General Motors shares fall as the automaker outlines a new cost-cutting drive

DETROIT (Reuters) – General Motors Corp. (GM) is grappling with costs and struggling to build more electric vehicles, as it reported on Tuesday that profits and pretax-adjusted margins in its main North American market fell from the first quarter, despite a jump in revenue and transaction prices per vehicle.

Shares fell 4.4% to $37.58 in mid-day trading.

The automaker said it plans to invest less in new products and reduce operating costs by an additional $1 billion through the end of next year, and raised its earnings guidance for the full year.

CEO Mary Barra, on a call with analysts, said GM has reversed plans to kill off its least expensive electric vehicle, the aging Chevrolet Bolt, at the end of this year. Instead, the company now expects to deliver Updated Bolt with a newer Ultium battery pack, but didn’t reveal details about cost, timing, or factory location.

“The new Bolt should cost the same or less to produce than the previous model” if it switches to a dedicated EV platform and next-generation batteries, said Sam Fiorani, head of global forecasts at AutoForecast Solutions.

Barra said battery production at Ultium’s joint venture plant in Lordstown, Ohio, has been hampered by “our automation equipment supplier struggling with delivery issues.” Parra said the situation should be resolved by the end of the year. In the meantime, she said, GM is building battery units by hand on manual assembly lines.

GM said profits and pre-tax-adjusted margins in its main North American market eased from the first quarter, despite a jump in revenue and transaction prices per vehicle. Our second quarter results included $792 million in fees related to new agreements with electric vehicle supplier partners LG Electronics and LG Energy Solution.

On an annual basis, General Motors said net income for the second quarter rose about 52% to $2.6 billion, as revenue grew 25% from the same period in 2022 when production faltered due to semiconductor shortages.

GM said it now expects full-year net income of $9.3 billion to $10.7 billion, up from a previous forecast of $8.4 billion to $9.9 billion. On a per share basis, GM expects net income of $7.15 to $8.15 for the year, up from $6.35 to $7.35.

The new outlook does not take into account the potential costs of a strike by the United Auto Workers union if it fails to reach a new contract with GM by the Sept. 14 deadline.

Chief Financial Officer Paul Jacobson said during a conference call that GM’s more optimistic outlook comes after six months of strong demand and richer-than-expected prices earlier this year.

But the decision to cut investment in new products and operating costs comes as the company’s profit margins are under pressure. GM’s pretax profit margin for the first six months of the year fell to 8.3% of revenue, down from 8.9% a year ago.

GM now plans to spend $11 billion to $12 billion on capital investments this year, down from a previous plan to spend $11 billion to $13 billion.

“There is a lot of focus on simply winning,” Jacobson said.

Barra said GM could cut capital spending by simplifying its product line, and reducing the number of different color and feature combinations offered. Barra said GM’s goal is to cut the number of trim color and feature combinations by half.

In contrast to Tesla (TSLA.O) CEO Elon Musk’s price-cutting strategy to speed up demand, GM pushed average transaction prices in North America by $1,600 to about $52,000 last quarter, Jacobson said.

“We are focused on profitability. Our recent results show that we are not sacrificing margin for the sake of volume,” he said.

Barra, in a letter to shareholders, said the automaker aims to build “about 100,000 EVs in the second half of this year and we’ll grow from there.” In the first half, GM built about 50,000 electric vehicles, mostly older Bolt models, priced at $27,495.

GM’s earnings statement reiterated a previous goal of building 400,000 electric vehicles from 2022 through the first half of 2024, and projected electric vehicle revenue of $50 billion in 2025, with pre-tax profit in low to mid single digits.

A Reuters analysis in May suggested that a slow increase in GM battery plants in Ohio, Tennessee and Michigan could limit annual electric vehicle production to less than 600,000 by the middle of the decade, even as General Motors aims to increase capacity to one million by 2025.

In a note to investors, CFRA analyst Jarrett Nelson said he remains “cautious due to the near-term drawdown of earnings from GM’s EV transition and its ability to execute a strong production ramp, as well as end-to-end demand for its EV models.”

Additional reporting by Joseph White and Paul Lehnert in Detroit Additional reporting by Ben Kleiman in Detroit Editing by Matthew Lewis, Louise Heavens and Nick Zieminski

Our standards: Thomson Reuters Trust Principles.