Title

Presentation

General Motors Company beats earnings expectations. Reported EPS is $2.21, expectations were $1.73.

Operator: Good morning, and welcome to General Motors Company First 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. 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.

Ashish Kohli: Thanks, Julie, and good morning, everyone. We appreciate you joining us as we review GM’s financial results for the first quarter of 2023. Our conference call materials were issued this morning and are available on GM’s Investor Relations website. We are also broadcasting this call via webcast. Joining us today are Mary Barra, GM’s Chair and CEO; Paul Jacobson, GM’s Executive Vice President and CFO; and Kyle Vogt, CEO of Cruise. Dan Berce, President and CEO of GM Financial, will also join us for the Q&A portion of the call. Before we begin, I’d like to direct your attention to the forward-looking statements on the first page of our presentation. The content of our call will be governed by this language. And with that, I’m delighted to turn the call over to Mary.

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. Highlights include our international markets outside of China, which had a record quarter, and North America, where we earned 10.9% EBIT-adjusted margins. In the U.S., we are the market leader in retail and fleet sales, including commercial sales. We earned the largest year-over-year increase in U.S. market share of any automaker, and we did it with strong production and inventory discipline as well as consistent pricing.

We delivered more than 20,000 EVs in the U.S. in the quarter, on the strength of record Bolt EV and EUV sales and rising Cadillac LYRIQ deliveries. This moves us up to the second market position and increased our EV market share by 800 basis points. We also continue to sell more trucks in the U.S. than anyone by a wide margin. In addition, the $2 billion of fixed cost reductions we are targeting will flow to the bottom line faster than we originally expected. And the enterprise value of these fixed cost reductions will have even greater than $2 billion of value because we’re strengthening our culture, which has consistently delivered strong results; we’re reducing our executive ranks by more than 15% through voluntary separations, which will help reduce bureaucracy; and we are empowering our leaders to structure their teams to be faster and more agile.

In addition, we are prioritizing programs and projects that have the highest revenue and cost impact. We understand the bar continues to be raised, so we’re holding ourselves accountable to drive improvements every single day. As we look at the performance of the business and the opportunity ahead of us with new ICE and EV launches, we’re able to raise our full year 2023 earnings guidance to a range of $11 billion to $13 billion. The new ICE products we are launching around the world will build on this momentum and support strong mix, pricing and EBIT. In GMI, the new Chevrolet Trax, is off to a very fast start in Korea with more than 13,000 orders placed in the first week of sale. In Brazil, the new Chevrolet Montana pickup saw more than 10,000 orders out of the gate.

And demand for our new midsize and heavy-duty pickups in North America is growing, especially at the high end. Over the last years, we’ve evolved our premium truck offerings from a niche to a franchise. And we did it through manufacturing investments, design, demonstrated capability and technologies like Super Cruise. Our customers are responding. 60% of dealer and customer orders for the new Chevrolet Colorado, our high-end Z71, ZR2 and Trail Boss models. Last year, it was 42%. 75% of the GMC Canyon orders are for higher-end AT4 and Denali models. Last year, it was 45%. 52% of Chevrolet Silverado HD orders are for the top-of-the-line high-country model. And 30% of the GMC Sierra heavy-duty orders are for the new Denali Ultimate, which is a brand-new model that didn’t exist a year ago.

Our profitable growth opportunities extend into other segments as well. For example, the Chevrolet Trax and Trailblazer and the Buick Encore GX and Envista will help us win new customers from brands that walked away from affordable vehicles or scaled-back customer choice. All four of these small SUVs are beautifully designed, packed with technology and include a long list of standard active safety and driver assistance technologies, yet they all have starting MSRPs below $30,000, with the Trax starting below $25,000. As a measure of just how good these vehicles are, the Trax earned a 63% lease residual. That’s 24 points above the previous generation and the best we’ve ever done in this segment. As for the Envista, one auto writer said its gorgeous styling resembles the Lamborghini and another said, as far as rivals go, the 2024 Envista might be playing in the sandbox alone, because it’s both premium and affordable.

At the same time, our EV volumes and market share are growing as cell production rises and our teams’ master new hardware, software and manufacturing technologies that we are deploying. As Paul and I have shared, we plan to produce 400,000 EVs over the course of ’22, ’23 and the first half of 2024, including 50,000 EVs in North America in the first half of this year and double that in the second half. So far this year, we’ve built more than 2,000 Cadillac LYRIQ, and production will continue to rise to help us meet pent-up demand. Both GMC HUMMER EV models are shipping from factory zero, and production is scaling. Our production ramp is carefully cadenced as we add additional trim series to the HUMMER EV pickup and began production of EDITION 1 SUV.

The team at KMI has now built more than 500 BrightDrop Zevo 600 vans, and the Zevo 400 begins production in the second half of the year, and we’ve added Purolator and Ryder as customers. We already have 340 fleet customers for the Silverado EV, and the team at Ramos Arizpe is making great progress preparing for the launches of the Blazer EV and the Equinox EV in the second half of the year. All of this is enabled by rising production at Ultium Cells in Ohio, which we expect to reach full capacity at the end of the year. Everything we learned in Ohio will be applied to our next-use LTM cell plants, including in Tennessee, where we will begin hiring and training production workers in a matter of weeks. Work also continues to transform our assembly plant in Orion Township, Michigan to build the GMC Sierra EV and the Chevrolet Silverado EV.

We have progressed so far, that it’s now time to plan to end the Chevrolet Bolt EV and EUV production, which will happen at the very end of the year. When Orion EV assembly reopens in 2024 and reaches full production, employment will nearly triple, and we’ll have a company-wide capacity to build 600,000 electric trucks annually. We’ll need this capacity because our trucks more than measure up to our customers’ expectation, and we’ll demonstrate that work and EV range are not mutually exclusive terms for Chevrolet and GMC trucks. So stay tuned. As we scale EVs, we will lower fixed costs and will continue to drive margin improvements we outlined at Investor Day. This includes optimizing our pouch cells for energy density, range and cost using new approaches pioneered at our Wallace Battery Center and by our technology partners.

And we announced this morning that we’re also working with Samsung SDI to add cylindrical and prismatic cells to our portfolio. Having multiple strong cell partners will allow us to expand into new segments more quickly, grow our annual EV assembly capacity in North America significantly above 1 million units and integrate cells directly into battery packs to reduce weight, complexity and cost. Reducing vehicle complexity and expanding the use of shared subsystems between ICE and EV programs is another priority. For example, we are reducing the overall complexity of our software configurations and related hardware on all future ICE and EV products. One important part of our efforts includes the reduction of infotainment screen configurations by 60% across our entire portfolio.

By reducing complexity, we can focus on delivering new and improved digital experiences much more quickly. We also expect that our supply chain will be an even bigger competitive advantage starting in ’26 and ’27, because of the direct investments we’ve made in lithium, nickel and other commodities as well as CAM, which will allow us to purchase significant quantities of material on favorable commercial terms. All of this is coming together in a way that will fundamentally change the narrative that traditional automakers can’t deliver competitive EV margins. We have a lot of work to do, but we have the right trajectory, and I believe we can get there much faster than people think. Now before I turn the call over to Paul, I would like to invite Kyle to share an update on Cruise, which continues to expand the scale and scope of its operations.

Kyle, over to you.

Kyle Vogt: Thanks, Mary. I’d like to give a brief update on our progress. Since last quarter, our driverless fleet has increased by 86% from 130 to 242 concurrently operating AVs. We’ve completed over 1.5 million driverless miles, and the pace continues to accelerate. Our first million miles took us about 15 months to complete, while the next million miles will likely take less than three. We’re also regularly completing over 1,000 driverless trips with passengers every day, and we’re seeing strong retention from our early users. This is significant quarter-over-quarter growth in our services well liked, but we’ve had limits on when and where it operates. But today, I’m excited to share that right now, a small portion of our fleet is now serving driverless rides 24 hours a day across all of San Francisco.

For us, this is a milestone years in the making and represents that our driverless fleet has real commercial value. We’re completing the work needed to roll it out to the rest of our driverless fleet as soon as we can. Another key part of rapid scaling is a readily available supply of vehicles. Fortunately, our purpose-built and cost-optimized AV, the Cruise Origin, will be testing in Austin soon. This vehicle has been validated almost entirely in simulation, reducing our historical reliance on expensive and time-consuming supervised test-mile collection. The launch of the Origin is a critical step on our path to profitability as well and towards hitting $1 billion in revenue in 2025. We remain on track and slightly ahead as of today. Thanks, Mary.

Back to you.

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

Paul Jacobson: Thank you, Mary, and thank you, Kyle, and good morning, everyone. Thank you for joining us today. I’m pleased to report a strong start to the year as the team continues to execute on our transformation. We’re strategically transitioning the business, while at the same time, leveraging our important ICE portfolio with new and refreshed products, driving continued robust demand for our vehicles while pricing has remained stable. We’re also excited to bring on incremental EV volumes, particularly in the second half of the year, as we increase battery cell production at Ultium Cells. And as Mary mentioned, we took initial steps in Q1 towards implementing our $2 billion cost initiative, of which we now expect to realize about 50% in 2023, with the majority of this benefit occurring in the back half of the year.

The performance-based exits in roughly 5,000 individuals, who participated in the voluntary severance program, will drive approximately $1 billion towards this target. But people cost is just one of several areas we’re focusing on. The remaining $1 billion will come from the following initiatives: actions to reduce complexity across the portfolio and throughout the business, in everything we do from vehicle design to engineering and manufacturing; prioritizing our growth initiatives. We simply cannot do everything. We’re focusing on projects like crews, bright drop and software-defined vehicles, which offer the biggest returns on revenue and margin. And lastly, we’re being tactical on overhead and discretionary costs, including corporate travel, IT costs and marketing spend.

These actions will have a near-term impact on costs, but we also outlined a number of additional medium- to long-term opportunities at our Investor Day in November last year, which we are aggressively pursuing. For example, we are developing a fully integrated battery ecosystem and taking a portfolio approach to battery raw materials. We will source from a mix of established and early-stage miners, giving us both security of supply and lower pricing volatility. These are meaningful advantages as we scale into the back half of the decade. The Treasury Department’s recent guidance on the clean energy consumer purchase incentive also validated our battery supply chain work with our entire fleet of EVs under the MSRP cap qualifying for the full $7,500 incentive this year.

Now let’s discuss another important topic, dealer inventory. As we mentioned on the last earnings call, our plan is to balance supply with demand, and that’s exactly what we did this quarter. Early in the year, production improved as supply constraints started to ease and began to outpace proactively plan some downtime, which allowed us to end the quarter with U.S. dealer stock flat compared to December, while we gained 1.3 points of share and increased volumes 4% year-over-year. These production actions were contemplated in our 2023 guidance metrics laid out at the beginning of the year. We are still planning to a 15 million unit SAR and targeting to end 2023 with 50 to 60 days of total dealer inventory, although seasonality production schedules and timing of fleet deliveries may take us out of this range from time to time.

Now let’s get into the Q1 results. Revenue was $40 billion, up 11% year-over-year. We achieved $3.8 billion in EBIT-adjusted, 9.5% EBIT-adjusted margins and $2.21 in EPS diluted adjusted. Total company results were down only $200 million year-over-year, despite a combined $800 million headwind from lower pension income and lower GM financial earnings, providing more evidence that the underlying business remains quite strong. Adjusted auto free cash flow was essentially flat year-over-year, driven by higher capital expenditures related to our EV investments, seasonal working capital headwinds and GM Financial dividend timing. However, we used our strong balance sheet to repurchase $365 million of stock in Q1, retiring 9 million shares and early retiring $1.5 billion in debt maturing later this year.

Given the strong Q1 results and our current outlook, we are increasing our full year guidance to EBIT-adjusted in the $11 billion to $13 billion range, EPS diluted adjusted to the $6.35 to $7.35 range and adjusted automotive free cash flow in the $5.5 billion to $7.5 billion range. I’ll provide more details on this after I cover the regional results. North America delivered Q1 EBIT-adjusted of $3.6 billion, up $400 million year-over-year, and EBIT-adjusted margins of 10.9%. Results were primarily driven by higher pricing and volume, partially offset by mix, lower pension income, warranty reserve adjustments and higher commodity and logistics costs. We saw a $1.3 billion pricing tailwind year-over-year in the quarter, driven largely by the price increases in 2022 carrying into 2023.

We expect this year-over-year pricing benefit to moderate as we progress through the year. However, we anticipate pricing performance on our all-new midsize pickups and refreshed HD pickups to partially offset this headwind. Demand for our full-size pickups remains strong, with increased year-over-year total sales of our Silverado and Sierra full-size pickups up 3%. We also gained 0.3 percentage points of total market share to continue our number one position in full-size pickup sales. Encouragingly, April-to-date performance is also trending well as demand remains healthy, inventory levels are essentially flat, pricing has been consistent, and we’re seeing a steady increase in industry volume. GM International delivered Q1 EBIT-adjusted of $350 million, largely flat year-over-year, despite the fact that equity income in China was down $150 million due to lower volume and pricing pressure, partially offset by cost actions.

The environment in China has been very challenging as the industry navigates continued COVID-related impacts, regulatory changes for both EV and ICE vehicles and greater-than-expected competitive pricing actions. The China team is taking aggressive actions to offset. However, we don’t expect an improvement in equity income until the second half of the year. EBIT-adjusted in GM International, excluding China equity income, was $250 million, up over $150 million versus last year. The successful turnaround the team has executed over the past few years continued with another record quarter. The results were driven by higher pricing, volume and mix, partially offset by commodity and logistics costs and foreign currency headwinds. For the full year, we expect pricing to be up on a year-over-year basis, leveraging the strength of the portfolio and more than covering FX headwinds.

For GM International, we anticipate moderately improved full year 2023 results relative to ’22. The strong results and momentum for the rest of GM International are anticipated to more than offset continued headwinds in China. GM Financial delivered first quarter EBT adjusted of over $750 million, down $500 million year-over-year, as expected, primarily due to the expected decrease in net leased vehicle income, driven by lower lease sales mix as a result of reduced new vehicle production since Q3 2021 and lower net gains on lease terminations. Also, while higher cost of funds impacted results versus 2022, it was partially offset by higher effective yields on new originations and growth in the loan portfolio. GM Financial’s key metrics, balance sheet and liquidity remained strong, providing them the ability to support the GM enterprise across economic cycles.

We’ve seen no material impact due to the recent banking crisis. In fact, earlier this month, we were able to renew our $16 billion revolving credit facilities while also receiving a ratings upgrade of GM and GM Financial bonds from Moody’s. This upgrade should improve credit spreads on future bond issuances and improve cost of funds as their debt portfolio reprices. GM Financial also paid a $450 million dividend to GM in Q1. Our full year GM financial expectations of EBT adjusted in the mid $2 billion range and dividends similar to 2022 have not changed. Corporate expenses were $300 million in the quarter, down slightly year-over-year as we continue to invest in growth initiatives. Crews expenses were $550 million in the quarter, up $250 million year-over-year, driven by an increase in operating spend as well as by the inclusion of stock-based compensation expense this quarter versus Q1 2022.

As we look forward to the rest of the year, our goal is to remain agile and adapt to the dynamic macro environment. Our updated guidance assumes that the pricing benefit we saw in Q1 is neutralized over the rest of the year as we cycle price increases taken in 2022 and incentives gradually increase. Commodity and logistics costs have been stickier than originally estimated, primarily due to higher steel prices on market index contracts. For the full year, we now expect commodity and logistic costs to be essentially flat year-over-year versus our prior expectation for a modest tailwind. Our expectation to realize at least $300 million EBIT-adjusted benefit in 2023 from the clean energy production tax credits is unchanged. And while we continue to experience parts availability and logistics challenges as we did in Q1, we expect these issues to gradually improve over the next few quarters and are, therefore, still expecting 2023 year-over-year wholesale volume to increase 5% to 10%.

As Mary mentioned, we are making great progress towards our goal of 1 million units of North America EV capacity in 2025. As we scale and launch multiple high-volume EVs in strategically important segments, we will see the benefits of the Ultium platform expand and help us deliver margins in the low to mid-single digits by 2025. In closing, I also want to say how proud and thankful I am for all of our amazing team members for their tireless efforts. They’ve executed quarter after quarter and delivered two consecutive years of record profits despite many external challenges. Needless to say, my optimism for GM’s long-term potential remains very high. This concludes our opening comments, and we’ll now move to the Q&A portion of the call.

Operator: Our first question comes from John Murphy with Bank of America. Your line is open.

John Murphy: I just wanted to — Paul, you mentioned that the first quarter pricing would reverse through the course of the year, and that’s something close to neutral. But it seems like there are some lessons that have been learned for the last couple of years on creating mix and price upside and managing the business to be more profitable over time. So I’m just curious if you can talk about maybe the lessons that were learned, the products that are being launched. Because I mean, it seemed like the pickups and the HD refresh, you’re leaning into higher mix. But then Mary, you mentioned four crossovers below 30,000, that’s kind of going in the other direction. I mean, how do you think about managing this going forward? And do you think this current price level is something that you might be able to maintain even though you give back what you gained in the first quarter in the face of what sort of an increasing threat from one large player, Tesla, that is cutting price aggressively in the market.

Paul Jacobson: Yes. Thanks for kicking us off today. I think there’s a lot to unpack in your question. I’ll just start by saying we need to be very conscious of the macro environment around us. And as we said, going into the year, we were planning I think somewhat conservatively in recognition of that macro. So about a 15 million units SAR with some normalization of incentives and pricing to a little bit lower demand, we certainly hadn’t seen that in Q1. And despite that forecast, we’re still comfortable taking up our guidance, because I think we’ve we reflected some of that in the back half. And certainly, if we see demand hold up, I would expect that we can outperform these results across the board. But we want to make sure that we’re very conscious of the macro.

When you asked about lessons learned, I think we certainly have really focused on vehicle margins. And I think one of the important steps this quarter, that I’m not sure that the market digested all that well, was when we took down capacity for a couple of weeks at a plant to balance production to demand. And I think when you look back on that decision to have inventories flat while we gained share and increased volumes over the time period, I think, is one of those really valuable lessons learned that we can take to the future going forward. So, on the trim side, clearly, what we are seeing is strong demand for the higher-end trims. Mary mentioned in her remarks, the demand for the Denali Ultimate. This is a trim level that didn’t even exist a year ago, yet customers were asking for it, and you see they’ve responded with their orders.

So, I think there’s lots to look at, lots of encouraging signs for how we think about the business going forward.

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. For instance, the Trax only has 1 powertrain. So, I think when you talk about mix, I think the opportunity, you still have to cover the market for what people can afford but doing it in a way that you’ve really reduced complexity, I think, is one of the big lessons learned, and we’re going to continue to drive that not only across the ICE portfolio, but the EV portfolio as well.

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 two-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? Do you add third shifts? I mean, you just — you get into thing where you’re seeing like drop. You’re managing the business very optimally right now. And if you start growing volume, I think you’re going to become a lot less optimal as you start adding third shifts, particularly with that 96% CAPU number?

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.

John Murphy: But fair to say that’s all variable cost that comes in?

Paul Jacobson: Absolutely.

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

Itay Michaeli: Just two 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 intense in the production and any product ramp that you’ll have for the trucks? And then secondly, maybe for Mary and Kyle, congrats on the 1.5 million driverless miles, hope you can share a bit of, a, where you’re seeing safety metrics on those miles and performance metrics relative to expectations? And how the experience is informing you on future scaling plans for Cruise?

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 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.

Mary Barra: And Kyle, do you want to take the question on Cruise scaling?

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 up or another that we continuously burn down and move out of the way so we can keep scaling up the fleet.

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

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.

Mary Barra: So let me — Rod, appreciate the question. Let me start with China. As Paul said, the industry is pretty tough right now. It’s still recovering from COVID. Pricing is very aggressive, as you know. And when you look at the fundamentals of the industry in China, you got 50% capacity utilization. You’ve got more than 100 brands competing. I don’t think that’s a steady state that you can look at. But if you look a little longer term from a country perspective, I mean, there’s still tremendous growth, and I think the market can still be strong and have great profitability potential. So from a GM-specific perspective, we’re launching the right EVs right now off the Ultium platform. I think ’24 and ’25 are going to be key years for us as we not only get the right EV products in market that we think will compete at the right price that allows us to be profitable, but then we’re also aggressively pursuing improvements from a structural cost perspective across across our China operations.

So I think China is in a period right now because of where the industry is and the number of competitors with the pricing challenges that will sort, and I think we’ll be well positioned. We do have brands that have value in the country, and we’re going to have the right EV portfolio there. And frankly, right now, our ICE portfolio is strong. And so that’s going to enable us to fund funded as we look at the price challenges. From a U.S. perspective, our main focus right now is twofold. One is getting the EVs out there. We’re launching the battery plants, the module, the assembly and then the vehicle, also at the same time, from a Cadillac LYRIQ perspective, we’re launching — it’s really the first vehicle with Ultifi. So there’s a lot of new.

That’s why we have a very measured cadence as we’re ramping, where now, the battery cell plant is flowing very well, and that is enabling us now to really focus on module and pack, which we’re doing. That’s why we said even at the beginning of the year that the second half is when you’re really going to see the curve start to accelerate, and we’re on track to do that. So we’re really focused on getting the vehicles out there, because we think we price them right to begin with. When you look at where the LYRIQ is below, it starts below 60,000 or right at 60,000; the Equinox at around 30,000; the Blazer in the mid-40s. These are price points that I think are very important. And then when you look at the vehicles from a styling technology perspective, I think they’re going to be great.

While we’re working to really get these vehicles out there because the customer response is so strong, we’re also working on costs. And so, the $2 billion structural cost reduction that we’re working is, as Paul indicated, we’re doing well on that, and we’ll continue to look for those opportunities. But then we’re also looking at how do we continue to drive improvements from both an ICE and the EV margin perspective. And there’s a tremendous amount of work going on there. So get the vehicles out, continue to work on pricing around costs, so you can count the right price Italy, the focus that we have right now, and this is going to be a critical year for that. But as Paul and I both said, we believe, even with not only the challenges of commodities, but also the pricing pressures, we still think we are well positioned to achieve the low mid-single — low- to mid-single-digit margins in 2025.

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?

Paul Jacobson: Yes. Thanks, Rod. So a couple of things. On costs in North America, obviously, we had the lower pension income, a little bit higher commodities and logistics costs, in particular. We also saw a bit of an uptick in warranty costs. I think that’s probably a bit of an anomaly and won’t repeat throughout the year across the board. So, we’re still getting, like I said, early traction on the $2 billion controllable fixed cost reduction, as we talked about, the biggest placeholder on that being the voluntary program. So the $1 billion of savings will begin to accrue savings really probably late second quarter and then really start to get into bulk in the second half of the year. So that was a really good way to kick start that program, and we’re grateful to the employees who chose to take that package.

The other side is a lot of grinding around on overhead as we talked about going forward, a lot of discretionary spend. So, we’ve got teams that are focused on getting savings in discretionary spend, IT-related costs, marketing-related costs across the board. And we think that we can get traction on those things pretty quickly as well. So, that’s where we feel confident getting to about 50% this year, with the remainder accruing into 2024. Now this is important, I think, not just for offsetting some of the near-term pressures, but some more of those competitive dynamics that we’ve talked about for the long term in an effort to continue to improve the margin trajectory of the Company.

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?

Paul Jacobson: Yes. Well, we’re seeing obviously some pressure in D&A, but that’s where — if you recall, we talked about the $2 billion program offsetting that and resulting in savings. So that’s what we’re aiming for. That’s going to be a little bit of a hurdle to get over, but one that we feel comfortable that we can do.

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

Dan Levy: First, I wanted to ask about the share buybacks. Interesting to see that you did share buybacks in the quarter, and I’m guessing that speaks to your — the confidence in your liquidity profile. But as you need to ramp on growth spend and as there’s an open question on type of cycle normalization that we’re going into, how are you going to approach share buybacks?

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. But with that, we saw our way to do the share buyback. We’re going to continue to evaluate that quarter-by-quarter as we go through the year. But I think we felt confident doing that. We felt confident in raising guidance. And we feel confident overall in our cash position to be able to continue to look for those opportunities.

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?

Paul Jacobson: Yes. So Dan, I’ll start with that. Mary can jump in. I think in the early stages, we’re going to be very firm with those targets across the board. Because when you look at the EV profitability, and we’re not going to give a lot of details right now just because the numbers aren’t that meaningful, when you look at the infrastructure investment that we’ve made already starting to depreciate that, not fully utilizing as we ramp up, et cetera, that will start to become more clear. So we need to be able to ramp up the capacity to realize the scale benefits and get to the pricing efficiency or the cost efficiency that we’re targeting to be able to drive those margins going forward. So I think it’s one that we’ve got to make sure that we look to where the demand is.

But as we look at the order books and the indications of interest for the vehicles that we’ve announced and the ones that we’ve taken orders for, we feel very confident about the demand there for the 400,000 and ramping up to the 1 million, and we’ll continue to balance that. But structurally, we obviously have a lot of work to do on costs. We’ve talked about that. We’ve got a lot of work to do on scaling, and all of that is coming together and, as you can see, picking up speed pretty quickly as we get into the middle and back part of this year.

Mary Barra: Paul, you said it well.

Operator: Thank you. Our next question comes from Adam Jonas with Morgan Stanley. Your line is open.

Adam Jonas: I just want to follow up on Dan and Rod’s question and maybe in a different way, I apologize. But again, you expect to earn low- to mid-single-digit EBIT-adjusted margins in the EV portfolio kind of from 2025, before the impacts of clean energy credits. On my numbers at least, that’s going to be — it could be higher than Tesla’s margins. But putting that aside, if you are confronted with a choice of doing the 1 million or doing the mid-single-digit margin, if it had to be a choice and you couldn’t do both, my interpretation of what you just said is that you’ll prioritize volume. Is that the message here in the case that the economics did require you to make a choice on trade-off?

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 for 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. And I know you’ve written about that in some of your notes. So we’re going to look and be smart, maintain the brand value, the vehicle value, the residual value.

But we think with the portfolio, we’re going to be well positioned to achieve the 1 million units with the right profit margins. So — but we’re going to be nimble. So just to put an either/or out there, we’re going to make — I’d say, make our own luck as we do this with the right products and continued cost reduction.

Adam Jonas: Thank you, Mary.

Mary Barra: Okay. Thanks, Adam.

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 run way 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.

Kyle Vogt: Yes. Thanks for the question. I mean, as we march towards profitability, which is a big focus for us. We’ve been looking for a lot of ways to do more with less and run really efficiently. And so, similar to what Paul mentioned across the board in terms of some of the structuring and streamlining inside of GM, we’re doing those types of activities in Cruise as well and seeing some good results there. But really for us, the focus is on rapid scaling and therefore, getting incrementally closer to profitability.

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

Dan Ives: So what would you say has been the biggest surprise this quarter on the positive? Something where either from a production perspective, cost or even efficiency from development and specific on the EV side, especially given the transformation that’s happening?

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 Ultifi. And so that is something that I’m really proud of the team of what they’re doing. And then just overall, I knew we had a strong product set, but the strong customer and dealer reaction that we’re seeing to the products that we put out from an EV perspective, I think that also gives me a lot of confidence in the strength of execution.

And then finally, even as we’re in a year of rapid launches, I think we haven’t had this many launches. I think for more than a decade, the team still very aggressively is working to take cost out, as signified of what we’ve been able to do with taking 15% of the leadership structure out, which is — and the way that the teams are looking to optimize, reduce complexity, become more agile. So, it’s not only — I feel we have the right products and we’re really reducing complexity. I think we have the right culture that is really driving a continuous improvement mindset from a cost perspective. So Dan, those are the two things I’m most proud of.

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

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?

Paul Jacobson: Yes. Emmanuel, I would say we expect pricing. So North America pricing was about a $1.3 billion benefit in the quarter. As we lap last year’s pricing increases, we expect or we’re planning for — I wouldn’t say we expect at this point, but we’re planning and assuming that we end up giving some of that back so that we’re essentially net flat for the year on that, whether that’s through incentives or through pricing changes, et cetera. So, a little bit of a giveback for the rest of the year. And like I said to the earlier question, that’s — most of that’s sort of backloaded. But if we see demand continuing to be strong, then I would say that we’ll probably outperform that assumption going forward. On the cost side, a little bit kind of moderation from where we were before.

We thought commodities and logistics would be down year-over-year. We’re now seeing that essentially be flat. Like I said, we’ve seen some pressure in steel and some other things in logistics across the board. So overall, production, up 5% to 10%, as we said; pricing relatively flat for the year, and that’s how you can kind of center on where we’re projecting at the midpoint.

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?

Paul Jacobson: Yes. So right now, we’ve said it’s about 3/4 is on EV. When you look at capital and engineering expense, we still have some mid-cycle vehicles that we’re doing on the ICE side. But largely, the engineering and the capital is going into the EV side. That will obviously, as we work through the transformation, go to 100% over the next few years.

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

James Picariello: Can you clarify how the structural cost savings range is now trending for this year relative to the $2 billion GM’s targeting to be achieved by the end of next year. And then just how should we be thinking about the associated cash costs tied to this effort for this year?

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. The biggest component of that is obviously the voluntary severance program. We disclosed about a $900 million cash charge associated with that. That will largely be spent this year. The rest of the things that we identified, whether it’s travel, IT, marketing or some of the complexity, we don’t expect will have significant cash costs associated with it.

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 three 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?

Paul Jacobson: Yes, it’s a fair question. Obviously, we’re seeing gains in fleet. And I think the historical view of fleet as a discount chain to drive volume isn’t really there anymore. We’re seeing really strong pricing on the fleet side. And we expect that business is going to continue to grow and be a contributor to our margins.

Operator: Thank you. Our next question comes from Ryan Brinkman with JPMorgan. Your line is open.

Ryan Brinkman: And thanks too for the earlier comments on China. I do want to ask a bit more around your operations there, though, just because, on the one hand, it seems like less of a needle mover for total company profits than it used to be with North America more profitable than before and consolidated IO flipping from loss-making to profitable. But on the other hand, the equity income there was the lowest in some time, apart from a couple of quarters impacted by COVID closures. So can you talk about any one-time disruptions you might have incurred there in the quarter, such as paradoxically maybe around COVID re-openings as the virus spread or any other one-time factor? And then what is it that you need to do now to restore profitability to where you want it to be?

You’re strong at the low end of the EV market. I’m guessing that’s probably a more well-rounded higher-end EV lineup that you see the most opportunity to close the gap. So along those lines, can you help us in terms of like what that comment in the shareholder letter around 400,000, I think, Ultium EVs produced over ’22 and ’23 with 50,000 in the first half in the U.S., doubling the back half? What does that kind of squeeze to for your anticipated Ultium ramp in China? And then how are you thinking about the profitability impact to your operations in China once those EVs do launch, maybe in light of some of the recent EV pricing actions in that market?

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 Hongguang 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 — S-GM Wuling joint venture. In the S-GM venture, it’s getting the vehicles off of Ultium launched and in in-country because we’ve seen good reception to them. We just did some launch in the last couple of weeks, and the market reaction was very good.

So it’s getting those vehicles scaled and getting them into the market. We think because they’re new, we’re going to — brand new and well received, we’re going to be able to achieve the pricing that we intended for those. And we’re just cap-remain dynamic. And that’s why in addition to getting the Ultium EVs launched in China, we’ve also got to really continue aggressive measures on taking out structural costs, which we already will do have plans in place to execute on, and we’ll report on those as we go forward.

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, then just LG Energy Solutions, how those credits would be shared.

Now that we do have the details around the Act, and it’s passed into law, do you have any updated thoughts on how much the low to mid-single digits margin could benefit from those credits? And then with regard to the new JV from Samsung, I mean, you entered into that JV knowing about the IRA. So did you already finalize how that would be shared relative to the credits going into the JV? And did that maybe enter into your thinking to start a JV with an additional partner?

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 two 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. The second piece of it, on the tax credits themselves. We did say that about $3,500 to $5,500 per vehicle is what our estimate is. We said about $300 million this year that we would expect to get out of that.

We’re not going to comment specifically on any deals, how that might be shared, et cetera, across the board. But again, we feel confident about the tax credits in the short term, helping us to narrow that gap between that low to mid-single-digit vehicle profitability on the vehicle and getting it to ICE parity faster than we originally thought. So those are the ways that we’re thinking about how we go to it. But longer term, the vehicles have got to stand by themselves.

Operator: Thank you. Our last question comes from Colin Langan with Wells Fargo. Your line is open.

Colin Langan: GM seems to be leading in sort of securing the raw material supply. Curious what your thoughts are on the 2032 EPA targets that will require about 67% of vehicles to be EV by 2032. Do you think there’s enough lithium to hit the targets? Do you think you could get enough lithium by then in the industry? And do you think we have enough capacity in place to get there, I guess, considering you’ve been pretty good about getting capacity so far.

Mary Barra: I’ll let Paul talk about — specifically about lithium. But when we look at the ’27 through ’32 targets that 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.

Paul Jacobson: Yes. So Colin, obviously, we’ve been doing a lot of work with multiple partners across the entire battery raw material spectrum. We think that’s the prudent thing to do, both for not only from a scarcity perspective, but also making sure we get to a security of supply for our longer-term ambitions. So we’re not just looking at, do we do a procurement contract for this year or for that year? We’re looking at forming big long-term partnerships. So whether it’s the work we did with Lithium Americas, the joint venture that we’ve done with POSCO, you see these relationships getting set up as structural. And that’s where we’re really focused to do because we’ve got the 1 million vehicle target in 2025. We said we’re targeting 50% by 2030 and then ultimately, all electric vehicle production in 2035. So building that infrastructure now is where I think we’re securing an advantage.

Colin Langan: Got it. And you’re ahead of your $2 billion annual target for the next two 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 is also the guidance contemplates things like the signing bonus and stuff like that in terms of cash flow that might occur this year from the UAW contract?

Mary Barra: We are — I mean, we aren’t even at the negotiations, and we’re not going to negotiate in the media here. We’re working to make sure we’re building a strong relationship with the new leadership, getting to know them and making sure we identify what are the challenges of the business and then it becomes working together to solve the issues to get to a good place. And so beyond that, we’re not going to really comment. But I would say with what we’ve done in the past, we’ve always demonstrated that we can continue to drive efficiencies, and that’s what we’ll do.

Mary Barra: All right. Well, thanks, everybody. I really appreciate all your questions today. And I want to close by reiterating what I said as we opened the call. I really believe we have the right products and strategies in place to continue to deliver strong results. And although we have a lot of work to do, there’s a lot of execution as we ramp up EVs, I believe that’s where GM shines. We have the capability to execute, and that’s exactly what we’re going to do. And I believe that we’re going to do it faster than most people think. In addition, this is a milestone year for Cruise as they continue to expand their commercial operations. And with the EVs that we have coming, I really think it’s a breakout year for Ultium. So I look forward to sharing updates along the way, and I really appreciate your time today. So I hope everyone has a great day.

Operator: Thank you for your participation. Participants, you may disconnect at this time.