General Motors Company (GM) — Q4 2023 Earnings Call Transcript

Thank you, Amanda, and good morning, everyone. We appreciate you joining us as we review GM's financial results for the fourth quarter and calendar year 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; and Paul Jacobson, GM's Executive Vice President and CFO. Dan Berce, President and CEO of GM Financial, will also be joining us for the Q&A portion of the call. On today's call, management will make forward-looking statements about our expectations. These statements are subject to risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties include the factors identified in our filings with the SEC. Please review the Safe Harbor Statements on the first page of our presentation as the content of our call will be governed by this language. And with that, I'm delighted to turn the call over to Mary.

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 cruise. 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 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 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 address our challenges. Everyone on the team is committed to building on our momentum and creating shareholder 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.

Thank you, Mary, and good morning, everyone. I appreciate you all joining us this morning. I'd like to begin by recognizing the entire GM team for what they accomplished in 2023. When you look back over the last couple of years, the results show an impressive trend in revenue growth, EPS consistency, and cash generation. For the full year, our EBIT-adjusted of $12.4 billion came in slightly above the midpoint of the range we guided to in November, thanks to the continued strength of the core business. We grew revenue by 10% year-over-year to a record $172 billion and generated $7.68 of EPS diluted adjustments. A key focus has been profitable growth. And for the full year, we demonstrated this by growing U.S. market share by 30 basis points, while keeping incentives well below industry averages. It's important to mention the 2023 actions we've taken to reduce fixed costs and the progress made on the $2 billion net cost reduction program. For example, automotive engineering was reduced by $400 million, driven by portfolio simplification, realizing the benefits from winning with simplicity as well as our drive to virtual engineering. Marketing spend was reduced by $500 million and we expect another $400 million this year. And we saw approximately $500 million from lower BrightDrop and other growth business spend, along with the impact of the voluntary separation program across the enterprise. These $1.4 billion of fixed cost reductions were partially offset by $400 million of higher depreciation and amortization, meeting our target to achieve half of the $2 billion program in 2023. We began 2023 with $24 billion of auto cash and marketable securities, generated full year adjusted auto-free cash flow of $11.7 billion, and returned approximately $12 billion to our shareholders through dividends and share repurchases, including the impact of the $10 billion accelerated share repurchase program initiated in Q4. Coming into 2024, we are well positioned with roughly $20 billion of auto cash and marketable securities and will appropriately balance our capital allocation priorities with the plan to continue to return capital to our shareholder through repurchases and our new higher dividend rate. Let's get into Q4 results. Total company revenue was $43 billion, consistent year-over-year, despite the impact of the strike. However, we did have a number of cost items that we do not expect to reoccur in 2024 that impacted our margin performance in the quarter. We achieved $1.8 billion in EBIT adjusted, 4.1% EBIT adjusted margins, and $1.24 in EPS diluted adjusted. These results were also impacted by the strike, which had a $900 million EBIT adjusted impact in Q4 and a $1.1 billion impact for the full year, primarily from losing an estimated 95,000 units of production. Additionally, we increased our inventory valuation allowances by $1.1 billion to remeasure battery cell and EV inventory held at year end. This adjustment was significantly larger in Q4 versus prior quarters, driven by a combination of increasing cell production in preparation for our 2024 EV acceleration and holding more EVs in company inventory. Adjustments for the full year totaled $1.7 billion. We expect this to be substantially lower in 2024 as we continue to make progress toward our EBIT margin targets on EVs. North America delivered Q4 EBIT-adjusted of $2 billion, down $1.6 billion year-over-year, driven primarily by the $900 million strike impact and $1 billion of inventory adjustments I just discussed. The performance was also driven by higher pricing and lower fixed costs, which more than offset mixed headwinds. North America margin of 8.7% was within our targeted 8% to 10% range for the full year and included a 1.6 percentage point impact from the strike and the inventory adjustments. Part of this performance is from proactively managing our inventory levels, helping to minimize incentives. I'm pleased that we ended the year at 50 days of U.S. inventory, which is at the low end of our 50 to 60 day target range, and incentives that were more than 20% below the industry average. GM International had another solid quarter with Q4 EBIT-adjusted of $300 million, which was consistent year-over-year. I want to thank the entire international team for another year of good execution and delivering $1.2 billion of EBIT adjusted. GM Financial also performed well with Q4 EBIT-adjusted of $700 million, down slightly year-over-year. Full year results were $3 billion at the top end of the $2.5 billion to $3 billion guidance range. Portfolio credit metrics continue to be strong, in part due to a predominantly prime credit mix with net charge off up slightly due to moderation in credit performance. GM financial has consistently been an integral part of the business supporting our customers, supporting our dealers and paying dividends of $1.8 billion to GM in 2023. Cruise expenses were $800 million in the quarter, up $300 million year-over-year and similar to the spend level in Q3. So let's look ahead to 2024. We expect EBIT-adjusted in the $12 billion to $14 billion range. EPS diluted adjusted to be in the $8.50 to $9.50 range, including an estimated $1.45 per share benefit from last year's accelerated share repurchase based on the current share price, which will be partially offset by roughly $0.50 headwind from a higher tax rate and lower interest income on lower cash balances, and adjusted automotive free cash flow in the $8 billion, $10 billion range for the year. I want to summarize a few items in 2023 that we don't expect to repeat and will help to contribute to our higher outlook for this year despite some of the potential macro headwinds. These include the $800 million EBIT-adjusted impact from the LG agreements. And as a reminder, this will save us an additional $1,000 per vehicle going forward on our path to EV profitability. $1.1 billion EBIT adjusted impact from the strike and a substantial amount of the $1.7 billion of net realizable value adjustments as we work through the sell inventory, improve EV profitability, and benefit from lower lithium prices. In light of the current macro environment, we anticipate a market similar to 2023 with total US industry volumes of around 16 million units. We expect wholesale volume to grow as we rebound from the impact of the strike and continue our track record of market share gains, primarily from higher EV volumes. However, we do assume mixed headwinds from our ICE production driven by anticipated actions to proactively manage full size truck inventory levels. We also assume a 2% to 2.5% pricing headwind year-over-year, but overall we remain confident in our ability to balance production, inventory levels and profitability, while growing revenues and sustain our North America margins in the 8% to 10% range. We are on track to realize the remaining $1 billion of net fixed cost savings with the benefits coming from similar areas to last year, including marketing, engineering, and the full year benefit of the actions we took in 2023. We expect $1.3 billion in higher labor costs, along with logistics being a slight headwind year-over-year, primarily driven by higher finished vehicle shipping costs. Cruise expenses are expected to be around $1 billion lower, given the new operational plan Mary mentioned earlier. In November we gave an update on our path to EV profitability with an estimated EBIT margin improvement of more than 60 percentage points and a lower overall EV loss in 2024 compared to 2023, even when you exclude the impact of the inventory adjustments. This will largely be driven by higher EV volumes and fixed cost leverage from both EV and battery cell manufacturing, along with the benefit of all of our North America volume being on the Ultium platform. We are already seeing an improvement in cell cost today, driven by significantly lower raw materials prices and better pricing on cells produced at our first battery JV plant from higher capacity utilization. For GM International, we expect relative stability in our South America and Middle East operations, however, we anticipate ongoing pressure in China, including the plan to reduce production in Q1 to balance dealer inventory levels. These actions will likely result in Q1 China equity income being a slight loss, with a return to profitability starting in Q2. For GM Financial, we expect EBIT-adjusted again in the $2.5 billion to $3 billion range with credit performance and used vehicle prices returning to normal throughout the year, along with earning asset growth from retail loan originations and the commercial loan portfolio. We are forecasting another year of robust automotive adjusted free cash flow, but we anticipate modest year-over-year headwinds from 2023 working capital benefits that we assume will not repeat and the timing of payments associated with accruals recognized last year. For example, warranty, tax, and higher assumed inventory levels. From a modeling perspective, remember that Q1 is our seasonally weakest cash flow quarter of the year. We expect our capital spend to be similar to 2023, inclusive of $500 million to $1 billion of investments in our battery JVs. Our 2024 effective tax rate is assumed to be in the range of 18% to 20%, up from last year, primarily due to the global mix of earnings and lower R&D credits primarily due to lower Cruise spend. And our full year EPS guidance assumes the weighted-average fully diluted share count of slightly below 1.15 billion shares. This includes the impact of the remaining shares to be purchased through the ASR, which we expect will reduce our fully diluted share count to below 1.1 billion shares once completed. The actual share count will depend on several factors that impact the final ASR settlement, including the average share price during execution and excludes the impact of any incremental share repurchases beyond the ASR. In closing, we know the EV market is not going to grow linearly and we are prepared to flex between ICE and EV production, given our unique manufacturing capabilities to balance inventory levels and to build customer demand. This will help support pricing and our continued incentive discipline. While we have faced some challenges in our EV transition, we are actively working to address them and remain excited about our future and look forward to a successful 2024. This concludes our opening comments, and we'll now move to the Q&A portion of the call.

Great. Thanks. Good morning, everybody and congratulations. Just a couple of questions on the outlook. First, maybe can you share what you're assuming for end of year US dealer inventory day supply? And in all the pricing, Paul, you mentioned 2%, 2.5%. can you maybe talk a bit of what you're assuming per individual segments there?

Good morning, Itay, and thank you for your comments and questions. Regarding the inventory, we are still aiming for a range of 50 to 60 days of inventory on hand. The team has effectively maintained this balance, which has allowed us to be disciplined with incentives and has provided us a competitive advantage over the past couple of years. As we consider the 2% to 2.5% pricing, similar to previous years, I see that more as a planning assumption than a definitive expectation. We aim to use this guidance to ensure we meet our targets, generate cash flow for investment, and enhance our free cash flow performance. As in prior years, if we don't achieve this assumption, I anticipate some upside in the figures we've discussed. We haven't assigned expectations to specific categories; that's part of our general planning process. I hope that clarifies things.

It does help. Thank you. And a quick follow-up, on the second half target on EV positive VP per unit, can you just talk about what you're assuming for the broader competitive environment and how much cushion you have on the price mix side and still be able to hit those targets?

Without getting into too many specifics, we are confident about reaching the variable profit positive target in the low 200,000 units range mentioned by Mary. This projection is based on a consistent demand profile for the vehicles we are producing and the positive reception from customers. As long as demand remains steady, we believe we can maintain this momentum. However, if we encounter any pricing softness or a decline in demand, we may need to reassess our position. Overall, we feel very optimistic about the current trajectory.

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

Good morning, Mary and Paul. I wanted to start by asking if you feel there is an increased focus on capital allocation. I'm considering the approach you mentioned for Cruise and BrightDrop, along with the changes in EV spending. My question is whether this shift seems to signal a move from growth towards cash flow. Are these changes likely to be temporary, or are you making adjustments to GM's strategy?

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 it's 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.

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.

We appreciate the question, Dan. We are committed to Cruise. The foundational technology is solid, and we have already demonstrated that Cruise technology is safer than a human driver. One key insight we've gained is that people expect technology to be much safer than they do for other individuals. With this understanding, we are working on aligning our technology with consumer expectations. We believe we can achieve that, and we are currently developing a detailed plan for moving forward. Another important lesson is that when rolling out transformative technology like this, which offers significant safety benefits, it is crucial to collaborate with local, state, and federal regulators, as well as first responders. As we expand, we will ensure we build the right relationships so they understand the technology and its benefits. We have confidence in our foundational technology, and you will hear more about our plans for Cruise in the coming weeks.

Thanks. Good morning, everyone. Maybe just back to the EV's, Mary and Paul. I mean, you talked about the positive variable profit. It sounds like the decline in battery costs going lower is a big portion of that, but you also mentioned some other factors. So I was wondering if you could give a little bit more detail there? And then is this something that you will continually give us on a quarter-by-quarter basis to sort of track the progress you're making towards that positive variable profit.

Hey, Joe, it's Paul. Good morning. Thanks for the questions. To briefly address the lower of cost or market adjustment on the EV inventory, it's important to note that it's not reflected in our key metrics. It does provide a year-over-year benefit for us, but it does not affect the two metrics we focus on. First, our variable profit remains positive, which is more related to EBIT and our future outlook. This improvement in variable profit is mainly due to achieving scale and reduced material costs. It doesn't contribute to inventory adjustments. As we target a mid-single digit margin by 2025, we do not anticipate any inventory impacting that, though we will disclose if there are any changes. We appreciate the question and are not surprised by it, as we continue to progress. Regarding your second question about tracking, we will keep discussing our journey and provide confidence through specific data points. While we aren't certain about disclosing this information quarterly, we will keep updating you on our progress. Thanks, and sorry for the brief pause.

Thanks for taking my question. I would like to follow up on Rod's inquiry regarding strategy. Can you clarify what percentage of your upcoming year’s capital expenditures and research and development is allocated to electric vehicle battery and autonomous vehicle projects, referred to as Auto 2.0? Is there any reason to consider that you might reduce your focus on vertical integration due to the evolving market? Additionally, I recall you previously mentioned that well over half of your spending was dedicated to this area, so I am interested in whether that is changing. Lastly, I wanted to get your thoughts on Elon Musk’s recent statement about China's potential to outpace most Western electric vehicle companies in the absence of trade barriers. Do you agree with that perspective? Thank you.

Thank you, Adam. From a capital perspective, and to build on what I mentioned with Rod, most of our capital spending is directed toward electric vehicles. In terms of internal combustion engines, we already have the foundational infrastructure with our plants in place, and the capital for our robust ICE portfolio has already been allocated. This gives us the opportunity to continue producing excellent vehicles while optimizing capital for our ICE portfolio, which includes models like the Traverse, Equinox, and our full-size truck, among others. Regarding capital deployment for infrastructure, as the market and battery technology progress, we will keep assessing our level of vertical integration. Our efforts with LTM, electric motors, and joint ventures related to our plants, including the partnership with Samsung for our fourth plant, position us well with both prismatic and cylindrical cell options. Moving forward, we will keep evaluating this. There are options available to us, and through various initiatives, we are striving to reduce overall capital requirements while still supporting the necessary number of programs. I hope this clarifies things, and I'm open to any further questions. As for Elon's comments about China, I believe we must not underestimate any competitor. It's essential that we offer well-designed vehicles with the right features, safety, and customer experience, all while maintaining a competitive cost structure. This focus on costs is crucial. Regarding Chinese consumers, we definitely need a fair competitive environment. Without a level playing field due to tariff and non-tariff barriers, any industry will face challenges in competing. So, if we can have a fair level of competition, I believe our products and our continuously improving cost structure can stand up to any competition.

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.

Hi, John. Thank you for your question. We are continually assessing our strategy. We engage in thorough discussions about our strategy with our Board and leadership team. As you've pointed out, the landscape is evolving rapidly, whether it's in electric vehicles, software, or autonomy, and we will adapt accordingly. I agree that we are approaching this from a position of strength. We will look for opportunities to invest capital wisely and achieve good returns. For instance, when we made decisions regarding Europe, we believed it would benefit the Opel team, PSA at the time, and General Motors, as we have a stake in the warrants. We are not afraid to make difficult decisions, even those that might surprise people if we believe they are in the best interest of our business and help us safeguard our strengths in markets like North America. As I stated on the earnings call, we have been performing in the top quartile for several years and have profitably focused on the most affordable segment. We also have a strong business in South America and various international markets. Regarding China, as Paul noted, there are significant changes occurring both from a technological and competitive perspective. We believe there is still potential in China, which represents a substantial growth opportunity if executed correctly, and that is our aim. However, we are open to all options to ensure General Motors has a strong future that provides the right profitability and returns for our investors. Yes. We will be introducing those at a time when we need them to meet compliance standards. This year, our primary focus is on delivering to our dealers, which will highlight the strength of our EV portfolio. I will provide more details regarding hybrid capacity soon. We will modify that capacity as necessary because we have the technology and we understand the target segments for its application. Therefore, we will be able to adapt as needed for hybrids. However, for the calendar year 2024, our main focus will be on electric vehicles, and we believe there is significant growth potential as we increase product availability for our customers.

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 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?

So Ryan, thanks for the question. I'll take a shot at that. When you look at the macro backdrop, I think we're approaching it pretty consistently to what we have for the last few years. So we've talked about a 16 million SAAR, about 2% to 2.5% of sort of total pricing pressure across the board. A lot of it is, I would say, a testament to what we achieved and overcame in 2023 that we don't expect to repeat. Of course, there will be some things that pop up as there are every year. And I think the team has done a good job of knocking those things down and overcoming some of those challenges going forward. So against the macro backdrop, that feels a little bit consistent with some conservatism in there on the pricing side of it. I think a lot of it is on our ability to execute. And we have had a lot of challenges, as Mary mentioned. I think 2023 was a big year of learning for us. But as she talked about with the work that we're doing on the module assembly and where we see EV ramp as well as the customer response to the EVs that we're producing, I think this is a year of our executing. And a lot of it is in our control.

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 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, there's a lot to discuss, but first, I want to emphasize that the response from regulators has been positive. We will continue to engage with them, build our relationship, and maintain transparency. It’s important not to overanalyze what we said right after learning about the situation. We conducted extensive work, and I must commend our co-presidents, Craig Glidden and others, for their focus on technology. They ensured we retain our talented software engineers, who have already helped us achieve 5 million miles of driverless travel. Our strategy shifted to prioritize one city for demonstration rather than the previously mentioned 20 cities this year. There were additional operational staff that we were able to let go. Our emphasis remains on technology, and we plan to approach this correctly from regulatory, consumer, and customer relationship angles to refine our technology. Once we demonstrate success in the cities, we will have the opportunity to scale quickly. The $1 billion figure simply reflects the work we did and the opportunities we identified.

Hi, good morning. Thank you for taking my questions. I have two inquiries regarding cash. First, you're estimating $8 billion to $10 billion in free cash flow, which would bring your cash balance to approximately $28 billion to $30 billion by the end of 2024. How likely are you to implement an additional share buyback plan, considering the goal is to maintain a cash balance of $20 billion? My second question is about Cruise and its cash position, which is around $1.3 billion. This suggests they have less than a year of cash runway. What is your strategy for further funding for Cruise? Thank you.

Regarding the additional funding for Cruise, I will address that, and I’ll have Paul respond to the other question. As we develop a comprehensive plan for relaunching Cruise in our road map, we'll assess the overall funding requirements and decide whether to source it internally or externally.

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.

Just to clarify, the $18 billion, $20 billion, is that a target or is that a floor?

That has been our floor or targeted range. We've maintained a higher amount in recent years due to uncertainty. However, as we mentioned in November when we announced the share repurchase, with much of that uncertainty resolved and reduced CapEx spending, we felt confident operating at that lower balance. Therefore, $18 billion to $20 billion is a comfortable targeted range.

Thank you very much. I would like to ask about the scale needed to reach your profitability goals. When you shared those goals in November, particularly the 60-point EBIT margin improvement for this year, I believe that 60% of that was expected to come from scale. I'm wondering if the planned production of 200,000 to 300,000 units this year is sufficient to achieve that scale. Are you also relying on lower battery costs and some savings from other areas? Additionally, regarding the mid-single-digit EBIT margin target for next year, could you clarify what unit volume is necessary to reach the scale required for these targets?

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.

Thank you for the information. I have a quick follow-up regarding Cruise. With the spending being $1 billion lower this year, can we consider this a new standard for spending, or is it more of a temporary situation due to some components currently being tested and rolled out?

Yes. 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.

Thanks, team. Great numbers. Mary, I just want to shift gears and talk maybe advanced ADAS and software really quickly. Super Cruise, you introduced in 2018. You don't put out too many usage numbers, but I think in the middle of last year, you talked about almost 100 million miles of driverless miles. Even if we double that for time passage, it's not many vehicles, tens of thousands. We also read Ultra Cruise has now been installed. Just high-level, isn't this a very slow pace for Level 2+ product? Tesla has been providing for a decade charging anywhere from 6,000 to 12,000 for top versions. I guess the question is, isn't this becoming a big miss opportunity for GM at this point for additional revenue? Even Slide 7, I think, only shows one of the ICE launches, the Traverse highlighting Super Cruise. So just a broad update when we could start to see what is a technology probably everyone wants at more sort of mass deployment scale across your fleet?

Thank you for your question, Chris. Looking back to 2018, I believe we should have rolled out the technology across our portfolio more quickly. I don't have the specific number of models in mind right now, but we can provide that information. Currently, we are incorporating this technology into several models, including the Traverse, which we are launching this year. Customer feedback has been overwhelmingly positive, with over 80% of customers indicating that they would either not want a vehicle without this technology or would strongly prefer it. This level of interest in a single technology is quite significant. We are dedicated to further developing Super Cruise and have been continuously enhancing its capabilities, such as lane changes and trailering. Our plan to improve Super Cruise is comprehensive, and we are seeing profitability benefits as we expand its availability on more vehicles. We are committed to this effort and have already made substantial progress, and we can share more details on that.

Yes, thank you for taking my question. I wanted to confirm that I captured all the key points regarding the transition from 2023 to 2024. I understand that there’s a price decrease of 2% to 2.5%, $200 million in cost savings, and a $1 billion reduction in Cruise, along with higher labor costs of 1.3. There are also three unquantified factors mentioned: market share gains, improvements in EV margins, and a lower mix. I’m curious if we could get an estimate of the impact of those last three factors.

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.

Thank you very much. And thanks, everybody, for your questions. I'd like to share just a couple of thoughts before we close. Fundamentally, we believe we are well positioned to have a strong year, thanks to our success in high-margin and growing ICE segments, our expanding EV portfolio, our cost discipline and our continuous improvements to design, engineering, supply chain, manufacturing and marketing process improvements. In addition, we are prioritizing the return of cash to our shareholders on a consistent basis as we execute the plan. We know we must execute in every part of the business in 2024, not just ICE. And I can assure you we will. So thank you for your continued support and for joining today's call, and please stay safe.