General Motors Company (GM) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the General Motors Company Investor Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded, Tuesday, September 8, 2020. I would now like to turn the conference over to Rocky Gupta, Treasurer and Vice President of Investor Relations.

Thanks, operator. Good morning, and thank you for joining us as we discuss the exciting partnership with Nikola that we announced earlier today. Joint press release was issued this morning, and the conference call materials are available on the GM Investor Relations website. We are also broadcasting this call via webcast. I'm joined today by Mary Barra, GM's Chairman and CEO; and John Stapleton, GM's acting CFO. We're also happy to have Nikola's Executive Chairman, Trevor Milton; and Nikola's CFO, Kim Brady, also participating in this call. Before we begin, I would like to direct your attention to the forward-looking statements on the first page of the chart set. As usual, the contents of the call will be governed by this language. I will now turn the call over to Mary Barra.

Thanks, Rocky, and good morning, everybody. I appreciate the opportunity to talk with all of you. I have a few remarks, then I'll turn it over to Trevor, and then we'll be available to answer your questions. So with today's announcement, GM is seizing an important growth opportunity with Nikola to boldly move into broader markets with our Hydrotec fuel cell and Ultium battery systems. Under the agreement, GM will engineer, validate and build the Nikola battery-electric vehicle and fuel cell electric vehicle variants. We will also be Nikola's exclusive supplier of fuel cells globally, except in Europe, for its Class 7 and 8 trucks. Partnering with Nikola, a leading disruptor in the EV and fuel cell space, gives us validation and high-volume commercialization opportunities in a multibillion-dollar total addressable market. Fuel cells will become increasingly important in the heavy-duty class of commercial vehicles because they are more efficient than gas and diesel engines. A pioneer production-ready fuel cell technology solution to these vehicles will accelerate a zero-emissions future. And we see additional growth opportunities for Hydrotec in multiple transportation, stationary and mobile power end markets. Our Hydrotec fuel cell technology was developed by our joint venture with Honda, and the fuel cells will be manufactured at our Brownstown facility in Michigan. As we begin to introduce our Ultium-powered lineup, development work on our next iteration of Ultium batteries continues to move forward. Our Ultium battery technology road map includes silicon anodes and lithium-metal anodes that will improve vehicle range, affordability and reduce dependence on rare and costly metals. In testing, we are already demonstrating automotive-grade durability and significantly higher energy density. This agreement also provides substantial financial benefits to GM. In exchange for our in-kind contributions and access to our global safety tested and validated parts and components, we will take a $2 billion equity stake in Nikola, representing an 11% ownership. GM expects to receive in excess of $4 billion of benefits between the equity value of the shares, contract manufacturing of the Badger, supply contracts for battery and fuel cells, and the EV credits retained over the life of the contract. Nikola is the second partner to choose our modular EV platform and Ultium battery system over competitors' technologies. In April, we entered into an agreement with Honda to jointly develop 2 new all-electric vehicles, and we are open to further alliances. Through these partnerships, we are growing our presence in multiple, high-volume EV segments while building scale to lower battery and fuel cell costs and increase profitability. Working with like-minded partners will help accelerate EV development, production and consumer adoption and will also improve our capacity utilization and optimize capital spend as we scale our very important EV business. And to spur greater and faster consumer adoption of EVs, we recently announced a partnership with EVgo to install 2,700 fast chargers in cities and suburbs over the next 5 years. So we couldn't be more excited about this opportunity to partner with Nikola. And with that, I will turn it over to Trevor.

Thank you so much, everyone. I appreciate it. It's a very exciting time for everyone involved, especially everyone here at Nikola Motor Company. The reason why this is so special is Nikola is an incredibly innovative company that has been able to cause quite a transformation in the heavy-duty trucking world. We've been able to show other groups, other automotive groups and also legislation around our legislators that zero emission can actually compete with those that are not zero emission for the first time in history. This relationship with General Motors is very special to me because this is an example about how 2 companies can come together and leverage each other in a way that -- each other's technology in a way that it helps drive down costs and further the development of zero emissions across the globe. A prime example of that is the battery and the fuel cell. Nikola expects over a $4 billion savings just in batteries alone. Now GM gets a great stake in Nikola. They've spent billions of dollars developing their electric vehicle powertrain, the drivetrain on that vehicle, their batteries and their fuel cell. And rather than letting that asset sit there and try to build it organically internally, one of the things they've been able to do is jump-start this growth internally at GM with Nikola. So what does that mean? That means we're going to be able to leverage the same powertrain that they use on their electric vehicle platform. We'll be able to use their same batteries throughout not only our Badger but also our Class 8 trucks. We have the first ever and largest battery-electric Class 8 truck in the world going into production -- uses a 720-kilowatt hour battery, going into production in Europe and the U.S. starting next year. We're also going to leverage the GM batteries on those programs, allowing us to see quantities few others in the world will ever see, and we can do it jointly with General Motors. This relationship with General Motors, you honestly probably could not pick a better partnership. Nikola needed manufacturing, Nikola needed supply chain and Nikola needed the history of how to build a pickup truck that would not fail. GM needed all the points that I just brought up prior to that just barely. If you bring those 2 together, it truly is a partnership made in heaven, in my opinion. I could -- we had options to take almost any OEM in the world, I had multiple term sheets on my desk, and this is the one that we picked. And so I wanted to thank Mary for that. Obviously, we're here to support GM. GM is here to support us. But anything I can answer, I'm happy to be here, and I couldn't be more excited about this opportunity.

Okay, operator, we're now ready to take questions.

[Operator Instructions] Our first question comes from the line of Rod Lache with Wolfe Research.

Mary, I had a few questions for you. Maybe just firstly, can you just talk to us a little bit about what your vision is for this Ultium business? It sounds like it's starting to become kind of an industrial platform now that you're supplying not only yourselves but also Honda, Nikola and you're saying others. Is this the kind of business that's sort of run separately as sort of a supplier to GM and others within GM? Are there other ancillary opportunities that you see in other industries or in software or any other arena?

So Rod, I appreciate your question. And I think this is a departure from what the OEMs have traditionally done, and I think it's a huge opportunity. General Motors, for years, has been investing in fuel cells and our EV platform with the latest being the Ultium components and systems. And to be able to leverage that and get scale across multiple partners, we think, is a huge opportunity and recognizes the technological leadership that we have. So I think it's an opportunity to look at the industry, and as we transition to electric vehicles in an all-EV future, really seize and capitalize on the work that we've done and the technology that we have.

One of the things that GM doesn't have that Nikola has had and other start-ups have had is that maybe a lower cost of capital and maybe some flexibility in pursuing these kinds of businesses. Do you see GM ultimately originating your own kind of start-ups and utilizing this as well? Or is this more with existing third-party companies?

Rod, this -- it's such a dynamic time in the industry right now, and there's so many opportunities. I don't want to specifically rule anything out, but we think the strong partnership we have with Honda, now with Nikola and the very strong portfolio of EVs we plan to roll out across all of our brands gives us a tremendous opportunity to really demonstrate growth in multiple fashions. When you look at the fuel cell business, being able to supply that technology into a new market for us with the Class 7 and 8 trucks, again, that just represents growth. So we're going to be looking for ways that we can continue to unlock value based on the capabilities that we have, not only the technology, but the manufacturing capability, the ability to manage a very complex supply chain and get -- and really drive scale. I think it puts us in a very unique position to keep capitalizing on it.

Okay. And lastly, can you just talk about the addressable market for fuel cells? It's something that I've heard GM talk about, I think, for 20 years, and it's always been 10 years away. It sounds like it's finally being commercialized. How would -- do you expect that to ramp? How big could this become?

We think it's a multibillion-dollar total addressable market. And being able to partner with Nikola and get the scale that we'll get in the -- not only the Class 7 and 8 truck application but also the Badger fuel cell version, gives us an opportunity to continue to refine the technology, go down the cost curve, which is going to unlock more and more applications. So I think to your point, we are at the point where we're able to unlock that value, and I think there's a tremendous TAM available.

Your next question comes from the line of Joseph Spak with RBC Capital Markets.

First question is for Mary. I just wanted to -- on the last earnings call, you sort of talked about potentially selling technology to other companies, but you also mentioned the desire to protect key franchises such as the truck franchise. It could be argued you're sort of helping build up a competitor here. So I just want to hear you talk a little bit about how you view the electric truck market and then GM's positioning and branding within that.

So I think the -- there's going to be plenty of opportunity in the electric truck market, just as there is today with different brands and different offerings, depending on what the customer is looking for. And the opportunity that we have here allows us to have additional partners, which will give us scale and be able to continue to take costs down, which is going to be one of the key enablers for unlocking the EV truck market of getting costs down. So I see it as a huge opportunity to leverage the technology we've been working on, work with a great partner, and I do think there's tremendous opportunity.

Okay. And then...

And Mary, also -- I was also going to say that we were going to do this anyways. Nikola had the truck, normal version of a truck built. We had multiple term sheets from different OEMs. So I think it's actually really brilliant for GM to say, "Look, well, this -- we'd rather have Nikola partner with our family than competing against our family." And I think that was a really smart move by GM to say, "You know what, let's all come together and let's work together and not -- they're going to be a competitor out there, we'd rather then bring them in to be part of the family and -- rather than getting no benefit from it." So I think that was a pretty smart move.

And Trevor, maybe just with the -- using GM for fuel cells. I know you did a lot of development work on the fuel cells with Bosch. Maybe you can talk a little bit about what you saw that made you convinced GM is the right partner here, on the trucks as well.

Well, I think the way that you -- the best way to put this is GM is going to be an incredible partner with fuel cell. They've done an awesome job with their fuel cell. They're going to be integrating it into the Badger to come out. It will be coming out both as a battery-electric version and fuel cell. We've done a lot of work with Bosch and also internally here at Nikola building our own fuel cells. So there's very few people that know fuel cells like we do. We're -- I kind of like to believe that Nikola was a lot of the messaging around the world of why fuel cell could work and how you can build out the network with the vehicles and kind of solve some of those complex problems. And Bosch is still an incredible partner of ours. And we plan on working with them. My hope is actually to bring the 2 together, and they can leverage different parts that work together with each other. So Bosch has a lot of parts within the balance of plant that are awesome. GM has got a ton of experience in fuel cell as well. And I believe that -- to be honest with you, I think there's going to be a lot of collaboration in parts, supplies and work together between all the parties. I don't really look at it as like necessarily one or the other. This world is going to be -- everyone is going to be building so many fuel cells that no one's going to be able to handle the production. It's going to take everybody. And right now, we're focused on getting this -- the Badger out as fast as we can, and GM's got that -- the awesome fuel tech that they developed with Honda that makes it a natural fit.

Your next question comes from the line of Adam Jonas with Morgan Stanley.

So Mary, I think Rod really very elegantly tried to get to this, but your stock is having a huge day in a down market. The market is kind of viewing GM as a stable of unicorns that are yearning to run free in the pastures of portfolio managers all over the world. You use language like all options or keep all options open, which is the right language to use, I think, for any CEO and Chairman at this time for your industry. But your stock has been kind of moving around -- as you're well aware, around the spin mania, right? And you have a chance right now on this call to put that to bed and say, "Look, we do have unicorns in our stable, and they're better off within GM," or you can keep reverting to the all options on the table language, which I totally respect, but we're still going to keep asking the question. I just -- I don't want to frustrate you. I'm just trying to explain how I think it's going to be. But I just did want to give you one chance in your very clear language to say, put it to bed, it ain't happening, let's move on, or whether it's just something that's just left on the table and we see how the business and the opportunities play out over time.

Adam, it's our role to make sure we're doing everything to unlock value for our shareholders over the long term. We believe in an all-electric future, and we are doing -- working very aggressively with our technology, both fuel cells and battery technology with Ultium, to unlock that value. And with partners like Honda and now with Nikola, we see a huge opportunity. So we're going to keep working to achieve our goal and do what is right for our shareholders' perspective over the long term. And beyond that, I don't have anything else to say.

Makes perfect sense, Mary. I just had another follow-up. For distribution, maybe, Trevor, you could take this or Mary, have you discussed -- it seems to me that there'd be an opportunity, not just leverage GM's scale and battery and powertrain but time to market for distribution. I mean maybe you don't want to be a B2C, and GM has deep experience in B2C. And Trevor, you have an opportunity -- maybe it's a different arrangement to be worked out to use GM's distribution for that. I didn't know if you wanted to comment.

Yes. I mean -- I think that -- look, the world's changed so much in the last 7 or 8 years. It's just incredible. It's so hard to keep up with everything, right? The Tesla model came along where they started selling directly to consumer. And it disrupted everything. I mean every OEM around the world, they know how to take it. They had to analyze it to see the benefits and also the downfall. There's a lot of good and a lot of bad from that. And I think what we've done with GM is we just said, look, Nikola retains the rights to sell and service and warranty the trucks. And I think our main focus here is to not do anything too fast and analyze this. We have an opportunity now to do it right and make sure it's done the right way the first time. And we've been -- I've been picking Mary's brain for weeks now on this around the dealership network, the service, the warranty, everything else and how we do this the right way the first time. So those discussions will come about naturally over the following months. We'll let everyone know what we decide to do and how to do it. But it's a unique opportunity to do it right the first time, and that's pretty cool.

That's great. And maybe just one follow-up and my last question, Mary, for you. GM and -- GM has so many exciting opportunities to bring to market pure electric vehicles, right? And you've -- and the mantra has been 100% electric future for many years now. And you're really putting the physical -- you're doing physical things and real, real partnerships to make that happen. And you're starting to -- if I'm betting against GM on this, I'm starting to get really worried because you're starting to create some nice anxiety there. But I -- but when I think about the distribution, I'm wondering if you and your competitors -- as you bring out these beautiful, connected, all-new architecture, highly automated electric vehicles, are you still going to distribute them through a distribution of the 64-year old dealer franchise laws, which -- and I'm not blaming it, it's just the situation today where you have a beautiful product, and depending on how blue my hair is or how large my prostate is, too much information here, okay, folks, I'm going to get charged a different price for that same car and it's just not where the business is going. I'm wondering if there's an opportunity to do that Tesla loophole. Or if it's an all-new brand and pure EV, and you didn't have that before, whether there is some way to work with your dealers in a positive way to bring that one-price experience without the embedded imperfections of the system, if I can be polite about that. Does that make sense?

I know. Adam, I think I understand what you're saying. And look, we -- this industry is transforming even faster than when I said it would transform more in 5 years than it had in the last 50. We see that continuing to happen. We have great dealer partners, and I've been in dialogue with them over the last several months about how do we transform to lead when you think about having EVs get to 20%, 30%, 40% of the U.S. SAAR. That means it's a whole different customer, and it's their only vehicle. And so that -- importance of that local dealer can play a very important role. But we're working to transform every part of our business, and we view our dealers as a strength with what they can bring. And so you'll see us continue to work and partner with them and innovate.

Your next question comes from the line of John Murphy with Bank of America.

Mary, just a first question. When you look at this deal, it's not necessarily something new to GM. I mean, obviously, the deal itself and the structure is new, but the technology is something that you've had in-house. And you're showing that beyond even EVs, you're playing in the next gen of powertrain technology. So -- I mean as you look at GM, I mean, don't you think this advanced powertrain technology, which is class leading, is really core to the company and that you want to keep that sort of internal and that you may, over time, isolate that by separating off to some of the older technology? I'm just trying to understand sort of philosophically how you think about this because there's a lot of -- obviously, there's a lot of questions on this and there's a lot of debate in earlier questions. But it just seems like that powertrain technology is what GM is and that you'd might want to carve off stuff that's less advanced over time as opposed to carving this off and giving it to somebody else.

John, we totally agree. I mean if you think about GM's history of having a strong propulsion background and really bringing industry leadership from an internal combustion engine and now with the investment we've made, frankly, over decades with fuel cells and electrification to have this type of industry-leading technology, and we're really looking at the industry differently because when you look at the cost of development and all of the expertise and work we've put into it, how do we leverage that to create long-term shareholder value? So very important the work we've done, and now we're -- I'd say we're at the early -- the beginning of really being able to leverage that with great partners like Honda and with -- like Nikola and with our own EV portfolio that we'll be launching. So I -- definitely is a core piece of how we compete and win and lead.

Okay. And then just a second question on the economies or the economics of the Badger. I'm just curious how those are going to be split, how it's going to be set up. And as we think about this as a light-duty pickup with fuel cell powertrain, is there an opportunity over time for hydrogen fuel cells to take over even for EVs, 10, 20, 30 years down the line? I think, Mary, you've got a lot of experience in this. I mean what's your opinion?

Well, I think the issue is going to be how quickly do we take costs out of fuel cells so it becomes the right choice across different markets. And we're seeing with Class 7 and 8 trucks, when we look at some of the other applications, whether mobile -- or excuse me, stationary power or other applications, land, air and sea, that's all going to give us scale and learnings that is going to get the costs down. So that's what's going to drive how far we can take the application. But clearly, especially for larger vehicles right now, it's crossing over to make sense. So we see it as an opportunity for significant growth, and I know Nikola does as well.

Would it be fair to say that fuel cells are far better for the environment than an EV?

I think you have to look at the application and affordability. If you're just talking pure technology, it's definitely a very good technology as it relates to zero emissions when you look at it. But I think it's also got to be affordable to be able to be leveraged and have a real impact.

So it's cost and distribution that are the hurdle right now, but if you could solve for those, fuel cells would be superior to EVs. Is that a fair statement?