General Motors Company (GM) — Q2 2024 Earnings Call Transcript

Thanks, Amanda, and good morning, everyone. We appreciate you joining us as we review GM's financial results for the second quarter of 2024. 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 our actual results to differ materially. These risks and uncertainties include the factors identified in our filings with the SEC. Please review the Safe Harbor Statement 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. I want to begin today's call by thanking the GM team, as well as our dealers, suppliers, and other business partners, for helping us deliver strong second-quarter and first-half results, including record revenue in both periods. There are four key drivers to our performance and our new hire guidance that I'd like to highlight. First, our past investments have created a consistently high-performing portfolio of ICE trucks and SUVs from a volume, share, and margin standpoint. Next, our EV portfolio is scaling well and gaining market share. In fact, our U.S. EV deliveries grew 40% year-over-year in the second quarter, while the industry grew at 11%. We're encouraged by these early results because disciplined volume growth is key to earning positive variable profits from our EV portfolio in the fourth quarter and maintaining strong ICE margins. Third, we continue to deliver stable pricing and our incentives, on average, have been more than 100 basis points below the industry average for four consecutive quarters. And finally, with our new investments, we have even greater focus on margins and capital efficiency. Great vehicles and better execution will continue to differentiate us. In the first half, Chevrolet Silverado and GMC Sierra volumes in the U.S. were up a combined 5% versus a year ago, and we gained 3.5 points of market share with disciplined production and consistent pricing. In addition, sales of our redesigned Chevrolet Colorado and GMC Canyon mid-sized pickups were up 31% year-over-year with ATPs up 9%. And SUVs were executing a full court press with eight all-new redesigned compact, mid-size, and full-size models that began arriving in showrooms during the second quarter. They include some of our most profitable nameplates, like the Chevrolet Traverse, GMC Acadia, and the Buick Enclave, which will be available with Super Cruise for the first time. We designed Super Cruise to let customers drive hands-free for hours at a time on far more roads and with far fewer disengagements. Road testers at Edmunds.com rated Super Cruise the top hands-free driving system because it's confidence-inspiring, and its technical differences between our system and others explain why Super Cruise is so smooth. The Chevrolet Equinox, our highest volume SUV, will also be all-new, and we expect it to be more profitable than the outgoing model, just like our family of mid-size Buick, GMC, and Chevrolet SUVs. This is a function of several strategic decisions we've made. First, the styling is bolder and more truck-like for the Chevrolet's and GMC's, while the Buick Enclave adopts the brand's sophisticated new design language. Next, we elevated the comfort and technology features to make them even more desirable. Then we leveraged our proven platforms and component sets for lower cost and greater efficiency. Winning with simplicity, which is our drive to eliminate unnecessary complexity in the way we engineer and equip our vehicles, will help ensure that we can continue to sustain and even improve our margins in the future. For example, through smarter contenting and optimizing selectable options, we have been able to eliminate more than 2,400 unique parts on 10 vehicles we're launching through the first quarter of 2025. On the 2025 Cadillac LYRIQ alone, we've reduced the part count 24% from the 2024 model year with no compromises to performance or features. The list of parts or subsystems that we no longer need to design, engineer, source, install, and warehouse is extensive and includes complex and relatively costly seat assemblies, consoles, door trims, and fascias. A crucial element is reducing the number of buildable electrical combinations, which is delivering hardware and software quality improvements as well as savings. The work is helping us meet our $2 billion fixed cost reduction program this year, and the savings will be even greater in the future. As I said before, our EV portfolio is growing faster than the market now that our module issues are resolved and we are scaling production. Our early sales are mostly incremental; about 54% of customers are new to GM, and we're working to increase our conquest rate by raising awareness and launching new models. Our best-selling EV so far this year is the Cadillac LYRIQ, and it is now the market-leading luxury EV in 22 states, including Florida, Texas, and Michigan. The GMC Hummer EV and the Chevrolet Blazer EV are also building momentum. To unleash the next cycle of EV growth, we're scaling production of the Chevrolet Equinox EV with its unique combination of performance, technology, range, and affordability. We delivered our first 1,000 units late in the second quarter, and the reaction from customers, dealers, and the media is very strong. One product reviewer said Chevy seems positioned to grab a piece of the pie that no one else has quite grabbed onto yet, and we think that is spot on. Then, over the next several months, GMC will launch the Sierra EV, and the Cadillac LYRIQ will be joined by the OPTIQ, Escalade IQ, and CELESTIQ. We're especially excited about the OPTIQ. Car and Driver said it nails the compact luxury SUV formula. Then, next year, when we follow with the CELESTIQ, Cadillac will have a beautifully designed EV in every global luxury SUV segment. We're going to focus on winning new customers with these nameplates, as well as with the next-generation Chevrolet Bolt EV because they represent the largest growth opportunities for us. But we've also made adjustments to ensure we have a balanced approach as the market develops. This includes deferring Buick's first EV, which had been planned for 2024. As we're expanding choice, other barriers to EV adoption, like public charging access, are also improving. We are working to finalize commercial agreements with Tesla to give our customers access to their charging network. The IONNA fast charging venture we joined is expected to bring its first chargers online before the end of the year, and customers are telling us the drive-through plazas we're rolling out with Pilot company are the best public charging experience out there. As excited as we are about our portfolio, we are committed to growing responsibly and profitably in any demand environment. Over the next few years, third-party forecasters now see the EV market growing steadily, but more slowly than it did over the last few years. As a result, we are adjusting our spending plans to make sure we're capital efficient and moving in lockstep with customers. For example, our Altium cells joint venture continues to ramp up domestic battery cell supply this year, which is helping drive profit improvement in our EV portfolio. As we go forward, we're going to bring additional capacity online in a measured cadence. This will enable us to better optimize our battery chemistry and form factors to meet our customers' needs on cost and range. We've also decided to reopen the Orion assembly as a battery electric truck plant in mid-2026. The new timing is six months later than our plan heading into the year. We're confident that we can meet customer demand for standout EV trucks in the interim by leveraging the production capability and flexibility we have in Factory Zero. We will also continue to take advantage of the flexibility we have to mix production between ICE and EV at key plants. Next, I'd like to discuss our results in China. As you know, the market has significant excess capacity, and many startups and established competitors continue to prioritize production over profitability. We have been taking steps to reduce our inventory, align our production to demand, protect our pricing, and reduce fixed costs. But it's clear the steps we have taken, while significant, have not been enough. We had expected to return to profitability in China in the second quarter. However, we reported a loss, and we expect the rest of the year will remain challenging because the headwinds are not easy. We are working closely with our JV partner to restructure the business to make it profitable and sustainable. I'll close my opening comments by recognizing the progress Cruise has made over the last several months. As you know, Cruise has returned to the road in Houston, Phoenix, and Dallas, and we recently provided them with bridge financing to support their operational cash needs. We've also made several significant leadership appointments, including hiring Marc Whitten as CEO. Mark has decades of experience on the front lines of technology transformations, which will be crucial as we move forward. Our vision to transform mobility using autonomous technology is unchanged. And every mile traveled and every simulation brings us closer because Cruise is an AI-first company. We have some of the best engineers in tech building a cutting-edge AI platform, harnessing the power of large-scale foundation models to continuously improve safe AV performance. The Cruise team will also simplify their path to scale by focusing their next autonomous vehicle on the next generation Chevrolet Bolt EV instead of the Origin. It's a win-win for both GM and Cruise. It addresses the regulatory uncertainty we face with the Origin because of its unique design. Per unit costs will be much lower, which will help Cruise optimize resources and enable them to deliver AV tech at scale as quickly as possible. And the change will help GM fully leverage our investment in the Bolt EV with a major new customer for the product. We think all of these are important steps that will help us attract those who believe in the Cruise mission and see the incredible long-term business opportunity of autonomous driving. With that, I will turn the call over to Paul to walk you through our financial results.

Thank you, Mary, and I appreciate you all joining us this morning. Our second-quarter results were driven by ongoing strong performance from our ICE business and stable pricing across the portfolio that once again outperformed our guidance assumptions for the quarter. And I'm pleased to share that pricing has remained relatively consistent thus far in July. As Mary mentioned, sales have been robust. We launched our new mid-sized SUVs supporting stable pricing and generating stronger profit margins than preceding models. Highlighting our focus on profitable growth, recent J.D. Power data showed that our U.S. Incentive GAAP compared to the industry average is expanding. In the second quarter, we ran roughly 150 basis points below the industry. While at the same time, our U.S. retail market share increased by 70 basis points, more than offsetting the lower fleet volume to rental companies. Our EV portfolio is gaining momentum. In the second quarter, our U.S. EV deliveries were up 34% sequentially from the first quarter, driven by the Chevrolet Blazer EV and the Cadillac LYRIQ. And moving forward, we'll also benefit from the Chevrolet Equinox EV, which delivers more than 300 miles of range and will be below $30,000 after factoring in the consumer tax credit. On capital allocation, we repurchased $1 billion of stock in the quarter, retiring another 22 million shares. And in early July, we completed the prior $5 billion stock authorization. We ended the quarter with a fully diluted share count of $1.14 billion, a reduction of 18% from a year ago. The open market share repurchases supplement the ongoing $10 billion ASR that is projected to be completed in the fourth quarter of this year, bringing our share count down to 1.1 billion. As a reminder, on the ASR, we paid the $10 billion upfront in December of last year and immediately retired 215 million shares. In the first quarter, the first tranche was completed, and we retired another 4 million shares. In the second quarter, no additional shares were retired under the ASR as the banks continued to cover their positions in the 215 million shares they borrowed at the outset of the program. In the fourth quarter, we expect to retire another 20 million to 30 million shares depending on several factors, including the average share price during that period, bringing the total number of shares retired under the ASR to around 250 million. On top of these measures, last month the board authorized an additional $6 billion for share repurchases. Considering our belief that GM's share price is still undervalued, you should expect us to remain active in future share repurchases, continuing the great progress we have made towards our goal of driving our share count below 1 billion outstanding. Getting into the second-quarter results, revenue was up 7% to $48 billion driven by higher wholesale volumes and stable pricing in North America. We achieved $4.4 billion in EBIT adjusted, 9.3% EBIT adjusted margins, and $3.06 in EPS diluted adjusted. Recall that in 2023 we had inventory valuation adjustments of $1.7 billion for battery cell and EV finished goods inventory. We expected the allowance to be substantially lower in 2024 as we improve EV profitability and reduce our inventory levels. We made good progress in these areas during the second quarter and therefore reduced about $300 million of the allowance. And our guidance includes a similar benefit in both the third and fourth quarters, totaling around a $1 billion benefit for the full year. We achieved adjusted automotive free cash flow of $5.3 billion during the second quarter, similar to last year and driven by our strong core operating performance coupled with our capital discipline. North America delivered second-quarter EBIT adjusted margins of 10.9%, which resulted in $4.4 billion of EBIT adjusted, up $1.2 billion year-over-year. This was driven by higher wholesale volumes, stable pricing, ongoing cost containment, EV valuation allowance benefit, and a non-recurrence of the $700 million LG expense that we took last year. Pricing for the quarter was up $300 million year-over-year and better than what we assumed in our guidance, supported by new products like the Chevrolet Traverse. Moreover, our HD pickups and full-size SUVs continue to drive robust demand while maintaining low incentives. We also benefited from our fixed cost reduction program, realizing $100 million from lower marketing spend compared to last year. We remain on track to achieve $2 billion of net fixed cost savings by the end of 2024. Dealer inventory levels ended the quarter at 66 days. This is temporarily above where we were tracking earlier in June, as we believe some sales for dealers using the CDK platform were delayed until the third quarter. We will continue to monitor our inventory and adjust production as necessary to maintain our targeted inventory levels of 50 to 60 days. GM International second-quarter EBIT adjusted was $50 million, down $200 million year-over-year. China equity income was a loss of $100 million, down $200 million year-over-year. Mary already touched on the difficult China market and the immediate steps we have taken with our JV partner to return it to profitability as soon as possible. EBIT adjusted in GM International excluding China equity income was $150 million, flat year-over-year, but improved more than $50 million sequentially from the first quarter. GM Financial has consistently performed well with second-quarter EBIT adjusted of $800 million, up $50 million year-over-year and tracking in the range of $2.75 billion to $3 billion for the full year. They continued to drive portfolio growth and paid a $450 million dividend to GM during the quarter. Cruise expenses were $450 million in the quarter, down $150 million from a year ago, reflecting a reduction in operational activities and a technology improvement focus intended to meet the high-performance bar expected for AVs. We're very conscious of spending while at the same time efficiently expanding operations across Phoenix, Dallas, and Houston. In addition, Mary explained how utilizing the next generation of the Chevrolet Bolt EV will aid in scaling our robo-taxi business to create a more cost-effective and scalable option. However, the decision to pause the production of Cruise, Origin triggered a charge of roughly $600 million, which we recorded as a special item in the second quarter. Let's move now to our updated guidance. Given the positive momentum we've seen thus far and our confidence in the rest of the year, we are raising full-year 2024 guidance to EBIT adjusted in the $13 billion to $15 billion range, EPS diluted adjusted in the $9.50 to $10.50 per share range, and adjusted automotive free cash flow in the $9.5 billion to $11.5 billion range. Our cash flow guidance increases larger than our EBIT increase, primarily due to production alignment to market demand and further working capital benefits over the balance of the year. I'd also like to address why the implied second-half EBIT adjusted is around $2.5 billion lower at the midpoint of our guidance range compared to the first half. There are three main reasons. First, we are assuming a bigger pricing headwind. Our guidance assumes pricing to be down 1% to 1.5% year-over-year in the second half versus essentially flat in the first half, which is a substantial improvement from where we started the year. Second, roughly $1 billion of costs are second-half weighted. This includes about $400 million higher marketing spend to support more launches in the back half of the year. The remainder is related to higher commodity prices, particularly copper and aluminum, and the timing of other EV costs, which we do not anticipate to be ongoing. Third, EV volumes are expected to build sequentially every quarter to achieve our full-year target of 200,000 to 250,000. We produced and wholesale 75,000 GM Ultium EVs in the first half of the year and expect this number to accelerate as we launch and ramp our new vehicles. As a result, mix will be a bigger headwind in the back half of the year, as EVs have a variable profit lower than the portfolio average. We continue to monitor EV demand and inventory levels very closely. We acknowledge that Ultium wholesales outpaced customer deliveries by about 2% to 1% for the first half of the year. This, however, is common when introducing a new vehicle given the need to build availability, options, and customer awareness. As time goes on, if customer deliveries were to continue lagging wholesales, we will take proactive steps to balance production levels. The last item on EVs is that I'm pleased to report that we are making good progress towards achieving vehicle variable profit on our EV portfolio in the fourth quarter. Key drivers to reach this goal include improved manufacturing scale and efficiencies, including module and pack assembly; reduce cell costs from improved scale and performance at our Ultium cells JV, including working through our inventory of cells produced with higher battery raw materials. This has helped reduce our average cell cost by roughly $30 a kilowatt hour, sequentially from the first quarter, and we expect further improvements in the second half of the year. And finally, improved vehicle mix as we scale our electric full-size trucks and SUVs. In closing, we are committed to maintaining the strong financial performance we accomplished in the first half of the year and consistently adhering to our capital allocation framework. It is underpinned by a focus on cost containment, capital efficiency, and agility in navigating the complexities of our business. We are differentiating ourselves from our peers with superior product offerings and improving execution. We are market leaders in the truck and full-size SUV segments. Growing market share in affordable SUVs and our refreshed mid-size SUVs are some of the fastest growing vehicles in the segment while yielding higher profitability than the preceding models. At the same time, we are growing and improving profitability on our EV portfolio, along with developing a world-class software organization and making steady progress at Cruise. As always, our customers and their safety will be at the center of everything we do and is fundamental to our continued success. This concludes our opening comments and we'll now move to the Q&A portion of the call.

Hi, good morning. Thank you for taking the questions. I wanted to start first with a question on pricing. If you could just provide a bit of context on the pricing strength we've seen, not only in Q2, but in Q1, if you just look at the incentives, the incentives are clearly up, but your pricing has actually been net flat, any color behind this? And then maybe you could just talk to the sustainability of this in light of the fact that we've seen some inventory normalization, but prices held in, do you view this price as sustainable beyond this year, factoring in that there is going to be some increase in incentives as inventory ticks up further from here?

Yes, good morning, Dan. Thanks for the question, first of all. So, what I would say is that obviously, we've been very disciplined about our commercial strategy in going to market, and despite the fact that we've seen a little bit of pressure year-over-year on incentives, we've actually widened the gap in the quarter against our competitive set. So demand for our vehicles is strong. I think some of the offsets are our truck sales were up 5% in the quarter where we continue to pick up share. And that's helped to offset some of the lower ATP vehicles and we've seen in the growth in the tracks, for example. So I think we've been saying for a long time that our consumer has held up really well and it's been resilient. And we expect that to continue to be the same way. I think a big part of that is the strategy that we've undertaken about being very disciplined in inventory and the more data flow about producing the vehicles that we know that customers are demanding. And when you combine that with the incredibly strong portfolio we have, I think this is the result.

Great. Thank you. And a follow-up, I wanted to ask about your EV strategy, and this is in light of maybe some of the potential changes we may be seeing in the regulatory environment given the upcoming election. You know there is obviously one candidate in the U.S. Presidential election, who talked about pulling back the EV mandate and maybe there's some implications on things like IRA or EPA mandates? So to what extent, if we see pullback in some of these standards, does that modify your EV strategy? Is your EV strategy one that is, you know, driven more by regulations? Or do you view your EV strategy as a bit more fixed given the long-term strategic goals of GM and also just the longer planning cycles for products?

So thanks for the question. Our strategy is to offer our consumers choice. We've got an incredible portfolio of vehicles, both EV and ICE, and we've got flexibility. So we know we can win more customers as they embrace EVs. We're seeing that right now with 54% of the EV sales being customers that are new to GM. And so we do think the market for EVs will continue to grow, and we've got the performance, the technology, and the range that customers want, especially when you look at our portfolio with the Equinox coming out right now, the affordability of that vehicle along with when we have the Bolt next year, if we're giving consumers that choice. And as I've said, EVs are fun to drive, instant torque. I think our EVs have beautiful designs, the right range, the right performance. So again, we'll be guided by the consumer and regardless of what the regulatory environment is, regardless, we're going to work to maximize, because we've got that flexibility between ICE and EV. So I think we're in a very strong position. I think we also have to look at though, the investments GM's made in EVs, we're creating thousands of jobs all over the country including Ohio, Michigan, and Tennessee. So I'm pleased with where our strategy is. I think regardless of what happens from a regulatory perspective, we're going to be well-positioned with our ICE and EV portfolio.

Okay, thank you.

Great. Thank you. Good morning, everyone, and congrats on the quarter. Maybe a first question for Paul back on the second half, and thank you for the color. On the 1%, 1.5% negative pricing assumption, how does it compare to what you're assuming for the industry in the second half? And also, how should we think about the high-level sensitivity to EV volume target second half of the year? The volumes that come in lower, I think about the puts and takes in the model for that? And secondly, maybe for Mary, on Cruise, how do you think about strategically taking Cruise to market as a ride-share operator, as opposed to maybe finding partners to deploy on the next generation Bolt?

Thanks, Itay. I'll go ahead and start with the first questions. On the second half, we tend to stay very, very focused on what we see for pricing for ourselves. Obviously, there's a lot of noise going on with different incentive strategies, different inventory levels, et cetera. So that's an assumption that we bake in based on what we're seeing in the market and making sure that we're projecting the right amount of conservatism against our cash flow targets and plans. So we started the year saying down 2% to 2%. We got through the first half of the year essentially flat. And what I would say is July to date looks very similar to June. So we're going to continue to push through month by month, quarter by quarter on the portfolio that works for us. So we've managed to do that through various incentive strategies and various inventory pushes that we've seen from our competitors. And we're going to just be focused on meeting our customer demand the best way we can.

And Itay, regarding Cruise, we have put in a lot of effort. With the advancements in artificial intelligence across various sectors, customers expect technology to perform better than what they typically expect from human drivers. Therefore, our new goal is to exceed the capabilities of a role model driver rather than simply being better than the average driver. A tremendous amount of work has been accomplished in recent months. As we expand our operations in the three cities I've mentioned, our technology has significantly improved to surpass a role model driver. We have also broadened our safety metrics to ensure they cover multiple scenarios. I am confident that as we have vehicles operating, we are rapidly progressing toward achieving driverless technology that is much safer, aiming for that better than a role model driver standard. I believe we can offer an outstanding driving experience as we continue to grow. In terms of finding the right balance between expansion, capital requirements, and collaboration with partners and investors, we are very receptive to opportunities and have received considerable interest in Cruise. As we enter this next phase, we will explore the most efficient approach to advancing Cruise's robo-taxi business. We are also intensely focused on the personal autonomous vehicle market for GM. We feel well-positioned and will provide more updates throughout the year, as there is significant external interest from potential partners and investors.

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

Itay, let me revisit your question regarding the sensitivity to EV volume. Initially, when we provided our production guidance, we estimated between 200,000 to 300,000 units. We mentioned that we could achieve variable profit in the low 200,000 range, and we still stand by that. However, we have adjusted our forecast for the second half of the year to 200 to 250, pushing some expectations into the fourth quarter. While I can’t provide a precise answer, it's clear that scale is crucial to our strategy. The improvements in battery and cell costs have primarily come from efficiency and scale at our plant, which we are actively monitoring and aiming to enhance. Beyond that, there's nothing more specific to share at this time.

Terrific. Thank you.

Thank you. Good morning, everyone. Paul, thanks for all the additional color on cost and back half. I guess to counter some of those higher costs you mentioned, right, you still have the fixed cost savings program, you're on track for the $2 billion. If we're sort of tracking this, it looks like you did maybe $1 billion last year and maybe $400 million in the first half, so another $600 million in the back half. I just want to make sure that's sort of ballpark correct? And if it is, just maybe some color on why it's actually accelerating or higher because I think like if we think about last year, the costs also were more back-end loaded. So it's sort of a tougher comp. So what else is being done here to drive the cost savings higher?

Yes. Good morning, Joe. Thanks for the question. So I would say directionally, your math is pretty accurate on about the $1.4 billion of the $2 billion. I would look at the biggest cost increase that we highlighted on the call is about $400 million of marketing spend, and that is first half to second half. So marketing spend overall is still down significantly, and the team has done a great job of driving more efficiency into what we're doing. But obviously, with the launches that we have in the second half of the year, there's a significant lean in to drive that customer awareness. And we think that's actually an opportunity for us to help us scale and to help us see us outside share gains in EV. So I would say it's timing within the larger pool of significant savings initiatives out of that category. That's the biggest piece of it. But we're continuing to work on it. And we believe that we'll be successful in that $2 billion cost reduction target that we laid out, and we're not going to stop there.

Thank you for clarifying the marketing strategy for the first and second halves. Mary, regarding the Origin decision, while there are cost savings, does this also suggest a shift in the go-to-market strategy, especially without a purpose-built vehicle? What other factors did you consider? Do you believe sharing won't be viable for the business model, or are there alternative use cases compared to your initial plans?

I believe the primary reason for switching from the Origin to the Bolt is that we eliminated the regulatory risk. The Origin does not comply with motor vehicle safety standards because it lacks steering wheels and other essential safety components, which necessitates a legislative change. We've been trying to make that happen, but it's been challenging. If we don’t secure that legislative change or government authorization, our ability to produce Origins is restricted. Given this, we decided it was more prudent to remove that risk. On the other hand, the Bolt has proven to be a strong product for our initial rollout, having accumulated over 5 million miles traveled from an autonomous vehicle perspective. It allows us to operate more efficiently and scale better with the Bolt EV as we prepare for next year's rollout based on the LTM platform. Therefore, the decision was primarily influenced by the uncertainty surrounding regulatory issues.

Okay. Thank you very much.

Hey, good morning, everybody. Thanks for taking my questions, Dan from Bernstein. Maybe following on, on the EV questions we've had. Could you elaborate a bit on your outlook for emissions compliance? Kind of if we stay within the current EPA framework, kind of what level of drivetrain mix credit would you expect to need to have to achieve the 2027 target? And then following on from Dan's question earlier, if any administration or either administration should decide to revisit the EPA targets, could you outline what you would expect the timeline would be to actually be effective for 2027? So what is the latest point in time when an administration then EPA would need to kick off that process to revisit the 2027 target? Thanks.

Sure. Well, for General Motors to comply with the existing regulations, we have many levers that we can pull, including how we plan our portfolio, the technology that we use on the vehicles. We can utilize credits from prior and future model years and purchase credits as well as have a robust EV portfolio. And so we look at this on a regular basis based on what's happening with EV adoption, based on what's happening with the regs, and make those decisions. So it's something we have a lot of flexibility. And obviously, we intend to meet the regulatory environment. It's really hard for me to predict what the timeline would be if something is going to change. I would say that we just look at our portfolio on a regular basis with not only what we know the regs to be and make sure we have a plan there. And then we do scenario planning for what potentially could happen, and then we have that range of opportunities. So we'll continue with that process. I mean if you think about it for the last several years, the regulatory environment has not been certain. I would say what's really important to the company overall is to have regulatory certainty. And so we'll be watching with interest as we get past the election and look at what the regs will be if they change at all. But I think we have the flexibility to moderate based on what we see.

Thanks, Mary. And maybe following up, if the regulations for 2027 kind of stay as they are right now with a more ambitious path, what role could mild or full hybrids kind of play in your portfolio? And if they stay as ambitious as they are right now, would you consider to kind of increase your focus on hybrid drivetrains in the U.S.?

Well, as we've said, we plan to have hybrids in key segments, not across the board, but in key segments in the 2027 timeframe because of where the regulatory environment looks to be right now. So we have that opportunity. We can decide what we put on the fleet or what segments we put based on where we see the regulatory environment. So that's definitely one of the technologies that we can leverage. And as we've already said, we plan to have hybrids in key segments in the '27 timeframe.

Great, thanks for confirming that.

Good morning. Thanks for taking my question. Obviously, there's the strong performance in North America that is the driver of the total company results. Certainly, congrats on that. I do think to ask, though, on the performance in China, including after it was a little surprising to see the equity loss fairly consistent with Q1 despite a solid rebound in both wholesales and non-consolidated revenue. I know you don't provide a detailed bridge for the non-consolidated ops specifically. But from the sequential volume change, it would seem to imply in either price or mix or cost headwind quarter-over-quarter. I'm guessing price, given some of the comments from other automakers in that country, but perhaps you can fill us in there? And then I'm not sure if you're able to comment on what actions might be being considered in connection with your partner, but should we expect more that you are readying a portfolio of vehicles, maybe NEVs that you expect could gain greater traction? Or are you contemplating more rightsizing actions or some combination? And if you were to undertake rightsizing actions, I can't really remember you reducing capacity in that country before, at least not structurally. So perhaps you could update us on what kind of flexibility you might have in that market to take capacity out. How does it compare to North America today, for example, or maybe to Europe in the past when you operated in that region?

Yes, we are still facing challenges in China. Many companies are struggling to turn a profit, and a lot of OEMs are focusing on production rather than profitability. We have been disciplined with our pricing and are launching new vehicles that are receiving positive feedback. However, it's an arduous market right now, and the number of companies operating at a loss is not sustainable in the long run. The current pricing war is detrimental, leading to a downward spiral that harms residual values. Nonetheless, we are taking steps to optimize our inventory and are launching new products, particularly hybrids and fully electric vehicles, that we believe will be better received than some of our previous NEVs. Regarding our partnership, we will share more details as decisions are finalized, but I won't provide specifics on the various options we are considering at this time.

Great. Thank you. And maybe you could comment quickly, too, on the trends in your other international operations, including in the consolidated operations in Korea and Brazil too. I'm curious on the trend there. Thank you.

When you mention the trend, could you elaborate a bit more specifically?

The trend in the profitability in those markets for you?

I would say in our GM International markets outside of China, we're seeing strong pricing. For instance, in South America, Chevy is viewed as a premium or luxury brand. We have a robust portfolio with excellent brand loyalty and recognition. We are able to maintain pricing and compete effectively due to the value of our Chevrolet-branded products. This positive trend is evident to varying degrees across all international markets. Disciplined execution yields long-term benefits, and we view this as a long-term strategy to manage our brand strength and the residuals of our products.

Very helpful. Thank you.

Yes, thanks. I have a question about whether you expect the trend of new GM customers considering EVs to continue or possibly accelerate in the next one to two years, depending on the models and price points.

Absolutely, Dan. I believe when you look at the portfolio entries that we have coming, the fact that we have fresh designs, the performance and technology on these vehicles, along with the range is right. So for those that are already EV intenders that might want to replace the existing EV they have, I mean, the response we're getting from dealers about the new Equinox EV is just outstanding when they say they look at the design of the vehicle, the performance and the affordability, especially with the consumer tax credit. So I think we have an opportunity to continue to outperform where the industry is, and we're going to look to build on that because we really believe in our portfolio. That's why we're spending the marketing dollars to make sure we get the awareness, and our dealers are excited. So I feel like we're well positioned to continue that growth.

Great, thanks.

Good morning everyone. I wanted to follow up on pricing. Paul, you recently updated your guidance and seem more optimistic about the second half of the year, especially considering the strong performance in the first half. However, when discussing pricing, there are two aspects that seem to be overlooked. Firstly, over the past two years, we've observed a 400 basis point rise in loan rates. Taking basic calculations on a $50,000 average transaction price, this amounts to a $2,000 annual cost over a four-year ownership cycle, resulting in an $8,000 burden for consumers. Additionally, dealers are earning significantly more than they did in 2019, giving them some flexibility to negotiate deals. As interest rates decrease and dealers become more realistic about their earnings on your vehicles, is there potential to support current pricing levels, or even see prices rise as rates fall? Many believe that pricing will decline, but it could actually prove to be more resilient and robust over the next year or two than anticipated. What are your thoughts on these two points?

Thank you, John. I believe it starts with our portfolio. The updates we've made and the products we've brought to market, particularly in the midsize SUV segment, have been impressive, and they've held up well despite rising interest rates. Even as payments have increased, demand has remained consistently strong across the board. We aim to maintain a level of consistency by approaching our plans and future offerings with some caution regarding pricing relative to current market conditions. Our focus is on ensuring stability in cash flow and margin performance, and this strategy has served us well. Although we have adjusted our expectations for the latter half of the year, we haven't seen that reflected in our performance for July so far. This flexibility allows us to be more agile and proactive. Our commercial team is effectively implementing go-to-market strategies and evaluating performance on a month-by-month and product-by-product basis to optimize our margins.

So we really should think about this as a planning assumption as opposed to an actual forecast. Is that a fair statement?

Yes. That's the way we've consistently referred to it.

Okay. And then just one follow-up. CAPU when we look at your tables, I always ask about this, is 108% in North America, two shifts straight time. God forbid, we saw an actual increase in unit volume, up 5% to 10% for you and maybe the industry alike? What kind of cost would flow back into the system? Will we be thinking about mostly variable costs? I mean, I see with that high CAPU, you might think that you might have a little bit of fixed cost that could come in as well. But I'm just curious how you would think about that cost flow if we got a real volume lift of up 5% to 10%.

Well, first of all, we'd be very excited about that because I think it's a huge opportunity. And I think for the bulk of it, it would be variable cost increases as we've got the equipment adding shifts, increasing line rates. So it's always fun to take volume up, and I think we're well prepared to do that, and it would mostly be variable.

Super helpful. Thank you so much, guys.

Thank you very much, team. It was a great quarter. Paul, I have a question about the remaining variance in the guidance. As we discussed at a high level, the pricing assumption for the full year has decreased from 2% to about 0.75%, based on your comments about the second half. If I factor in a pricing variance of 50 basis points for the second half, that amounts to roughly $400 million. Could you elaborate on the other factors that are still to be determined? It seems like there are many elements within your control, such as China and potential cost reductions. How do we address the remaining $1.5 billion in variance in the guidance?

Yes, so thanks for that, Chris, and thanks for the kind words. What I would say is that if you look at from where we started the year, it's about probably $2 billion of trend line improvement from our initial guide. We've taken our guidance up now by $1 billion. The other $1 billion, I would say, is largely China underperformance. We started the year thinking that we were going to be similar to last year's profitability. Obviously, we've taken that down. And then the second area is really on EV volumes. So despite the fact that they come in at a lower contribution, we were projecting on the higher volumes a variable profit contribution in the third quarter that has now been kicked out a little bit on the lower volumes. That explains really the bulk of it. But I'm really pleased that we've been able to take our guidance up now in two consecutive quarters. And we're a full $1 billion at the midpoint ahead of where we were at the beginning of the year.

That's a great summary because that was my second question. Okay. So pricing from the beginning of the year, $2 billion better, $1 billion is now reflected in the guide. And the $1 billion offset is a combination of some China variance that's underperforming. Probably second half is a little bit left to be determined and also EV volumes. Is that a fair summary?

Yes.

Yes, good morning. Congratulations on the strong results and thanks for taking my question. You mentioned watching EV inventory levels closely and using demand as a guide for how fast you ramp up EV production? To the extent GM does less than the 200,000 EV wholesales this year you're currently contemplating, could the company still be variable profit positive in the fourth quarter perhaps with incremental cost actions?

Mark, thanks for the kind words and appreciate the question. I would say that when we started the year, we were looking at getting to variable profit low 200,000 range. We're obviously continuing to do the work that we need to do on the lower volumes, and we see that. I mean to the extent that we see volumes going lower, we obviously have to adjust to that, but we're really focused on the long-term here. And that is the trend trajectory of scaling up in the business. We're already seeing meaningful cost improvements as we ramp up the battery cell plants and really come off some of the imported cells and things that we were doing last year. So this is a journey for us, and it's one that we're absolutely focused on doing. So we don't want to end up in a situation where we're just producing to a target, and the demand isn't there. We've seen what happens when you do that, and you've got residual value implications, which stay with you for a long, long time. So that balance is what's most important to us and continuing along the journey. So we're focused right now on that 200 to 250 and believe that we can hit the variable profit positive in the fourth quarter. And we're going to continue to work towards that best we can.

Understood, thanks. My other question was on GM Financial. It looks like you slightly raised the EBIT outlook for the year to $2.75 billion to $3 billion. I think as of the first quarter, you were thinking $2.5 billion to $3 billion. Maybe talk about what's driving the slight uptick in GM Financial. And more broadly on the financial market in auto finance, we've heard and read about some rising delinquencies for the industry more generally. Maybe speak about GM Financial and any change in delinquency rates. Thank you.

Yes, this is Dan Berce. Regarding the first part of your question about the increase in the lower end of our guidance, we had a strong first half at GMF, earning $1.6 billion, which positions us well to achieve a range of $2.75 billion to $3 billion. A couple of factors that could impact the second half include fewer lease terminations and expectations for slightly lower used car prices. Additionally, our credit performance typically declines in the second half compared to the first half, leading to higher provisions, which explains the anticipated weakness in the latter half. As for credit trends, our GMF portfolio consists of over 75% prime customers. We are observing stable performance among prime borrowers, who still have excess savings, and the job market remains robust. In contrast, among less than prime borrowers, similar to other lenders, we've noticed some deterioration, particularly from the vintages in 2022 and 2023. However, recently, we have seen stabilization in that segment, although at slightly higher levels.

Thank you.

Hi, yes. Thanks for taking the questions. My first one is on Level 2 plus subscription take rates. Tesla is seeing what many would describe as somewhat disappointing, I think, single-digit percentage take rates of its FSE product. BMW told us last week they're seeing 30% plus take rates on its five series in California, and its pricing is a lot lower than Tesla's. Just curious if you've given your take rates from Super Cruise, or if you had any commentary on what you think drives demand there. There's a saying that safety is boring. Perhaps it was all about pricing. Just love to hear any thoughts there, and then I have a follow-up. Thanks.

Our Super Cruise rollout has been gradual due to some chip availability issues. We now anticipate by the end of this year to have Super Cruise integrated into 22 vehicle models, including some higher trims like the new Traverse standard. I don’t have specific data on take rates because some features are included with the vehicle, while others may be available through subscriptions. We can provide more information on that later.

Yes, Tom, I’d like to add that it’s still a bit early since we are coming out of the trial period with significant volumes. We expect to have much more insight over the next 12 to 18 months as we see people transition out of their three-year period. We are closely monitoring this within our commercial teams.

Great, thanks. And then as a quick follow-up, actually, to Joe's Cruise question, I understand the pivot here to Bolt. But I remember the decision to do Origin was largely an economic one. So just curious if you're still in tandem to the new approach, still going to continue maybe lobbying for this purpose-built vehicle to regulators? Thanks.

Yes. We will be looking for more than just the vehicle itself; we want the right regulatory environment to release this technology, which we believe significantly enhances safety for everyone. We will continue to work hard to support the advancement of autonomous technology, both in rideshare and from a PAB perspective. Additionally, transitioning to the Bolt at this time, due to the regulatory environment, actually reduces Cruise's costs, which we see as a win-win. However, we are still in the early stages of rideshare development and exploring how to leverage autonomous technology. I believe there will be future opportunities for a vehicle like the Origin, and we are keeping that option open for the right moment. This shift is primarily about reducing costs at Cruise and scaling effectively without regulatory uncertainties.

Got it. Thank you.

Hi, good morning everyone. To follow-up on China, challenges are expected for the second half. But just to put a finer point on this, is the expectation for JV losses to sustain in the third and fourth quarters? And then just high level, what are the pillars here to GM's China strategy going forward? What should turn this around as we consider next year and beyond?

We need to align our structural costs with the new realities of the market. We're fully aware of the ongoing challenges we face. Our strategy has three main components: we plan to adjust production to reflect current retail conditions, reduce existing high inventories, and aggressively cut structural costs. From an SGMW perspective, we're maintaining stable market share, which is crucial as it also helps support some emerging global markets through exports. Additionally, we see potential in the premium channel, which allows us to export some of our most iconic products with minimal capital investment to high-end markets. Considering the strength of the Buick brand and our other initiatives in China, we believe there’s a viable path to regrowth in this market over the midterm. While I won't predict our exact position in the second quarter, know that we are working hard to improve the situation and leverage our assets and opportunities in the premium channel.

Got it. That's helpful. And then just with respect to the second half versus first half, can you provide additional color on the $1 billion in additional costs that were referenced in the second half? What's driving that outlay? And has this number changed versus your prior guidance? Thanks.

Yes, James. So the biggest piece of it to be highlighted is about $400 million of marketing spend, which is seasonally weighted towards the second half of the year in conjunction with a number of the launches that we have. We knew that going into the year. The other big piece of it, I would say there are some commodities and EV cost retimes. So these are a little bit new, just as we've kind of pivoted on our assumptions going forward. The commodities, look, we're going to respond to that, and we always do. But those are the three biggest categories, I would say, on the second half. And the team is working through it and feel good about our performance so far.

Thank you very much, and I hope everybody can see that from our results and our new higher guidance, we are making the most of every opportunity we have in ICE and in EV and leveraging our core strengths. We're being flexible and opportunistic, but also importantly, we're being very disciplined. A better Cruise is moving forward once again, and there's significant opportunity there. We're going to continue to return significant capital to our owners as we move forward and the opportunity presents itself. So if you look back, this was a great first-half. And we're going to build on it and continue to improve the business, and we have more opportunity to continue to do that to drive our future success. We're going to expand on all these topics at our Investor Day in Springhill, Tennessee. And so I hope you will attend. You're going to have a chance to drive our newest ICE and EV products and see close up our cell manufacturing expertise and our manufacturing flexibility. We think it's compelling, and we look forward to having that session with all of you. So thank you very much for joining, and I hope you have a great day.