Detroit — General Motors Mitsubishi is seeking to set several key financial targets for 2024 after easily beating Wall Street's second-quarter earnings expectations, while restructuring loss-making operations such as autonomous vehicles and its business in China.
The Detroit automaker now expects full-year adjusted earnings before interest and taxes of $13 billion to $15 billion, or $9.50 to $10.50, up from its previous guidance of $12.5 billion to $14.5 billion, or $9.00 to $10.00. It also raised its automotive adjusted free cash flow forecast, while slightly lowering its net income attributable to shareholders range by less than 1%.
Despite the strong financial results, shares closed Tuesday at $46.38, down 6.4% — marking the stock's worst daily drop since December 2022.
Investors were pulled back by slowing growth, a fading uptrend in the second half of the year and fears that the automaker's earnings power may have peaked, Wall Street analysts said.
“Impressive results given the big losses in electric vehicles, cruise and China,” Morgan Stanley analyst Adam Jonas said in a note to investors on Tuesday. “History suggests the good times don’t last.”
Tom Narayan of RBC Capital Markets pointed to GM’s forecast for second-half earnings to be $2.5 billion below first-half earnings. He also pointed to GM’s China business as a drag and said Wall Street was losing hope for further guidance increases.
“Many investors who have been waiting for prices to normalize after years of unprecedented inflation are likely to see GM’s comment as an important data point suggesting we may be at the beginning of a deflationary cycle,” Narayan said.
Here's how the company performed in the second quarter, compared to the median estimates compiled by LSEG:
Earnings per share: $3.06 adjusted vs. $2.75 expectedRevenue: $47.97 billion vs. $45.46 billion expected
GM’s second-quarter results included net income attributable to shareholders, which excludes some dividends, of $2.93 billion, up 14.3% from $2.57 billion a year earlier. On a per-share basis, GM reported earnings of $2.55, up from $1.83 a year earlier. Adjusted earnings before interest and taxes were $4.44 billion, up 37.2%, and adjusted earnings per share were $3.06.
Unadjusted net income was $2.88 billion, up 14.8% from a year earlier. GM said its second-quarter revenue was a new quarterly record for the automaker, up 7.2% from $44.75 billion a year earlier.
General Motors stock performance in 2024.
“We had a really great first half and second quarter, and we’re positioned to have a very strong year,” GM Chief Financial Officer Paul Jacobson said during a news briefing. “We expect to see a seasonal uptick in commodity costs, as well as some of the headwinds in pricing that we assumed in the second half of the year.”
Along with strong earnings, General Motors on Tuesday announced it would halt production of its self-driving car, the Cruise Origin, indefinitely, taking a special charge of about $600 million in the second quarter. It also said it was trying to restructure a joint venture in China with SAIC amid ongoing losses, including a $104 million loss in equity income during the second quarter.
GM will continue to return money to investors amid strong earnings as well as changes to its plans for electric and self-driving vehicles, which are cutting or delaying costs, Jacobson said.
Jacobson said the cost increase in the second half of the year will include an additional $400 million in planned marketing spending compared to the first half of the year to promote new launches. That spending is still down from the same period a year earlier, he said.
Jacobson added that increased sales of electric vehicles will also be a headwind, as they are not expected to contribute as positively to earnings as GM's gas-powered models.
North America leads
As in recent years, GM’s North American operations, driven by truck sales, were largely responsible for the company’s second-quarter outperformance and the increased outlook. Specifically, vehicle pricing remained more resilient than GM had anticipated at the start of the year, Jacobson said.
GM said the average transaction price during the second quarter was about $50,000, with incentives below the U.S. industry average.
North America adjusted earnings rose to $4.43 billion in the quarter, up nearly 40% from a year earlier. The unit posted a gross margin of 10.9%, up 2.3 percentage points from a year earlier.
Despite outperforming in several areas, GM has not achieved the expected return to profitability in China, where the automaker has seen significant declines in profits.
The automaker's Chinese operations posted an equity loss of $104 million — its second straight quarterly loss after hitting its lowest in about 20 years in 2023.
“In China, we have taken steps to reduce our inventories, align production with demand, and reduce our fixed costs, but it is clear that the steps we have taken, while important, have not been enough,” Jacobson said at a press briefing. “We are working closely with our joint venture partner to restructure the business, to make it profitable and sustainable, while ensuring that it does not need additional capital.”
GM’s international operations, which include South Korea, Brazil and the Middle East, reported adjusted earnings of $50 million in the second quarter, down 78.8% from a year earlier. Its financing arm reported adjusted earnings of $822 million, up 7.3% from a year earlier.
Electric cars
GM continues to target producing and selling between 200,000 and 250,000 all-electric vehicles in North America, though adoption has been slower than expected.
Its electric vehicle sales during the quarter rose 40% compared to the previous year to 21,930 units. However, electric vehicles accounted for only 3.2% of its total sales in the second quarter in the United States.
Jacobson said GM expects its electric vehicles to be profitable on a production or contribution margin basis once it reaches 200,000 units by the fourth quarter.
General Motors' 2024 Chevrolet Equinox EV is seen during a media launch event for the vehicle in Detroit, May 16, 2024.
Michael Wayland/CNBC
“Electric vehicles will be a tailwind to earnings as we expand, until we reach positive variable earnings in the fourth quarter, at which point it should start to become a tailwind to EBITDA,” he said.
Jacobson declined to discuss potential plans to delay or cancel future EV battery cell production in North America, except for two joint plants that currently produce cells with LG Energy Solution in Ohio and Tennessee.
“We will continue to follow customer guidance,” Jacobson said. “We are rapidly expanding our first and second cell stations. We have nothing to comment on at this time.”
Last week, GM CEO Mary Barra said the automaker's goal of reaching 1 million electric vehicle production capacity in North America by the end of 2025 was in “significant doubt.”
