General Motors on Tuesday reported solid fourth-quarter and record year-end financial results, despite being plagued with production disruptions for much of 2021.
In its results, released after the market closed, GM's fourth-quarter pretax profits dipped to $2.83 billion compared with $3.72 billion in the year-ago period.
General Motors Chair and CEO Mary Barra announces on January 25, 2022 a GM investment of more than $7 billion in four Michigan manufacturing sites.
But for the full year, GM's pretax profits were $14.3 billion compared with $9.7 billion in 2020. The company said that's a record.
GM and the entire auto industry struggled with a global shortage of semiconductor chips last year. The chips are used in a variety of car parts and the shortage created a dearth of new-car inventory, hindering sales volume.
GM's earnings were supported by its strategy to direct the chip parts it could get to popular and profitable full-size pickups and large SUVs.
GM is on a path to transition to selling all-electric vehicles by 2035 and it has said it would invest $35 billion by 2025 to develop EVs and self-driving cars. But in a letter to shareholders Tuesday, CEO Mary Barra insinuated that investment will grow.
"Now, backed by consistently strong financial results, including record EBIT-adjusted of $14.3 billion in 2021 and the overwhelmingly positive customer response to other Ultium vehicles we have shown so far, like the Chevrolet Silverado EV, the Cadillac Lyriq and the Chevrolet Equinox EV, we are accelerating our plan," Barra wrote.
When asked by the media what that means in financial commitments, Barra said GM will be increasing its EV investment, but she declined to provide the exact amount.
“In the next few months, we’ll round out the entire number," Barra told reporters.
She also said GM plans to offer an "even more affordable" EV beyond the Chevrolet Equinox EV, which GM will reveal later this year and has said will start at $30,000.
It's key for GM's success to provide consumers with affordable EVs priced under $30,000, Barra said.
“We’re serious about driving EV adoption and to do that you have to get into the heart of the market and you do that with Equinox at $30,000 … and the one that will be even more affordable,” Barra said. “It will be critical to getting everyone in an EV.”
She also said GM plans to sell 400,000 EVs in North America between this year and next year.
Finally, Barra said GM will invest in a third EV truck plant, about which it will announce more details later in the year. GM so far has tagged Factory ZERO in Detroit and Hamtramck and Orion Assembly in Orion Township to build electric trucks.
The main results
GM said for 2022 it expects to report a net income of between $9.4 billion and $10.8 billion, and its adjusted earnings before interest and taxes to be between $13 billion and $15 billion.
GM CFO Paul Jacobson said dealer new-car inventory will remain tight, even though the semiconductor chip shortage should improve as the year progresses.
GM ended the year with 200,000 new vehicles in inventory, but only a quarter of those are in dealership "ground stock" providing a 10-day turn rate. Normally, dealers like to keep a 60-day turn rate of supply in stock.
“We do expect to see production improve ... by the second half of the year,” Barra said. “We think we’ll get even closer to full capability. A lot of it will be dependent on semiconductor availability but we definitely see improvements throughout the year.”
Jacobson said GM expects to see continued “strong pricing” for its cars this year and does not see the rising inflation rate dinging consumer demand for new cars.
For the quarter, GM reported a net income of $1.7 billion, down from $2.9 billion in the year-ago quarter. Global revenue during the period was $33.6 billion, down from $37.5 billion in the year-ago period and missing Wall Street's consensus estimate.
The Wall Street consensus estimate for GM's fourth quarter revenue was $34.24 billion, down 8.7% from the year-ago quarter.
For the year, GM's global revenue in 2021 was $127 billion compared with $122.5 billion for 2020. GM's annual net income was $10 billion compared with $6.4 billion in the year-ago period.
The Renaissance Center in downtown Detroit sits in the background along the Detroit RiverWalk on March 11, 2021.
GM China reported equity income of $1 billion compared with $512 million for 2021. A strong mix and high pricing led that gain, said Jacobson.
GM's lending arm, GM Financial, reported full-year revenue of $13.4 billion, down slightly from $13.8 billion in revenue it recorded last year.
GM has 59,000 reservations for the 2022 GMC Hummer EV pickup and customer interest in the 2023 Cadillac Lyriq SUV is “so strong we’re going to forego a second round of reservations and start taking orders in March,” Barra said.
Barra said GM has 110,000 Silverado pickup EVs reserved so far, including reservations from more than 240 fleet operators, but GM sees its biggest growth opportunities with its self-driving subsidiary, Cruise.
On Tuesday, Cruise said it is inviting members of the public to sign up on a wait list on the Cruise website for driverless rides. All the rides are free, though the intent is to offer driverless taxi service in the future.
Barra said she recently rode in a Cruise driverless car and it was "the highlight of my career."
“It is so natural and confident it is like riding with an experienced driver that is paying attention all the time," Barra said.
Cruise is close to offering its first paid rides and generating $50 billion in annual revenue by the end of the decade, Barra said and, the SoftBank Vision Fund will invest — as planned — an additional $1.35 billion in Cruise.
Analysts react
GM finished the year with $21 billion in cash and investments on the auto side. But its fourth quarter was challenged with the chips shortage and how that hurt dealer inventory.
"GM’s sales and market share in the final quarter of 2021 strongly reflected the company’s deep struggle in the face of the ongoing disruption to supply chains created by the chip shortage," said Jessica Caldwell, Edmunds’ executive director of insights. "GM brands had a harder time keeping customers in the fold with less vehicles and options available, but the good news ahead for 2022 is that it looks like the company’s inventory levels are looking a bit better than they did in the third quarter."
Also, Caldwell noted that the vehicles that GM is selling are commanding heftier prices on average compared with its Detroit 3 counterparts.
Analyst David Whiston of Morningstar said GM's results still look like a good quarter despite all the headwinds out there on chips and inflation.
"I don’t think investors should focus that much on a revenue miss right now because the chip shortage is not permanent and also makes predicting the future difficult," Whiston said. "It looks like 2022 can be a solid year despite further commodity headwinds and the continued chip shortage."
He is referring to GM's adjusted automotive free cash flow of $6.4 billion in the quarter.
Higher car prices
Toyota outsold GM for the quarter and full year, bumping GM from market leadership for the first time in decades.
GM reported its fourth-quarter sales plummeted 43% to 440,745 vehicles compared with the year-ago quarter. For the full year, GM's new vehicle sales in the U.S. declined 13% to 2.2 million new cars.
As a result, GM's total market share plunged in the fourth quarter to 13.2% compared with 18.3% in the year-earlier quarter, according to Cox Automotive.
Still, GM offset the lower sales volume by keeping high-profit pickups and SUVs in production and slashing incentives. In total, GM slashed incentives by 65% to an average of $1,919 per vehicle, compared with $5,115 per vehicle in the fourth quarter of 2020, according to Cox Automotive calculations.
The 2021 Cadillac Escalade.
Meanwhile, GM's average transaction price rose 19% to $53,797 in the fourth quarter, Cox Automotive said. At Cadillac, where GM saw the biggest increase in average transaction prices, that price for the Escalade full-size SUV soared 12% to $107,336, Cox data said. Chevrolet’s best-seller, the Silverado, had an 8% gain in its average transaction price to $54,432.
Bright future
The sales of GM's pickups and SUVs are helping the company fund the $35 billion it's investing by 2025 in the development of electric vehicles and self-driving cars.
Last week, GM said it will spend $7 billion across four Michigan manufacturing facilities, including to build a new battery factory in the Lansing area and to convert its existing factory in Orion Township to make electric pickups.
