General Motors Company (GM) Earnings Call Transcript & Summary

Hi, everybody. I'm Adam Jonas, I head up Morgan Stanley's global auto and shared mobility team. I'm absolutely delighted to be joined today, representing General Motors, Ken Morris, Vice President of Electric and Autonomous Vehicles. It's been a very, very active area for the industry and particularly for GM in recent weeks and days. So I feel especially privileged to have Ken joining us today for half an hour of discussion, a strategic discussion about some of the opportunities for GM and how their many, many years, if not decades, of investment in some of these enabling technologies can really finally -- they finally have their day. Before we get into that, I'm going to just read this disclaimer that this webcast is for Morgan Stanley clients only, not for members of the press. For important disclosures go to www.morganstanley.com/researchdisclosures. And if you have any questions, don't hesitate to reach out to your Morgan Stanley sales representative. So with that, Ken, thanks again for joining us. Thanks for your time. I wanted to give you a few minutes to just touch on some of the key things you're emphasizing with investors lately. And if you could specifically elaborate on the importance of the latest Ultium announcement from this morning, please.

Sure. Thanks, Adam, and hello, everyone. I'm glad to get to talk to you today. It's an exciting time in General Motors for a lot of reasons. There's a lot going on and I'm lucky enough to be in the middle of it. And so as we've talked through EV Day in March and continue the discussion of what General Motors' strategy is, zero crash, zero emissions, zero congestion is the core of where General Motors wants to be. And to do that, EV vehicles is the foundational building block of being able to pull that off. So we have a full portfolio of EV vehicles coming in, which, when you talk to customers, what they're concerned about is, I drive Suburban every day. Can I get an electric Suburban? You can't force people into a Bolt when they need a Suburban or pickup or if someone wants a really stylish sedan. That's the other thing. People really want stylish vehicles, and that's what we're going to give to them. We're going to give beautiful vehicles. And so not only do we have the wherewithal to do the creative design to make the vehicles look beautiful, the engineering history to make them absolutely durable and high-performance and high-performing vehicles. We've got over 100 years of manufacturing capability. And so we're pulling that all together, and the future of General Motors is electric. And so we're pulling out the stops, putting the full force and might of General Motors behind this, and we really plan to deliver what customers want. The other things that's interesting about this, this morning, we announced that the Ultium drive units and motors that go along with the Ultium battery system. And that's another topic that we can talk more about. But basically, we have over 100 years of building engines and transmissions and doing that at scale, doing that quickly, improving the design of those things, that we design them and build them. And so getting the most efficient performing units, drive units as well as the most -- the easiest to build and build properly with high reliability, that's something that our company can do as well. So it's a great time right now, we're moving fast, faster than in my career on anything in terms of decision-making, holding our team to high expectations in terms of how fast do we deliver the product. And it's exciting. The last thing I would say is we are doing this during a pandemic, which everyone is fighting kind of the same battles. But to give you an idea of the commitment that General Motors has, we've committed to spend $20 million in capital and engineering on our EV strategy and the batteries and the packs, the modules, the vehicles. And we haven't slowed down one bit since the beginning of the -- or COVID. And so I think that shows that this isn't something that General Motors is just dallying in. This is a full commitment and full speed ahead. So with that, Adam, I'll give it back to you.

Yes. Let's carry on that last point. I was going to ask what's changed the most this year and how has COVID either accelerated or interrupted some of your key strategic initiatives such as electrification. And I gather, and you just said, it's not slowed it down. But I'm gathering, it might even accelerated it. Is that true? Is that just kind of -- am I getting foggy in here from the outside? And if it is being accelerated, why do you think that is? And if you could elaborate what that means for your business.

Well, it has accelerated. And you would think it's difficult to even keep to the same cadence that we had before because we're working remotely. And if there were ever a lucky thing to come out of COVID, the timing of this happening where we had to work at home fit in perfectly with our program timing because a lot of what we were doing was virtual anyway. A lot of them was design, design reviews. And now we're into the point where we have vehicles on the ground. We need to be in there to drive, evaluate, do the testing, and so it's opened up to the point where we can do that. And so through those months, we were really effective. That was one of the biggest learnings probably. We can be super effective outside of the office. And so I think we gained efficiency just from not having to travel back and forth. And a lot of us travel outside the country. We are all at our desks at least 10 hours a day or not more, and so we just got more done. So on top of that, the reaction to vehicles like the Cadillac Lyriq has been so strong, and the feedback so strong, it's like you need to get those things faster. We really took a step back and said, how can we get it faster. And so we're doing some pretty inventive things to get those on the market faster than we had expected. As a matter of fact, we've pulled ahead the Cadillac Lyriq twice. So we've changed the start of production date twice on that already. And it just shows you that we're being nimble in what we want to deliver here.

All right. We're going to get a little closer to the -- what differentiates GM's EV product and market strategy. Maybe to get into that topic, I'd love to just get your perspectives on how important was it to really brand everything Ultium. And I don't mean that just like -- if I understand it's more than just a brand, but what that brand embodies culturally in terms of pushing the thinking, getting out of your comfort zone culturally, but specifically on talent. I would imagine that given there's just this -- EVs is like the unicorn's bachelor party right now, right? It's just going bonkers. It's the VIP room in the bachelor party, so to speak, or hen nights, okay? Let's be respectful and equal here. How are you winning on those -- the line of scrimmage for talent to get people to come to work for Ultium, a unit of General Motors, instead of going to Tesla or Amazon? Or even to leave a Tesla and take their talents and skills to southeast Michigan or wherever else you have your assets?

Well, I think there are a couple of elements to the answer of that. First of all, we are committed to a zero emissions future. Try -- we really believe in climate change, and we want to make improvements in climate change and make the world a better place. I think that alone draws some people just because they believe that strongly as well. And so I think it's evident that we're sincere in that part of it. The other thing is we're working on really cool stuff. I mean we're working on the cutting-edge of technology in terms of the battery chemistries and how we're doing the architectures of the battery packs and building the vehicles around that and on autonomous technology as well. If you think about what's in the future, battery-powered autonomous vehicles that, that vehicle could be a car, it could be a military vehicle, it could be airborne. There are a lot of different things we can do. And I think the brightest minds love challenges, and we have tons of challenges that we can put forward. The last thing I would say, you mentioned the Ultium brand name. And a car is made up of 30,000 parts currently, and so they're enormously complex machines. And so I think the beauty of the Ultium brand is that it really kind of takes the complex and makes it simple. And as simple as you have a battery pack, you have drive units, and then you have the brains that control that wrapped inside a vehicle. And so the Ultium brand and the Ultium battery propulsion system drive units, it kind of simplifies it so that they can understand it's something different than other -- than we've ever done and other companies have done.

All right. Ken, let's go here. GM, you seem to be taking a relatively unique in-house approach to the supply of critical parts, everything outside the cell, including cell design. But batteries you're making in-house with your partner, LG; EV powertrains; obviously, the autonomy. But just sticking to the EV program, in contrast with many other OEMs that are kind of largely going after the traditional outsourced approach. Now I had a competitor on at the conference earlier today that said that the maturation of the supply chain for EVs and EV powertrain and batteries is such that they didn't need to do it in-house. And it was optimal for them to buy kind off the shelf, if you will, third party. Tell us why, from your perspective, it's better to go in. And if you could -- in doing that, could you explain the advantages of doing the software, the electrical architecture and these critical bolt-on hardware components together, rather than having just 1/2 of it and then outsourcing the other? Does that make sense?

Yes. And I think the companies that are going to be the most successful in the EV business and the autonomous business are the ones that truly, truly understand how to integrate not only the parts together, but the parts together with the software and controls so that we own, really, the soul of the vehicle. And we can make the vehicle absolutely pleasing to the customer in ways that maybe others will miss little nuggets of that. That's kind of the overriding thing. But then you get into the practical terms of drive units, battery packs, bodies, hugely capital-intensive, enormously complex. They have tremendous amount of intellectual property involved. And by the way, they're really hard to put together. So that's the other thing. We control our destiny more by having true ownership of understanding the total vertical integration of a drive unit or the battery pack and how it all goes together. And if we're having dimensional problems as we're building those, well, we designed it, so we can zero in on those dimensional problems quickly. And so we can also design it upfront so we can put them together easily. And I think just the level of complexity of all that and the fact that we're creating knowledge, and we're creating intellectual property. And the fact that it's all in-house makes things much, much easier to deal with.

So I think I'm quoting you right when you said -- when you talk about electric vehicles, it's all about the battery, all starts with the battery, starts with the cell. Can you tell us why LG Chem? Can you elaborate a bit on the history of that relationship and why they're your cell partner today?

Well, we have a long history with LG Chem with the Chevy Volt with them before. And what we've really done is taken 2 companies to partner to bring the best out from both companies. LG Chem has a history of the development of the cell chemistry, the manufacture of the cells. And we bring in the 100 years of supply chain and the manufacturing efficiency. Just we've built things at high rates for a long period of time. And so matching those 2 together, not only in terms of just the manufacturing capability like we've put in at Lordstown and how we're going to make that more and more and more efficient because that's what we do, we also have a joint development agreement around cell chemistry. And so we can really bring the best thinking of both companies together. And you can always learn from other companies. We're doing the -- we have the partnerships with Honda, Nikola now, we -- Cruise. We can have learnings from other companies that make us both better.

So Ken, there's an argument that the battery is far from mature. It's still relatively early in the maturation curve. I think you agree based on our discussions. Developing in a lot of areas, not just chemistry but also form factor and some other more radical changes, such as solid state and these kinds of things. So the argument being that there's potentially some risk of obsolescence if GM were to kind of go in too early, and that could create an inefficient capital cycle for you. Can you give us that perspective on how your approach still can create that room for being agnostic and first to scale in spite of that technological risk?

That's one of the beauties of the Ultium system is that we do have maximum flexibility on how quickly we can turn to a different cell chemistry, for example. And we've built so that we know the pouches into the modules and on the packs, and we don't have to turn everything over. If we wanted a new cell chemistry, if something better comes out, we can grab that and turn it quickly. The other thing is when you think about Ultium drive units, those aren't going to change. There's not -- there will not be massive technology increases in the drive units or the power electronics that will make us need to turn that over. So installing the capacity right now and the capital on those, I think, there's very little downside. The other thing that we're doing, like the wireless battery management system, that gives us huge flexibility because we can change in chemistries without changing any hardware outside of the battery pack, which is great. And so that also gives us flexibility where we can install the capital that we need on the power electronics, but we don't have to reinvest in those every time we make an incremental change to bring down either material costs of the battery pack or we want to increase the energy density.

Yes. We've been getting some questions on the wireless battery management system. I'm going to get to those in a second. But just one, if you're thinking a week ahead, you got a major U.S. electric auto company competitor that is supposed to unveil some, by their description, mind-blowing battery tech, right, including dry electrode technology or 16x better manufacturing efficiency, million mile battery, cobalt-free and a bunch of other stuff that's been leaked. Where do you think there's the greatest delta in cost or innovation of battery technology? And I'd love, as you contemplate that, any thoughts that you might have on solid-state and ultracapacitors?

Well, we don't talk about our competitors. We study our competitors so we understand what's happening with the different vehicles and manufacturers. We really zero in on the customers. But we do think there's a lot of opportunity in the cell chemistry and how we go with that. Anode, cathode and electrolyte innovations are all being worked in parallel at General Motors and they're being worked inside our R&D area, but in conjunction with the people that will execute. So we're kind of making joint decisions as we go along on what really is productionizable when we get to those cell chemistry. Because there are lots of different effects with different cell chemistry in terms of how they react inside the cell and module, et cetera. But we do believe an especially appealing option is lithium metal anode paired with a proprietary liquid electrolyte that we're working on. And so we're already showing good results with that in our R&D labs, and it's showing automotive levels of reliability, which is something that, again, the robustness of what we go is enormously important for our customers long term.

Great. All right. Let's go to some of the recent announcements on the wireless battery management system and tell us why that's -- can you elaborate a bit more on why that's important?

Well, just in terms of, I mean, physics, we've reduced the number of wires by 90%. And wiring is heavy. And so that's a mass reduction at the basic core level. But it does give us chances to be able to change the internals of the battery, be it cell chemistry or if we change some level of form inside the module without having to rewire everything and without having to redevelop that wiring and physical connections. Also, I think in simplistic terms, if you think about it, taking wiring out is a huge reliability improvement just by definition. So that gives us flexibility in the life of the vehicle. And then also when we get to the end-of-life of the vehicle, if we wanted to be able to take these battery packs, if they're not -- if their capability isn't up to automotive standards anymore, we can put those out as basically charge stations and things like that, that we can use them in other areas of the business. So secondary applications, battery use, things like that, repurposing the batteries, this makes it much simpler to do that. And even use lots of packs together.

So could you sell power? Is that a reasonable business, adjacent business for you? Is selling power, the way that Tesla does, not just end of life, but also as a primary design for purpose?

That's certainly a possibility and certainly something that we're looking into. And this is an enabler for that. So as we build towards a final conclusion on what [indiscernible] this is an enabler to do that easily.

Great. You've been a node for lots of very unique partnerships. I mean we've got Honda, Lordstown, Nikola. Can you tell us about them? What's unique about them? And why -- whether this is like the beginning of a kind of a super group that you're creating here, what's the attraction to the value proposition that Ultium provides to other OEMs, be the start-up or legacy, to join your family?

Well, obviously, we're very pleased that companies like Honda, Nikola, are recognizing how far along we are technically. And they, of course, look through the industry. They won't just come to us. So they've shopped around, and they're happy with what we're delivering and truly delivering. And so that's the first thing. The huge benefit for all of this is scale. As we increase scale and just for example on the fuel cells, when Nikola puts our fuel cells in Class 7 and 8 trucks, and the increased scale we have on top of our already partnership with Honda, that's -- brings down the cost for everyone, and it also advances the technology as we go.

I didn't know if there's anything you could share on the Honda, this MOU on exploring an alliance across North America. Is that -- how does that intersect with the autonomous and electric vehicle architectures and strategy that we haven't already discussed?

Well, so we -- as you know, we have the partnerships on the Cruise Origin. So that is the autonomous side of the business. We've agreed we're doing 2 electric vehicles together off the Ultium platform. And so this really -- and Honda is a great company to work with. We're very like-minded technically, and so we really have benefited from these partnerships. So the second agreement that you're talking about really is looking out across our future portfolio for both companies in terms of the electric but also nonelectric, like the internal combustion engine side of the business as well, are there areas where we can help each other be more efficient.

All right. Definitely a number of questions loading up in the queue. I'm going to turn to those right now, and then I got one left about Hummer. I'm going to try to save that for last. Just want to hear, do you plan to develop your own in-house motor inverter? When do you plan to move to silicon carbide from IGBT? I don't want to push -- I don't want to push you anywhere -- in a new ground that you're not comfortable disclosing.