General Motors Company (GM) Earnings Call Transcript & Summary

Well, welcome, everyone, to our virtual conference on e-mobility and the EV supply chain navigating from ICE to EV. This is Chris McNally from Evercore ISI. And first, I wanted to extend my thanks to the entire team at GM. And today, we are thrilled to have Adam Kwiatkowski, Executive Chief Engineer of Global EVs for General Motors. A brief background on Adam. He joined GM a little over 20 years ago after graduating from Cornell, around the same time as myself. Go Big Red, Adam. With the degree in mechanical engineering, Adam has a career spanning across the powertrain spectrum from design, controls and analysis before moving on to a number of executive roles, including Executive Chief Engineer, Director of Advanced Vehicle Architecture and Director of Engine Development and Validation. So we have about 30 minutes within the conference today, and we're going to have a little fireside chat going over the evolution of electrification and how that plays into GM. So with that, Adam, we want to extend our welcome to you.

Thanks so much, Chris, for the intro. Pleased to be here.

Adam, maybe -- we have a lot of different types of investors and clients on the call. So I thought one of the first things that we can do was maybe start with a brief recap of GM's EV strategy. The quick take from us is we see GM as being among one of the world leaders in the last few years in developing battery electric products and a differentiated strategy with a history here that extends for 2 decades. And from some of your plans that you've discussed publicly rolling out 20 EVs globally by 2023, and in addition, leveraging this Ultium platform to jointly produce cars with Honda. And I think at the Battery Day, you showed costs moving down significantly from $145 today to maybe something like $100 per kilowatt hour by the early -- mid-2020. That's sort of our words. Would love to hear just how you see this evolution playing from your side.

Sure. Thanks, Chris. So as you said, GM historically has been a leader in EVs over 25 years of production EV experience from the EV1 in the early '90s to the volt -- to the Bolt, which is in production today, and we're basically doubling down as a company. So we've been very public in saying that we are all in on EVs. To just put a finer point on what you said earlier, the 20 EVs that we plan to roll out globally by 2023 are dedicated EV vehicles on a dedicated EV platform, and that vehicle platform was designed concurrently with the propulsion systems they're in. So my current role at GM is the Executive Chief Engineer for those Ultium propulsion systems. And it's important to note that by designing the vehicles and the propulsion system in parallel, we can reduce part count and avoid some of the redundancy that we see in competitors' vehicles that share both internal combustion engines and electric propulsion systems. So this Ultium propulsion system is designed to be modular. It has really clever design elements inside in order to leverage scale. So you can imagine maximum part sharing, reducing part number count by creating modular battery packs, for example, that have 8, 10, 12 and up to 24 modules inside. Those modules are common and are interchangeable so that we can custom tailor the battery energy requirements to the vehicle and the customer needs. And inside those modules, we have the capability to use both pouch-type cells as well as prismatic cans, and that allows us to mass produce battery cells at very high scale and very high volume in order to leverage cost reductions. And so we're all in on EVs. Also inside of these propulsion systems are modular and clever drive units that can be rearranged like toy bricks to allow for front-wheel drive, rear-wheel drive or all-wheel drive configurations. Those drive units will be manufactured in-house with custom-designed in-house motors inside. And again, the motor family is interchangeable. So we've thought long and hard about going all-in on EVs, making sure that the propulsion systems we designed are modular. We increased scale. There'll be a high level of vertical integration, and we've made quite a few announcements about the investments they're in. Just to give you a little bit of flavor. Again, we have a long history of producing propulsion components in-house. For example, last year, we cast 100,000 tons of parts that go inside of propulsion systems as well as the rest of the vehicle. We've recently announced Ultium LLC, which we like to call lots and lots of cells, which is a joint venture for cell manufacturing with our partner, LG Chem, in Ohio. That's a $2.3 billion investment, and that facility is actually under construction as we speak. And we've also announced a revitalization of the Detroit-Hamtramck vehicle assembly plant, $2.2 billion investment. That will be the first full dedicated EV vehicle production facility. So a very exciting time as we turn the portfolio toward EVs, Chris.

Thanks so much for the recap. Adam, I think whether it's oversimplified or not, the investment community has this myopic focus on the cost declines, right, to make EVs more affordable. And when we think about that, we tend to roll out and the Honda JV. Is it fair to say that the cost declines are going to come from scale? And without getting into specific volume estimate for specific models, so how much scale is required to get the majority of this cost benefit within the decline?

Yes, that's a great question. So we're really focused on vertical integration, and the way I think about vertical integration is both scale. So manufacturing high volumes of whatever we're going to make, but also doing it in clever ways that really address, I'll say, the most costly parts of the system. So from this modular design construct that we talked about earlier, you think about the number of internal combustion engine combinations that we have in production today, about 555. We're able to reduce the number of electric propulsion systems to 19. So those 20-plus vehicles that we plan to launch here by 2023 will have a reduced number of electric propulsion systems inside, which, therefore, again, increases the scale and the quantities that we can manufacture over and over and over again, which is really critical to our success. So scale is a huge part of our strategy. The other focus part, which you touched on, 80% or so of the pack cost -- the battery pack cost is in the cell. So we have a team of electrochemical as well as electrical engineers focused on cell technology, and we'll continue to improve that over time. For example, the HUMMER EV will launch with a state-of-the-art NCMA chemistry. This chemistry, nickel, cobalt, a lot of the cobalt has been removed from that chemistry. So basically, 70% of the cobalt removed, which is an expensive constituent, and then replaced with aluminum. So the NCMA chemistry has a very high energy density and is also, I'll say, very cost-effective for the propulsion attributes that it brings to the vehicle. And I mentioned earlier, Chris, that we have a JV to manufacture cells ourselves. So aside from the technological advancements in cell chemistry, we're also focused on the value chain. So we have teams of folks inside of purchasing business, corporate development and manufacturing, which are basically looking at the entire value chain. We're investigating things from mines to refiners, to battery precursor manufacturers, to secure supply. Understand where we want to invest. Think about partnerships with other companies in that space. And since we're manufacturing cells ourselves, we have visibility into that entire chain, and we can really work at a finer level of granularity than we've been able to do in the past. So there's huge areas of untapped value inside of that chain, and we're really excited about the opportunities that the new JV will afford us.

And Adam, if I can just follow on to that idea of vertical integration because it's a really interesting one, particularly as we think about our coverage of both OEMs and Tier 1 suppliers. As we go from that simplification, the 500-plus variance to 19, where do you see some of the opportunities for scale? We constantly hear from powertrain suppliers and suppliers in general the idea of system suppliers versus rigid or component manufacturers. Could you talk a little bit about some of the aspects of propulsion in some powertrain, where you could see a lot of simplification or maybe large suppliers or large component makers getting a bigger portion but doing it at higher volume?

Sure. I mean my favorite example, and we've talked quite a bit about it already, but the cell is a huge opportunity for us. So inside the design of the Ultium cell, we've selected to use a large-format cell. So the energy inside of one of our large cells is equivalent to 20 of the small cylindrical cells that some of our competitors use. So you think about scale, there's active material inside of each cell that basically does the heavy lifting, chemicals that store and release electricity. But there's also a lot of overhead inside of the cell. You have to wrap it. You have to put connectors on the ends. You have to make sure that there are separators and electrolyte inside. The larger you make a given cell, the less of that overhead that you have. So by simplifying the number of cells, reducing the count, making them larger, you carry less of that overhead with you. And then it's also important to make the same cell over and over and over again. So again, that manufacturing facility that we announced in Ohio will be capable of 30 gigawatt hours of cell production a year. To put that in context, it's dozens of millions of cells annually. So we'll be using this very efficient design that has less overhead and replicating it over and over and over again in order to drive scale. Since we also have the commonality and we're investing inside of the supply chain, we have the opportunity to really drive costs down. So it's a really exciting overall strategy.

And then, Adam, is it fair to say that -- because we hear a lot from Tesla about cell design and obviously some of the work that they're doing. Do you think that's a point of differentiation for different EV OEMs, where many people could go to CATL and get the cell and the chemistries that they offer. And obviously, there's an advantage for the entire industry with scale. But sort of the pitch you just gave for GM is being precedent in the development so that as that scale is happening, you could take advantage of it quickly. Is that a fair way to think about that idea of vertical integration at the cell side?

Yes, absolutely. So again, what General Motors does really well is mass produce large volumes of things with exceedingly high quality and good cost structure that we can pass on to our customers. So we are really excited about the business of manufacturing cells from scratch. And like I said, we can use GM's purchasing and manufacturing know-how to our advantage. We've dealt with precious medical -- precious metal supply chains for quite some time so we can apply that know-how to this facility. And then as far as manufacturing goes, we make millions of engines and transmissions a year, and a lot of those same tenants apply to EV parts. We'll be vertically integrating some of the castings in-house, a lot of the assembly and then cell. So we're very, very excited in order to make the leap from internal combustion engine propulsion manufactured, EV propulsion manufacturer. And we have all the right tools in our toolbox from both a technical as well as business standpoint to really be a leader inside of that space. And vertical integration and scale are the keys, as you mentioned.

That's great. And so maybe that's a good point to switch over from some of the technical aspects to just some of the consumer aspects of EV propulsion. When we think about the growth initiatives for GM through EVs, particularly in the U.S., sometimes it's been hard for investors to wrap their heads around the strategy, given GM already has such a strong market share base in the U.S. and looks to grow that by adding EV offerings, particularly when we think about where the strength of the current GM pickup market is if you think about in the middle of the country versus relatively underpenetrated in the coast. Could you talk about how the EV propulsion from a design perspective is thought about so that GM can grow share with new products, specifically some of those 20 new models that will be rolling out over the next couple of years?

Sure. So we view EVs as an excellent opportunity in the market. It's hard to be too specific on where exactly the market will go in the future, but we've done a lot of consumer research to really understand what people want. And our customers and vehicle customers in general, they want something similar to what they drive today, and there's certainly a lot of variation in consumer taste. So we're approaching this at a macro level to get scale. We're introducing several entries across multiple segments and brands in order to address the needs and desires of as many buyers as possible. So as we talked about earlier, with a modular strategy that leverages scale as well as vertical integration, we can offer many different vehicle types and offerings that appeal to multiple different segments of the market, all with the same content inside, again, that will mass produce in a very cost-effective manner. So this will help bring material costs down. And again, we'll have the opportunity to share that with the vehicles and the consumers thereof. So we want to make sure that our customers don't have to pay a penalty to buy an EV. Just to give you an idea of the footprint, we've said publicly that by mid-decade, we intend to sell a million EVs per year in our 2 largest markets in North America and with our joint venture partners in China. As you mentioned earlier, Chris, also, we're underrepresented in certain areas like the coast, and there will be opportunities outside of North America and China as well as we leverage the scale and diverse portfolio offerings, that concept of we have a variety of consumer tastes. People really like the idea of driving something similar to the ICE vehicle they're driving today. And so because we're creating a full portfolio of electric vehicles, we have the opportunity to reach out to more of those customers and really help the transition to EVs in the marketplace. It'll create new sources of revenue for us, increase sales and market share, and it's a really, really exciting time.

And Adam, as we think about that market share push and entering into new markets through the new models, it's our understanding that there also is some pretty interesting complementary aspects to some of these vehicles, whether it be OTA or sort of the next-generation of Super Cruise. Could you talk a little bit about maybe some of the tech alliance about whether it's energy efficiency? Or just is it that it's the right time to introduce some of these new features in what will be some of GM's newest products?

Yes, that's a great question and an interesting one. My -- the role I had before this assignment was the Executive Chief Engineer for our Vehicle Intelligence Platform, which is an all-new electrical architecture that's inside of our vehicles. And that Vehicle Intelligence Platform, or VIP as we like to call it, has full OTA capabilities. So most of the modules inside of the vehicle are over-the-air updatable, which is an outstanding capability, and we have it in production today. So we'll continue to grow the technology and advance the technology. It'll be inside of all of our EVs that we're launching and had previously announced. But to give you a little more flavor of what the vehicle intelligence platform is like. It launched in the fall of last calendar year, and it powers the full electronic system of the vehicle. I like to call it nervous system of the vehicle, all the wires and electrical connections, all the computers and brains inside the car. It's capable of managing up the 4.5 terabytes of data processing power per hour, which is like a fivefold increase in capability over where we were previously. And again, it enables over-the-air software updates, which provide functionality upgrades throughout the lifespan of the vehicle. And as you mentioned earlier, there are synergies with EVs where you have the opportunity to change the character of the vehicle to better suit consumer interest, and so there are synergies between that technology and EV for sure. To touch on your other question about Super Cruise, we're really excited about the opportunities that Super Cruise presents. As we mentioned at our Capital Markets Day, 85% of current Cadillac CT6 owners and Super Cruise users tell us they prefer or only consider a future vehicle with Super Cruise. So Super Cruise really is a reason for purchase. And linked with EVs, again, an outstanding technological synergy. And it's a really powerful endorsement of the feedback we're getting from our consumer base. So we think this feature, basically Super Cruise, will absolutely drive interest in our vehicles. And as we talked about earlier, over the next few years, we plan to roll out Super Cruise to many more vehicles. The Chevrolet Bolt EUV will be the first vehicle outside the Cadillac brand, the future Super Cruise. And GM will expand to 22 vehicles by 2023 with this technology. So again, large technological advancements and then penetration inside of our portfolio for both over-the-air updates through the vehicle intelligence platform as well as Super Cruise.

Great. Adam, it's John Saager from Evercore. I just wanted to ask a quick follow-on onto that. Does the over-the-air updates, does that need to be complemented with EV? Or we can -- can we expect a broader rollout of over-the-air capability across a broader segment of GM vehicle population?

Yes. The over-the-air updates that are associated with the vehicle intelligence platform will have more applications of both traditional ICE vehicles as well as EVs. So the answer is yes, both.

Okay. And then I wanted to talk specifically about how GM views their role in consumer education and specifically working with electric utilities to educate consumers on the existence and reliability of electricity as fuel.

Yes. That's an outstanding question. So it all starts with the customer in mind. So we've thought a lot about the customer of our vehicles. And again, we've done quite a bit of market research. So it starts with refueling, as you had mentioned. We have a holistic approach to charging with the intent to make it as convenient as possible for customers to charge in public at work and at home. Home charging as well as work charging are big areas of focus for us because 78% of owners charge at home most often. And what I really like as an analogy is it's very, very convenient to make sure that your cellphone is always full of charge. Everyone knows, you walk in the door, you plug it in. It's an effortless activity. And in fact, the act of installing the plug is seconds, and the same sort of activity on an EV will also be seconds, whereas pumping gas into a vehicle today takes minutes. So it's a really exciting way to recharge a vehicle and to refuel. And the owner interface is simple and quick. And then you also asked a little bit about the business relations. So we're partnering with various companies and also government agencies to build thousands of additional public fast-charging stations. And again, we're building those partnerships across the country to fill out not just highway and corridor areas, but also in suburban and urban areas. And that, we think, will unlock those additional customer segments. And just to give you some of the idea of the power associated with DC fast charging inside of our vehicles. We have, inside of the Ultium propulsion system, they're all designed for Level 2 and DC fast charging. Most of them will have 400-volt charging up to 200 kilowatts fast charge, and then there'll be some applications that will have 800-volt charging capability up to 350 kilowatts. Now it's difficult sometimes to relate kilowatts to numbers that we can really appreciate. But if you think about a year ago, a Corvette V8 was about 350 kilowatts. So you're basically able to put the equivalent power of a sports car engine into your vehicle while you're on the road stopped in the middle of a trip. So again, exciting advancements in technology in that field. And we're focused on, first of all, making the home and work charging experience effortless and seamless, like I talked about earlier. Secondly, we're partnering with both electric companies as well as those who are developing on-road chargers to increase infrastructure. And then finally, we're pushing technologies as hard as we probably can to get up to 350 kilowatts of DC fast charge, which will be super helpful on long trips where refueling event is required in the middle.

And Adam, this is Chris again. One of the reasons we wanted to have this conference now, even though there's so much of a focus on Auto 1.0, is we wanted to know how much -- the electrification push has changed and the landscape, the evolution has changed as a result of COVID. Could you talk a little bit -- the company has been forthcoming that it looks like only the Bolt refresh maybe push back slightly, but the Bolt EUV appears to still be on track. Anything that you can add about how we should think about GM's rollout, how it could be affected even just temporarily by everything that's happening with COVID and the related recession?

Yes, that's a great question. So as Mary mentioned on the quarter 1 call, we've been very protective of our key EV programs like HUMMER EV and Lyriq, which were featured in our EV day. The production timing for those programs remain fully on track. So my team and the vehicle engineering teams actually work from home quite effectively during the COVID situation. The IT infrastructure at General Motors is outstanding, and we're all designing remotely. So those programs are fully on track. We've had to adapt our plans for revealing some of those vehicle entries, but no impact to the production time line.

Great. And then maybe even just thinking sort of second order effects. Has the team thought about anything that could change, whether it's a public policy, about clean air? Obviously, there -- we're seeing different impacts on pollution as a result of the diminished activity globally or changing consumer attitudes, increased desire to own a car versus, I think, like public transportation. Obviously, we have -- they're changing fuel prices globally as a result. Anything that the team is thinking about that we should start to -- even if there's not an answer, just debates that may happen over the coming years that we never thought we'd be having because of COVID?

Yes. It's a great question. So it's hard to say exactly how things are going to develop as sort of life continues to resume more toward normal, I'll say, but we'll continue to monitor. The most important thing at General Motors is that there's really no change in our conviction or commitment to an all-electric future. On the public policy front, we've been consistent about our desire to see a national framework that encourages consumers to adopt zero-emissions vehicles. We're all in on EVs dedicated to moving our portfolio in that direction. And then you think about, from a consumer preference perspective, COVID-19 is obviously impacting the way that consumers are shopping for vehicles. Mary talked about that at the earnings call. But in terms of overall electric vehicle adoption, we haven't seen anything that changes our view on EVS. Full steam ahead.

That's great. And Adam, I think we're just about to hit the time limit. So I really appreciate you taking the time to go through. It does seem that GM has taken a very comprehensive approach and given us a lot to think about, actually when we think about combining with some of the earlier conversations that we have with benchmark, for example, about going up the supply chain. And so maybe that's -- actually, we had a little conversation, but maybe you could talk a little bit about some of your supply relation that you have on the JV on the actual cell side.

Sure. So as I talked about earlier, once an OEM has the opportunity to manufacture cells from scratch, the whole value chain basically becomes your oyster. So we have teams of people that are working and investigating the value chain. There are opportunities in hedging metal prices, opportunities in investing in mines, opportunities to partner in refining facilities along that value chain line. And so in our JV partnership with LG Chem, we're working all of those areas simultaneously. And there is quite a bit of, I'll say, leverage and opportunity inside of those areas. And we're really excited that we see -- in the progress that we see. We've mentioned publicly that we set a tough target for ourselves in 2015 to get below $100 per kilowatt hour, and we are confident that we're going to beat that goal.

That's great. And Adam, just for time purpose, we'll end there. Thank you so much for participating. For those on the line, please feel free to reach out to GM's IR or my team to pour a greater discussion of Ultium and the review of what GM had said from their recent Battery Day. And Adam, thanks again.

Thank you, Chris and John. It was my pleasure.