beyond 2025, we continue to secure our future with strategic supply agreements and direct investments in natural resource recovery, processing and recycling. The most recent example is the strategic investment we made in Queensland Pacific Metals of Australia to secure cost-competitive nickel and cobalt. The new clean energy tax credits of the US certainly validate our strategy, and they will be a strong tailwind to expand domestic supply chain capacity and drive EV adoption. As we scale the Ultium platform, we have been very intentional to position the company for volume growth, but with flexibility, efficiency and increased EV profitability over time. This includes fully leveraging the Chevrolet Bolt EV and EUV. We're planning to increase Bolt production from about 44,000 vehicles in 2022 to 70,000 vehicles next year, because demand is at record levels. We will use our industry-leading loyalty to move Bolt customers into one of our new EVs, like the Chevrolet Equinox EV for their next purchase. Our Bolt EV and EUV owner base should surpass 200, 000 at the end of next year. If we retain them at our average customer loyalty rate of 64%, that's more than 100,000 future customers for Ultium platform vehicles. I believe we can do even better, because our new EVs are that good. As I've said, customer demand is strong and growing for the LYRIQ, the HUMMER EV, the Silverado EV, the Blazer EV and the early customer and media response to the Equinox EV and the GMC Sierra EV we just unveiled have been overwhelmingly positive. Electric.com wrote that affordability makes the Equinox EV a win for the company and EV buyers everywhere. And MotorTrend said, it could be one of the first vehicles to trigger a title wave of EV demand. And with the Sierra EV, GMC will be the only brand with three all-electric trucks in the market, and they are all incredibly distinctive, thanks to the flexibility of the Ultium platform. The Sierra EV Denali's Edition 1, 400 miles of range; 350-kilowatt DC fast charging; 9,500 pounds of towing, bold styling and luxurious refinements make it unlike anything else in the market. In addition, the agreement we struck with Hertz to deliver as many as 175,000 EVs over the next five years will build on this momentum. Huge segments of the US population have never driven an EV, and renting one for personal or business travel will be far more immersive than a test drive at a dealer. These customers as well as experienced EV drivers will see just how exciting and well executed our products are, and this can help increase purchase consideration and sales for GM EVs. There have been many other exciting developments this summer and fall, and I'd like to briefly mention two that speak directly to the power of our brands and the new business opportunities ahead of us. The first is the Cadillac CELESTIQ that we revealed just days ago. It is a completely bespoke work of automotive art, built around the most advanced and innovative technology we have ever engineered. Media described the CELESTIQ as the most advanced, most luxurious and one of the most important vehicles Cadillac has ever made. But one headline really captured its essence. Cadillac outrolls Rolls Royce. The second is the growth of Super Cruise. Our customers have now traveled 40 million miles with Super Cruise engaged, and the numbers are growing very quickly. We recently doubled its road network to more than 400,000 miles of interstates and non-divided highways, making it even more valuable to customers who already have highly -- are as highly satisfied with the technology. By the end of next year, it will be available on 22 models globally. While we are expanding the competitive advantage we have in advanced driver assistance systems with Super Cruise, the Cruise team in San Francisco continues to make rapid progress in autonomous vehicles. Kyle is with us, so I'd like to invite him to share an update with you.

Mary Barra:

Thanks, Kyle. I appreciate the update and all the work the team is doing at Cruise. So before I turn the call over to Paul, I want to encourage all of you to join our Investor Day on November 17. We plan to use this time to go deeper into the second phase of our EV growth strategy. Phase 1 was focused on technology innovation, specifically the development of our proprietary Ultium and Ultifi platforms. Phase 2 is the rapid scaling of our product portfolio based on Ultium and Ultifi while leveraging ICE vehicles to maintain strong margins. And in Phase 3, we'll drive rapid revenue and margin growth across the entire ecosystem through software-defined vehicles, crews and other initiatives to create a flat-wheel effect. Phase 2 has already begun and Mark Reuss, Doug Parks, Travis Katz, Paul and I will show you how it accelerates through 2025. We will include KPIs to help you track our EV progress, including margin improvement. Then in the first half of 2023, we are playing a deep dive into our software-defined vehicle strategy to show you how we will leverage Ultifi to help expand revenue and margin. We also plan to share new details about the expansion of Super Cruise, the launch of Ultra Cruise and other high-return technology initiatives. Both events are going to be exciting and compelling. With that said, I'll turn the call over to Paul. Thank you.

Operator:

Thank you. [Operator Instructions] Our first question comes from John Murphy from Bank of America. John, your line is open.

Paul Jacobson:

So, Mary, I’ll take…

Paul Jacobson:

Apologies. Well, thanks for that question, John. So we're watching this very, very closely as we've said, looking at dealer turn times, looking at grounded stock. As we've talked about, logistics remain a bit of a challenge for us, whether it's vehicles that are completed, waiting transit to dealers, or even some vehicles that we've had some challenges getting across the next quarter from our facilities down there. So a lot of this inventory still is in transit. The grounded inventory, we continue to speak to our dealers. They say demand is really strong, and many dealers are saying that the only time vehicle sit there when a buyer opts out of a transaction they already had. And it's not very long before they go through their list and find somebody to purchase them. So this is something that we're watching very closely. I think there's a little bit of a surge right now as we complete the vehicles that were partially built at the end of June. But we watch this. We're seeing no signs of concern in the short run.

Mary Barra:

Well, John, I think, overall, we're going to remain disciplined. I do think there's an opportunity to drive strong margins. We're seeing it right now with the mix, for instance, on full-size trucks. Consumers continue to want a very high mix. We think that, that will translate also into EV. And as we move forward in the EV launch and have our battery plants operating and get to scale and continuing to make the battery improvements, we see, again, that's another level to have strong margins. And then sitting on top of that is, from a software perspective. And then, overall, beyond, I'll say, the traditional new vehicle sales, the work that we'll have with CarBravo as well as the growth businesses around GM Defense, BrightDrop and Cruise, I think there's quite a lot of upside from a margin perspective in the company. But to drill into the specific, we will be disciplined as possible. And the reason I say as disciplined as possible, we also do have to be responsive to what the competitive environment is. But I think we have -- I think there's -- as an industry, we've learned a lot over this last couple of years of how we can be more efficient between ourselves and the dealers and how we can make sure we're serving the customer in an efficient way.

Operator:

[Operator Instructions] Our next question comes from Joseph Spak from RBC Capital Markets. Joseph, your line is open.

Mary Barra:

Sure, Joe. Well, one, I think we had a very aggressive launch plan when we started to build the plant. Let's step back and recognize that the Ohio plant is the size of 30 football fields, and it will employ over 1,000 people. Making sure we had all our people there and trained has taken a little longer than expected. Also, this is the first facility that we're working with LGES, and we're working together effectively to really leverage not only the expertise that LGES has, but what GM brings. And so there's no one thing, but it has just taken a little longer to make sure that we're able to produce with quality. I'm very confident in the team and how they're working together. And I think we're in that ramp, but because it's taken a little bit longer. Also from the battery pack assembly as well, both of those, as we've ramped up are taking a little bit longer. And that's why instead of hitting the 400,000 mark at the end of 2023, it's going to seep into 2024. But with everything that we're learning, it gives me great confidence that we're going to be able to start plant two, three and beyond on time. And I have greater confidence in our ability to scale to the 1 million units of annual EV capacity in 2025 in the US and similarly in China. So it really is just that first plant up and going, recognize the size and complexity of it. But I'm really proud of the team of where they're at right now.

Paul Jacobson:

Well, Joe, I think when you look at our historical spend rates, we tend to have CapEx that -- it's a little bit back-loaded from that standpoint. And I think we're still on track for the $9 billion to $10 billion going forward this year. As we look at the future years, obviously, we've had some pretty steep acceleration in EV volumes, et cetera. And we'll provide some more updates at Investor Day. But I think we're well within our ability to fund our expansion, our transformation through internally generated funds when you look at the health of the business. And I think when you look at cash balance, when you look at cash flows, when you look at our ability to repurchase some shares during the quarter, that signals our confidence about being able to balance the spending, be aggressive where we can, as you've seen us over the last couple of years, but also keep that balanced within our means. And you're going to continue to see that from us.

Operator:

Our next question comes from Rod Lache from Wolfe Research. Rod, your line is open.

Mary Barra:

Sure. Well, just to maybe touch on that last point. We believe we are very well positioned. And we think we're waiting for the treasury rules to be finalized, but we think it will accomplish. So it positions us with our strong EV portfolio covering the important segments to really drive affordability to spur adoption. So, overall, we feel very well positioned. But if you look at it right now, over the 10-year life cycle of the credit, we will offer a number of models in the segments and price ranges that will be eligible for the full $7,500 credit. And for us, many of these are going to be high-volume entries. We do think some of the vehicles will be eligible for the $3,750 credits starting in January, and then we'll ramp toward full qualification across the broad portfolio in two to three years as some of the different supply comes online in North America or in the United States. We also think there's a significant opportunity to potentially leverage the tax credit of up to $45 per kilowatt hour with respect to battery cells and battery modules produced in the US. So that's another opportunity where, again, I think, we're better positioned than most because of our aggressive plan to get the battery plants and the pack assembly in this country. And then, we do think we see an opportunity for our suppliers to leverage a tax credit for up to 10% of the cost of the US source battery electrode active materials, starting in January of next year. So that's just a little bit more color. Again, we'll have vehicles that are in the right MSRP range to qualify. So when you look at it overall, there's the commercial incentives also that will support BrightDrop in the fleet and rental car. There's the used EV purchase incentive that we think will support EV resell values. And again, we have CarBravo. And then the elements from a manufacturing granted loans. So that's just a little bit of the detail. Again, we're waiting for the final rules from treasury, but I think you can see this will really go a long way to helping us drive affordable EVs and drive our profitability, while even hitting some of the lower MSRPs.

Paul Jacobson:

Yes. Thanks, Rod. So, I think, it's obviously -- we've seen some increases in inventory, but that's not a surprise. I think, we wholesaled rounding off rounding to 1 million vehicles during the quarter, as evidence of both producing and clearing out the vehicles that hadn't been finished in June. So, I think, we're working through that right now. I think, it's too soon to conclude anything about trends. We do know that there's a lot of pent-up demand from the last couple of years as evidenced by both MSRPs as well as what turn rates have been doing. So we're watching all of that closely, but I haven't come to any conclusions about any softening or any demand that's occurred today. I think as you look at the dealer statistics as well as GMF, the people that are clamoring to get in our vehicles and still see high demand, particularly for the full-size trucks and SUVs.

Paul Jacobson:

Yes, nothing specific today, Rod. I mean, keep in mind that obviously, when you look across all of the commodities, they've come off their highs, which will benefit some tailwind next year. As it relates to steel, remember, we've got a portfolio approach where some is on spot rate, some are on term contracts. We benefited from that as steel was spiking over the last couple of years, but you'll see some lag, particularly in steel from some of those multiyear contracts, which is fine over the long-term. But it won't provide as big of a tailwind next otherwise would. So we'll get more detail on that as we give full year 2023 guidance later, but nothing specific now.

Operator:

Our next question comes from Itay Michaeli from Citi. Itay, your line is open.

Paul Jacobson:

Yes. Good morning, Itay. So I didn't necessarily say that it was going to be flat. I said it was going to be some going forward. We already do know about some pressure that's likely to hit next year from pension accounting. Keep in mind that while the funded status hasn't changed, just the differentiation of a very different rate environment is going to cause some headwinds on the pension side. We'll know more as rates settle out at the end of the year, but that could be north of $1 billion. No change to cash, no change to any funding just the way they work. So we're watching all that. That's why we're -- necessarily piecemeal, all of this stuff going forward. But we'll provide more with our full year guidance. And obviously, when you look at the launches of the new HD, there's a lot of content rich. Vehicles coming out. We've continued to see those in strong demand as we rolled them out, both across the SUVs and the light-duty pickups as well. So we expect to see some demand coming there as customers can't get them fast enough. So we think that there is some good news out there. All of that has to be balanced by every -- that others are seeing out there, even if we're not seeing it, which is why we continue to be cautious in our approach. But what we're focused on is executing every day. And I think this quarter demonstrates the power of the team's ability to do that.

Mary Barra:

Kyle, do you want to take that?

Itay Michaeli:

Okay. That’s very helpful. Thank you.

Ryan Brinkman:

Hi. Thanks for taking my questions. I wanted to ask on commodity costs. I realize it's a complicated equation with buy-ins deal in advance, compensating suppliers in the lag, some hedging. But just straight lining the latest spot prices through the end of 2023 would suggest to me a sizable tailwind next year. So, have you done any work to try to dimension this tailwind and maybe how it might compare in magnitude to any headwind you expect to face from higher non-commodity supply chain costs, such as energy, logistics, labor or other costs?

Ryan Brinkman:

Okay. Thanks. And then just lastly, is there any color you can provide on potential settlements with suppliers to compensate them for premium non-commodity supply chain costs? Ford called this out as a $1 billion headwind during this quarter versus I didn't see anything in your release along those lines. I'm curious if you're taking a similar approach to settle more quickly, or maybe expect to spread these payments over several quarters, or just any thoughts you might be able to provide on how these negotiations with suppliers are progressing amidst the higher inflation environment and impact on GM going forward?

Ryan Brinkman:

Great. Thank you.

Mark Delaney:

I guess, good morning and thank you very much for taking the questions. The first one is on mix, and the company spoke to some mix normalization in the prepared comments. What do you think is driving that mix normalization? Is it more about what GM has the supply to be able to produce and that broadening out beyond the higher end, or are you seeing any pressure on mix related to what consumers are able to afford given the macroeconomic backdrop?

Mark Delaney:

That's helpful. And my follow-up is on Cruise. And as Cruise is entering the scaling-out phase, and Kyle, thanks for all updates you shared on the progress Cruise is making, are you guys able to share any more color on how investors should expect investment levels accrues to trend going forward in order to support that ramp-up relative to the current level of investment? Thanks.

Mark Delaney:

Thank you.

Adam Jonas:

Thanks. I just had a follow-up on Cruise. Again, thinking quarterly, cash consumption was $0.5 billion this quarter, rolling out though into two new cities by the end of the year, further expansion. I just want to confirm, Mary, that if we kind of continue that quarterly run rate of 0.5, maybe increase it slightly, but not dramatically. Is that a fair assumption from here?

Adam Jonas:

Thanks, Mary. Just a follow-up on GM Financial. While up slightly, the delinquencies, as you pointed out, still really low at 2.5% and net charge-offs below pre-pandemic levels. Just curious how you would describe the credit outlook for GM Financial. What changes are you making in your portfolio to prepare for further rises in rates and impact on portfolio performance? I figured it's an unusual environment given how much of the business has been order-booked. But correct me if I'm wrong, you're moving more into a kind of that -- at the margin to that just in time market that we're familiar with. There's still some order books. So I'd appreciate what you're hearing in real time from the dealers on the credit side. Thanks.

Adam Jonas:

Really appreciate that color. Thank you.

Emmanuel Rosner:

Thank you, very much and good morning. First, a quick follow-up on the delay in the battery ramp-up. Can you please remind us, which of the EV models were going to basically use cells from these plants you're ramping up? And therefore, we'll see some sort of delay in their volume ramp up? And, I guess, more broadly, how are you going to prioritize cell allocation over the next, call it, 18 months or so, when you're a bit more constrained than maybe expected?

Emmanuel Rosner:

Okay. Thanks for the color. And then, the follow-up was, if you could put a finer point on some of the demand trends you're seeing sort of real time, both in the US and China, if possible.

Paul Jacobson:

Yes. Mary, I'll just add that we're still very much in a production-constrained world as an industry against where demand is. And as we look to 2023, we've said publicly that we're kind of planning for a 15 million SAAR year, which is kind of below where most people peg demand, but it's actually of where actuals have been for most of the year, given some of those supply constraints. So I think everything Mary said is absolutely true. We're watching it very closely. We are planning for some tightness next year, but that's because we want to be on the proper side. We don't want to get surprised if we see that trending lower. So hopefully, demand remains strong going into 2023, and we can outperform the expectations that we're putting on paper right now. But that's -- 2023.

Mary Barra:

In China, I think we're -- as we now have the LYRIQ, we started offering the LYRIQ in September, and we'll have the Buick Ultium-based product. Those are two very important brands that we do well in China. I think we'll continue to see strength in the Hong Guang MINI EV. So I think the real opportunity for us in China is to now, with the products we have, grow our EV portfolio while maintaining our cost. And we'll look to see how the company or the country does from an economic perspective. But we have a strong portfolio coming from an EV perspective, and I'm really proud of what the team is doing in light of volatile and different headwinds that they face, especially with some of the COVID situation.

Operator:

Our next question comes from Colin Langan from Wells Fargo. Colin, your line is open.

Paul Jacobson:

So, Colin, I'll take a shot. Mary, you can add anything. Certainly, I think this comes down to the question of how much pent-up demand is there, which I don't think is necessarily specifically knowable over time. But what we're really focused on is trends going forward and managing to those trends, as we have throughout this year. The customer has obviously been very resilient. And I think that speaks to the quality of our products and what they sought. So I don't think that piece is going to change. I think the industry could normalize. We could see that, although I don't think we see big increases in production going forward. So depending on how that pent-up demand shakes out, I think that will affect inventory. But what you're hearing from everyone in the industry -- learned in inventory management over the last couple of years. And we ourselves have cited some of that. So even if we assume some slight softness in 2023, as I talked about on the SAAR side, we're not seeing it as sort of a major shakeup.

Mary Barra:

Yes. We think, out of the gate, we're going to be eligible for the $3,750, and we'll ramp to have full qualification in the next two to three years, getting up to the $7,500. So -- which positions us well to be eligible for the complete credit from the consumer perspective. The $7,500 one through the 10 years, it just takes a couple of years to ramp up based on our expectations with the supply moves that we've already made. And then, as I mentioned, there's also the -- to leverage the tax credit of up to $45 per kilowatt hour with battery cells and battery modules produced in the US. Again, we're well positioned there. And then the commercial incentives, I think, are going to be very important, especially with BrightDrop, our fleet and rental car. So those opportunities, as well as use used EV purchase incentives as well. So, again, we're waiting to see what treasury does from a rule perspective, but those are just a few of the opportunities we think we're well positioned for and, frankly, better than most.

Operator:

Our last question comes from James Picariello from BNP Paribas. James, your line is open.

Mary Barra:

Paul, do you want to take that?

James Picariello :

Okay. And just on that, in terms of the 25% to 30% wholesales growth, is there a bias towards the lower half of that range based on how supply chains are shaping up and how the third quarter came in, or how should we think about that?

James Picariello :

Thanks guys.

Operator:

That concludes the conference call for today. Thank you for joining.

Operator:

Good morning and welcome to the General Motors Company Second Quarter 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded, Tuesday, July 26, 2022. I would now like to turn the conference over to Ashish Kohli, GM’s Vice President of Investor Relations.

Mary Barra:

Thanks, Ashish, and good morning, everyone. Thanks for joining the call today. As you have seen in our press release and other materials, GM delivered $2.3 billion of EBIT-adjusted in the second quarter, which is in line with the update we shared on July 1. We also remain on track to deliver our full year guidance, which includes EBIT-adjusted of between $13 billion and $15 billion. This is a truly unique and dynamic market that presents both challenges and opportunities for GM. Overall, GM production continues to improve year-over-year despite some short-term challenges and we are on track to increase our wholesales by 25% to 30%, in line with our expectations for the year. This has helped us extend our U.S. truck leadership, where demand is the strongest and supplies are well below optimal. The Chevrolet Silverado and the GMC Sierra led the industry in total full-size pickup sales in 2020 and in 2021. We continue to lead in 2022 by a wide margin. In fact, our retail market share in the first half is up 2 percentage points to 40%. But even as we operate our truck plants at near full capacity, our inventory has remained extremely low due to continued strong demand. The stock on the ground for GM full-size pickups has been in the mid-teens in terms of days supply for more than 90 days. For full-size SUVs, it’s below 10. This helps explain why we continued building trucks in June even though we couldn’t ship everything right away due to supply chain issues. The facts are the customers are there for our vehicles. They have been waiting and all indications are they remain ready to buy. While demand remains strong, there are growing concerns about the economy to be sure. That’s why we are already taking proactive steps to manage costs and cash flows, including reducing some discretionary spending and limiting hiring to critical needs and positions that support growth. In addition, we have modeled several downturn scenarios, and we are prepared to take more deliberate action when and if necessary. Regardless of the circumstances, we continue to move forward from a position of strength. We have a foundation of strong earnings and cash flow, an investment-grade credit rating, historically low pension obligation and outstanding vehicles, services and pricing. I like our position and I wouldn’t trade it with anyone in our industry. All of this will help us continue to execute our growth strategy and insulate it from short-term market challenges. Cruise is an example. Without question, the Cruise team’s launch of fully driverless commercial operations in San Francisco in June was historic. The next steps for Cruise in the second half include working with regulators to increase their hours of operation and service area, expanding their fleet of Bolt AVs and testing the Cruise Origin. And as always, we are committed to safety as Cruise expands. Kyle Vogt and I will have much more to share about Cruise on September 12 at the Goldman Sachs Technology Conference in San Francisco. We will also host our own event later that day for investors and analysts, including an opportunity to experience a fully driverless ride. Another major highlight was the first customer deliveries of the Cadillac LYRIQ earlier this month. We are extremely proud of the LYRIQ and it has received almost universal praise from the media, who says it stands with the Escalade as one of the best Cadillacs we have ever done. I can’t wait until everyone sees the CELESTIQ in person. Nearly 70% of the LYRIQ reservation holders are new to Cadillac and 30% are from the West Coast. This is very similar to what we are seeing with the HUMMER EV, where 75% of reservation holders are new to GMC with a very heavy concentration in California, Texas and Florida. And looking ahead to early spring 2023, anticipation for the Chevrolet Silverado EV continues to build. We now have more than 150,000 reservations and the average fleet customer is requesting more than 200 trucks. The reaction to the Chevrolet Blazer EV has also been very enthusiastic. We think the media who says it’s going to shake up the electric SUV market, thanks to its design, technology, range and pricing, are spot on. Chevrolet will follow it up in September when it reveals even more affordable Equinox EV. And the ownership experience for all of our EV customers will be enhanced by agreements like the one we just signed with the Pilot Company to expand our Ultium 360 charging network to facilitate interstate travel. Together with EVgo, GM and Pilot plan to install 2,000 DC fast charger stalls at 50-mile intervals along U.S. interstate highways with special benefits for GM owners like exclusive reservations and discounts on charging. With Pilot investing $1 billion to upgrade their customer service, we are confident that this will be a very good solution for our customers. And as our EV strategy scales, the key question investors frequently ask is, how will you build enough batteries when competition for raw materials is intensifying? And as I have said, our strategy is to control our own destiny and that includes building cells in partnership with LG Energy Solution. We are just weeks away from the launch of the 7-day operations at the first Ultium Cells JV plant in Ohio. Then each quarter, the plant will add 20% to its capacity, reaching the full 35 gigawatt per hour capacity in Q4 of 2023. Securing cells from this plant are key to significantly ramping up production of the GMC HUMMER EV and the Cadillac LYRIQ to beat pent-up demand. The second cell plant, which is under construction in Tennessee, is on track to open next year. And just last month, ironworkers and our construction partners installed the final beam in a topping-out ceremony. In Lansing, Michigan, the site of the third cell plant, the foundation work is underway and steel work will begin in August and that plant opens in 2024. And the team is also making good progress towards selecting the site for the fourth U.S. cell, which will take our projected total battery capacity to 160 gigawatts. What’s happening upstream with these plants is just as critical to our long-term success. On previous calls, we had talked about all of the fully executed supply agreements GM has secured for EV raw materials and components. Today, we are announcing three more binding supply agreements. The first is with LG Chem, who will supply us with approximately 1 million tons of cathode material between now and 2030. We have also reached agreement with POSCO Chemical to supply us with CAM from their Korean operations from 2023 to 2025. The third is a multiyear supply agreement with Livent to secure significant quantities of lithium. What this means is GM now has binding agreements securing all battery raw materials supporting our goal of 1 million units in annual capacity in North America in 2025. This includes lithium, nickel, cobalt and the full CAM supply. As we move forward, we will increasingly localize our supply chain just as we have localized battery cell production. For example, due diligence is already underway to further expand capacity at the JV CAM and CAM precursor facility GM and POSCO Chemical are building in Quebec. GM and LG Chem will explore the localization of a CAM production facility in North America by the end of 2025 and Livent has a goal to transition 100% of the lithium hydroxide they are processing for GM to the U.S. I want to thank the team for their hard work to deliver this critical milestone, which includes close to 20 individual supply agreements. And I also want to thank our supplier partners. I use the word milestone deliberately, because we are planning significant volume growth to meet our Investor Day commitment of $90 billion in annual EV revenue by 2030. That means our supply chain must be even more scalable, sustainable and resilient. To that end, the team is building on existing supplier relationships and forging new ones. And for certain commodities, we will direct source up to 75% of our needs through 2030 with a focus on North America. We think this strategy will mitigate risk, drive down cost and help us deliver upside volume opportunities. As you can see from these examples, every part of the company is rising to meet today’s challenges and we are adapting, changing and innovating to execute our pivot to EVs. We are being thorough, collaborative and leaving nothing to chance. And that’s how we have made such huge strides and why we are so confident in our future. So thank you. And now I will turn it over to Paul.

Operator:

[Operator Instructions] Our first question comes from the line of Itay Michaeli of Citi. Your line is open, sir.

Mary Barra:

Good morning.

Itay Michaeli:

Good morning. Just two questions for me. Just first, I was hoping you could dive a little bit deeper into the price mix assumptions you have in the second half of the year. Maybe also if you can quantify the logistics headwind, Paul, you just referenced? And second question, Mary, in the shareholder letter, I think you mentioned modeling a number of downturn scenarios and actions you can take. I was hoping we could expand a bit more about how you are thinking about various macro scenarios and options that you have and sort of maybe the range of kind of your earnings and free cash outcomes we should think about under kind of reasonable downturn scenarios?

Mary Barra:

And from a downturn perspective, we are looking at, I’ll say, moderate downturn and a more severe. And we know the actions that we would take. As I mentioned, we’ve already started to reduce discretionary spending, but we are doing critical skill hires because we feel we’re positioned right now to continue executing our EV strategy even with some of the different things that might hit us. And it’s a really unique time because there are so many factors that are very positive. As I mentioned, we’re still seeing strong demand, but there are some indicators that look – that freight uncertainty for the future. So we’ve done a lot in preparation. If you go back to the transformation that we did in 2018 and 2019, we completed in 2020 that took out about $4 billion to $4.5 billion of cost. We also have systematically reduced vehicles and exited unprofitable segments and regions. You’ve seen about a $2 billion improvement in GMI versus 2018. And we’ve done significant restructuring in India, Southeast Asia and Russia as well as retiring the Holden brand in Australia. So, the steps that we’re taking right now is continue to focus on eliminating complexity reduction, not only in our ICE lineup, but also in our EV lineup to be very customer-focused. We’ve done a lot as it relates to reuse, driving manufacturing efficiencies, go-to-market where we’re finding efficiencies that we can actually reduce the cost of selling a vehicle and then our overall fixed cost. And so we – again, it’s hard to predict exactly what the margins would be depending on what happens, where is demand. What we’re seeing right now, we’re still seeing strong demand for our products and frankly, as Paul said, even going in the second half of the year a higher mix. But believe me, we’ve run many different scenarios, and we know the steps. We’ve taken a lot of steps already, but we know the steps we would take if the situation went in a different direction.

Operator:

Thank you. The next question will come from John Murphy of Bank of America. Your line is open.

Mary Barra:

Yes. Each supplier depending on where they’re located, I think, is facing different circumstances and situation. And we have a team in our supply chain group that works with each of these suppliers. First, what we do is we go in and try to help them address their costs, figure out what we need to do to get the right resources. And so it’s a very active group right now as we work across the supply chain because we know we need to have suppliers who are healthy, can get and hire the people that they need, that they’re trained and that they can deliver high-quality parts to us. So I would say there’s ongoing work. And there are a lot of anecdotal stories, but we just work each and every one. As it relates to the semiconductors, we do see impact from semis into next year. And – but I think depending on where we’re at with demand, right now, it’s hard to exactly forecast what will happen because we’re selling every vehicle we can make right now. And we think there’s an opportunity – we’re at suboptimal levels from an inventory days on the field. We’ll never go back to where we were before the pandemic. But right now, it’s a little too lean. So even as we are hoping and what we see now is that we have strong demand, let’s remember, we have new refresh full-size trucks. Our SUVs are, again, very strong with the enhancements that we made. And so if that – even as – or if I should say, if we get to a more normalized level that we aren’t – don’t have pent-up demand for full-size trucks, SUVs and midsized crossovers, we still have some work to do to get a healthy level of inventory, a very lean but healthy level of inventory. So that’s what we’re focused on. And frankly, we need more chips to do that. And as we move and continue to put more technology in vehicles, we needed even more semiconductors. That’s why the strategy that we’re putting in place for the 2026 time frame to have three families of semis that we leverage across our vehicles will give us much more stability, resilience and ability to transfer the semis to the segments that are most in demand.

Mary Barra:

John, it so depends on what vehicle segments. I mean, we do know trucks use more semiconductors. Full-size utilities use more semiconductors than a sedan. A lot of it depends on how much technology on the vehicle, for instance, Cruise or all of the power features. So it’s really hard to make a – just a swag of what that would be. But what I will say is if you get 20% more, it’s not 20% more vehicles, that’s for sure.