General Motors Exceeded Wall Street Expectations

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GM and main findings

It was not an easy period for carmakers. However, General Motors reported fourth-quarter earnings that surpassed Wall Street expectations. Nevertheless, the automaker warned that a global semiconductor chip shortage could cut its earnings by $2 billion in 2021. 

It is worth noting that, carmakers, as well as parts suppliers, began warning of the shortage in 2020 after the demand for vehicles rebounded more strongly than expected following a two-month shutdown of production facilities related to the coronavirus pandemic. Interestingly, the carmaker has already temporarily closed plants in Kansas, Canada, and Mexico through mid-March due to the shortage. Moreover, General Motors also has cut production in South Korea.

Despite the problems, Marry Barra who serves as GM’s CEO does not expect to lose any production this year of its pickup trucks and SUVs. According to Barra, the company will likely need to partially build some models without the parts and complete assembly later. However, Barra declined to estimate how many vehicles would be affected. 

Based on the information provided by General Motors, the shortage would cost it $1.5 billion to $2 billion. GM is not alone when it comes to problems caused by the lack of chips. For example, the shortage could lower Ford’s earnings by $1 billion to $2.5 billion in 2021. Importantly, Ford reduced production of its profit-critical F-150 pickup this week due to the shortage. 

General Motors and plans for 2021

It is worth noting that, GM’s fourth-quarter earnings easily beat results from a year earlier. As a reminder, a U.S. labor strike affected the company’s results in the fourth quarter of 2019. 

Interestingly, on an unadjusted basis, net income was $2.85 billion for the fourth quarter compared with a loss of $194 million. Importantly, General Motors reported pretax adjusted earnings of $3.7 billion for the fourth quarter.

People should take into account that, GM reported pretax adjusted earnings of $5.3 billion, or $2.83 earnings per share, for the third quarter. According to the company, the fourth quarter would be weaker due to seasonality. 

General Motors expects to spend $9 billion to $10 billion in 2021. Interestingly, that includes plans to accelerate its all-electric and autonomous vehicle development and rollouts, as well as deferred spending from 2020 due to the pandemic. As a reminder, the company previously said its annual capital expenditure costs would exceed $7 billion through at least 2023.

Last but not least, GM expects to earn $10 billion to $11 billion, or $4.50 to $5.25 per share, in adjusted pretax profits in 2021. The company projects adjusted free cash flow of $1 billion to $2 billion for its automotive division this year. 

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