General Motors Company (GM) Earnings Call Transcript & Summary

Hi, everybody. Rod Lache from the Wolfe auto team again, and I'm very pleased to be welcoming you to our next session, which is with the management of General Motors. Just to introduce this. Look, over the past 10 years, by and large, we've been impressed by what GM has done to create a much higher return and more cash-generative and more flexible business. Even though some of those actions involve shrinking the company's footprint, we think that the strategy has been successful. And the company has, over time, in fact, repeatedly exceeded expectations, including, I think maybe most impressively, very recently, during that severe downturn that took place in the second quarter of last year, 2 out of 3 months not producing vehicles basically and the company broke even in North America. So really impressive, not only in good times but even in bad. Now all that said, until recently, this didn't really have very much lasting impact on the stock. And we think that the root cause boiled down to terminal value. So when investors are skeptical or questioning the long term, it's really hard to get credit for a company for these sorts of accomplishments, irrespective of how strong profitability and cash flow is. The good news is that we see this changing in a very profound way for GM. Starting in the fall of last year, GM started to lay out a very clear pivot to growth, laying out plans to leverage their competitive advantages in technology, and cost in EVs to get to more than 1 million units, in EVs, by 2025, and started talking about plans for significant recurring revenue as they see their vehicles transforming into platforms for delivering new features and services that enable connectivity. And of course, we also observed really encouraging milestones in AV, autonomous vehicles, as GM crews announced towards the end of last year that they started deploying a handful of autonomous vehicles in Downtown San Francisco without any backup drivers. So something that -- I can't tell you how many times people have told me that this is science fiction. And it wouldn't be GM, if it did happen. Well, it's happening and it is GM. So really, really impressive developments here. And I think investors now are seeing a path for a larger and more advantaged company in the future than it is today. And that's what I really hope to talk to management about today during our fireside. So with that, maybe too long of an introduction, I'm very pleased to welcome GM's Chairman and CEO, Mary Barra; and CFO, Paul Jacobson. So Mary and Paul, thanks so much for taking the time to talk to us.

It's great to be here, Rod.

Thanks, Rod.

So look, it's -- just to start the Q&A. Look, I think it's been remarkable to see the company's pivot to growth over the past 12 months. I know this has been longer in the works, but to us, it feels like things have really changed. And I just wanted to ask a few questions about what successful execution of your strategy is going to look like? In other words, if you achieve most of your targets, what does GM look like in 2025? So maybe we can start with EV. Look, it's clearly exciting that the company is pivoting to growth here. We see a lot of segments that look like whitespace areas. And the clearest one, I think, that comes to mind is BrightDrop vans and we see opportunities for market share. You've pointed out that in the EV space, you have 12% market share. In the rest of the U.S., you have 19% market share. So that's real opportunity for growth. But it's also clear that you're going to have competition here. And I was hoping you can maybe talk about how you see GM's advantages relative to traditional competitors as well as new entrants. So how are you thinking about that, the relative advantages as well as, candidly, disadvantages?

Well, Rod, I think when you look at our track record of the fact that we do sell more vehicles in this country than anywhere else, we see the coast opportunity as a growth opportunity. Especially having vehicles, it's where we're seeing greater EV adoption. So as we have a very strong EV fleet, we see good Chevrolet Bolt sales already. So we see that as a huge opportunity. And the competitive advantages that we bring, first it starts with Ultium. Having a dedicated platform, we're not retrofitting ICE vehicles. We have a dedicated EV platform. It's been designed in a way to take a range of vehicles off of it. I mean when you look at that capability, that's what is enabling us to have a faster vehicle development process. We have tremendous manufacturing expertise. And we're very excited with the progress we're making at factory running in Detroit-Hamtramck. And we know how to convert plants. And there are differences within EV. And what we're doing at factory 1 sets us up to do a whole range of our BET products, some of which we've announced. But they're -- so that's a huge opportunity. And we have a trained workforce that knows how to build vehicles with quality efficiently and productively. So we think there's tremendous growth opportunity there. Because we have the established brands. We have industry-leading consumer loyalty, we have a strong sales and service network, which will matter, especially as people buy an EV that it's their only vehicle, not their second, third or fourth vehicle. And then if you look at our whole -- the capability that we have from a vehicle validation, a safety, a testing capability. And then let me just touch on design. Because also with the Ultium platform and it being dedicated -- a dedicated EV platform, that has opened up a whole new aspect for design to do new vehicles. Some is -- when you look at the GMC HUMMER EV, but when you look at the Cadillac LYRIQ, which is one of the highest customer clinic-ing vehicles I've seen in my entire career. So I think that also talks about design and capability. Then -- so that's from, I'll say, a traditional vehicle perspective. The other growth opportunities, you mentioned one, which is BrightDrop. We don't have a large light commercial vehicle business. And when we put an eLCV in. And as we go into it, we're not just looking at saying, okay, we're going to replace this type of delivery vehicle or light commercial vehicle with an electrified, we're also looking to make the whole process better of the whole ecosystem. And with some of our first mile, last mile solutions, we have a strong partnership with FedEx Express, they're seeing tremendous and significant productivity improvements, which I think is going to benefit everyone and gets to our third zero of reducing congestion. So -- and then finally, if you set on top of that, the services that we have, and we can talk more about that later. But the whole service business, we already have the most connected vehicles from an OnStar perspective, we have OnStar insurance. The way that we're going to go-to-market with Super Cruise. There's so many opportunities for us to have growth in areas we typically haven't had the opportunity to create revenue growth opportunities and more importantly, profitability. And then the last thing I'll say is we're looking at this holistically and how do we make sure customers choose electric vehicles. And an important part of that, after you get to over 300 miles of range, which Ultium is more than capable of doing, it's about having a beautifully designed vehicle, having the right vehicle. Someone wants an SUV, they aren't going to buy a sedan. And so we've got to make -- and Ultium gives us the opportunity to have that full range of vehicles at different price points true to Chevrolet, true to GMC, Cadillac, et cetera. But then also the partnership that we have with EVgo, where we're making sure through alliance and partnerships that there's a robust charging infrastructure. So people can make that decision that an EV will be their only vehicle. So I know I've covered a lot, but there's so much going on that we think provides not only strength for the company, but tremendous growth opportunities.

There's a lot to unpack there. And I do want to talk to you about the service opportunity in some of these other areas. And on scale, look, from what we're seeing today, there's maybe 4 or 5 companies that are going to have 1 million-unit-plus scale in 2025. It's not -- it's not everybody that's going to have that. So that does make sense, and you do have some really compelling products in the pipeline. And so it's -- and the dealers as well over the next few years, I think it's reasonable to expect that dealers could help you scale quicker than you otherwise could have without them. But I do want to ask you about modernizing distribution in the long run, because this is one of the most common questions that I get when investors are asking us about what does -- what advantages do new entrants have, going direct, maybe? Because dealers do cleave off 5 to 10 points of margin. And so that is perceived as maybe one of the disadvantages. Maybe that becomes less of a disadvantage as you have direct recurring revenue streams. But do you think that there's a solution there that develops over time, that helps you kind of level the playing field on that front?

I absolutely do. And I see our dealers as a tremendous asset for the company, and we really value the dealer network. They are the ones who helped us deliver industry-leading sales and service as measured from the consumer, and I've had a lot of conversations with dealers. And we're working with our dealers because, as this industry transforms, as the customer changes what they want, we have to be there. We can't deliver the businesses as it was 5 to 10 years ago, we've got to move with the customer. And we've got to ensure that it's an outstanding customer experience, and they meet the customer where they're at, whether that means they want to do everything online or they still want to literally go in and kick the tires. And so that's the work that we're doing. And from a profitability perspective, there are -- and for competitive reasons, I'm not going to go into all of the areas, but we're working in partnership with our dealers. Because as we help them improve their costs, we improve our cost. And so we're looking it as a total opportunity for us to do this more efficiently. And one thing I'll point to is one of the -- the pandemic was tragic and is truly tragic. When you think about the loss of life, it's just an incredibly sad situation. What that did though is it demonstrated to our dealers as we had to quickly move to online sales, they moved more rapidly than they maybe would have done without that. And they've seen the benefits from serving the customer. Again, there's still pieces of it that a customer may say, I want to do this with you, and we do a lot of customer research on it, but they've moved to doing more of the transaction online, which is helping manage their costs. So dealers are entrepreneurs. They're going to look at how do they improve the business. And I would say our best dealers, and there's many of them, they couldn't be more excited about the EV future and making the changes they need to make in partnership with us, so we not only win, but we lead.

Great. Thanks, Mary. I want to remind everybody, I should have said this at the beginning here, I've said it before. If you do have questions, type them into your text box, and they will appear to me and me only, and I will read them anonymously. If I can weave them in, I will. So please feel free if there's something that I'm not bringing up that you think is important. I want to talk a little bit about the growth strategy, which will be capital intensive. You and LG are spending $2.3 billion on this gigafactory. And if you're going to do more than 1 million units, you might need 3 or 4 of these. So do you think that there's a strong likelihood that U.S. policy or legislation could be helpful to you? What are you hoping to see, maybe from the administration or from Congress, as we move forward that would be helpful to GM's success?

Well, I've already had several conversations with members of the Biden administration as well as President Biden and Vice President Harris. So one of the things we're really happy about is we are completely aligned in our belief in an all-electric future. And the benefit is a very important part of combating climate change. Also, when you talk about cell manufacturer in this country, we're only -- there's only 2 OEMs right now that are building -- or plan to build cells or are building cells in this country. And I'm really excited about the fact that the final beam was installed just recently on February 19, and we actually had a ceremony with our construction team, which just shows how much progress we've made in getting this plant ready for operation, but this could be a jobs [ creator ] as well. And we are already seeing the benefits for having our own cell manufacturer. It's allowing us to go much deeper into the supply base to secure what we need to, to know that we're going to have the access that we need. And believe me, in our capital plan, we know the cells we're going to need for the vehicle goals that we have, and that's comprehended. But I see it as very much aligned with what the administration is wanting to do from an EV perspective, a job creation perspective and also jobs in the United States.

Do you anticipate that something may happen that actually is really helpful to your competitiveness vis-à-vis tax policy or infrastructure policy? Anything that you're looking forward to here in the next couple of months?

I think there's so many things under discussion right now. I think one, being aligned and looking at how do we accelerate, I think will be an opportunity for the administration to work with us. But I also think all the conversation about infrastructure is going to be very important. Because I think as a major infrastructure program is put together, making sure we have the right infrastructure for EV charging -- not just -- there's charging at home, there's charging at work, but we need to make sure that there's charging for people who live in apartments who may not have assigned parking. We need to make sure there's rapid charging for -- as people are making trips. Again, this is all incredibly important to see true growth in AVs and get to the levels that we need to get to. So I think it's too early to say, specifically, X, Y or Z, but I can tell you it's very receptive to solving climate change, addressing infrastructure and creating jobs.

And I received a question from a client that I think is relevant to this discussion about the transition to EV, and I wanted to weave it in here. He wanted me to ask you about the opportunity with Honda. And whether working more collaboratively or combining powertrain operations is something that might happen as you're pivoting more to focus on EV, as the election of Toshihiro Mibe, who was kind of spearheading the partnership with GM, does that accelerate integration with Honda in any way? Maybe if you could just speak to what happens. It's a big company. You've got a lot of legacy internal combustion assets around the world. So what's the plan to manage those and look for opportunities maybe to work with other companies?

So I think first I was recognizing the important partnership we already have with Honda. And it's a partnership built on tremendous respect from a leadership perspective of both companies and of the technical talent. When you look at the work we do together on fuel cells, on autonomous and now electrification and they are -- as we've announced, leveraging the Ultium platform personal vehicles that they'll be launching as well. I don't have anything specific to share today, but what I will say is we continue -- because we have such a strong foundation of working well together and such tremendous respect from a technical perspective, we see that there could be more and more opportunities. Discussions are always continuing where we look at what's going to create a win-win for both companies. So nothing specific to announce today, but I see a huge opportunity as we go forward.

Okay. Let's switch gears. I've had a number of questions about subscription services and using vehicles as a platform. And you highlighted on your earnings call that you have 29 vehicles that are on your new vehicle architecture. It's capable of over-the-year upgrades, and that these vehicles are going to be capable of incorporating a lot of new features and services, some of which will generate recurring revenue. Can you just talk a little bit about how meaningful that could be? It sort of gets back to how are you defining success in this arena. And do you -- are you sort of taking a different mindset as you're thinking about what development is? You obviously have to invest in compute and sensors and capabilities in advance of monetizing them in your vehicles. So are you starting to think about that? And what does this kind of look like as you look out to 2025 or at some point in the future?

Well, Rod, this is an area I've been talking about for a while that we haven't quantified, and I really feel like many elements of it are coming into fruition that we can talk about it. And it all starts, to your point, with the vehicle intelligence platform that we will have across most of our platform in the next few years. And the significance of the vehicle intelligence platform is not only does it enable over-the-year updates on virtually everything that we think is safe to do, it also has been designed from a cybersecurity perspective, so from that perspective, which is equally important. And so it allows us to leverage information coming from the vehicle. It also allows us to provide new services. This concept of your car just keeps getting -- or your vehicle just keeps getting better, whether it's infotainment or whether it is on-demand type services. We see an opportunity, and we've talked about with Super Cruise. There's an opportunity to kind of have a subscription model for that. And there's other things that we're working on that will come after that. Also building on top of the tremendous opportunity we have with OnStar. And not only the connectivity of OnStar and the different services we can provide through that connectivity to enhance the customers' experience in the vehicle, but then also OnStar Insurance. And really tapping into the information we can get from the vehicle, which is just, I believe, superior to what others can get to really have an efficient insurance product for our consumers. So I mean, those are just a couple of the areas. So we do see, with the services business, a tremendous growth opportunity on top of the vehicle. And as we know, services like this have typically have a different margin structure than the hardware piece of it. So I definitely see an opportunity here that I'm very excited about. And like I said, everything we've been working on, getting the vehicle intelligent platform designed ad vehicles, rolling out, launch flawlessly into the marketplace and now leveraging everything we can do with that. And we have a dedicated team that is working on should hardware be put on the vehicle, so it could be a service later. And all of that is being examined with the customer being at the center, but also to -- so that we delight them. And also create a stickiness that they're going to want a General Motors vehicle. Like when you think about Super Cruise, 85% of the people who have experienced Super Cruise say, I don't want to buy a car without it or I strongly desire a car with it, that just creates a huge opportunity for us with all of these things we've been working on for the last couple of years.

Yes. Look, the fact is, though, that GM has talked about services for a long time. I think OnStar has been around since the mid-'90s. It's been there. And of course, the capability of over-the-air upgradability has not really happened until now. And some of the telematics capability hasn't happened until now. So maybe it really wasn't the same kind of opportunity that you're looking at now. But could you maybe talk to us about what is an aspirational target for GM in this arena? Is it -- is it possible that 10% or 20% of your customers, by mid-decade, are subscribing to something significant like a Super Cruise service or Ultra Cruise or something along those lines? How should we think about what the aspirational goal would be?

Yes. So Rod, it's a great question. And it's something we're working on -- with all the initiatives that we've put in place, framing that to be able to help size it for you is something I think you'll see coming from us a little bit later this year. I will tell you it -- and OnStar is very significant when you look at not only the OnStar service that we have, but also the wireless minutes that people buy for that connectivity in the vehicle. And I can tell you, especially through the pandemic, how many people have said, my wireless failed, but I got in my GM product, it was able to take the Zoom call or the conference meeting or et cetera. So people are seeing that value for sure of having that constant connectivity in their vehicle. So we're going to build on that. You'll see us frame that out a little bit more. But I would say it's more than double and grows beyond. And also, remember, the way that we're rolling out BrightDrop, it's not just about the vehicle, but it's about that ecosystem. So we think there's fleet management and services with BrightDrop, which is a space we're really not in right now. And we already have the product out, OnStar Guardian, that takes us beyond General Motors vehicles into a much wider market as well. So we will frame that for you, but it's very significant and multiples of what the business means to the bottom line today.

Yes. So significant for GM, just so that people -- I mean this -- I think it's probably obvious that when senior leadership of GM talk about something that's significant, usually the number begins with a B. And it's a decent -- it's a meaningful opportunity -- you're smiling, so it sounds like you would agree directionally that there's a big opportunity there. And similarly, on insurance, it sounds like, boy, I mean, you have the advantage of telematics data from millions of OnStar-equipped vehicles. I can't imagine any insurance company that is -- doesn't -- certainly, these companies don't have access to that. How could they be competitive against this? Is this something -- I know it's starting. I think you've said that it's starting in one state. Is this something that could be a really meaningful business for GM here in a couple of years?

I think very significantly, and we're ramping it up fast. Right now, OnStar services, it's live in Arizona, Illinois, Ohio and Wisconsin. And we have an aggressive plan to have it nationwide by the end of this year, and we are on track to hit that goal. And then it's just helping the consumer understand the benefit of it. It goes back to dealers, if you think about it, or we can do it online of having that offering right there and being able to deliver it to the person and making it easier. So I'm very excited about the insurance business. And we do have -- with the information, again, done in a very secure, fair and transparent way with the consumer, we believe we can deliver a better product to the customer.

I've gotten a number of questions about Cruise, which is something that I also wanted to talk to you a little bit about. Like I said earlier, since the end of last year, as Cruise started deploying vehicles in Downtown San Francisco without any backup driver, which is clearly, I think, a big step towards commercial deployment. We saw as well Cruise hire Delta's former COO, which I would kind of read as a hint towards the scale that -- or about the scale that Cruise might be thinking about. And I think as well, just kind of putting together the pieces that GM may be preparing Hamtramck for the start of production of the Cruise Origin, maybe that's late 2022. And generally, GM doesn't make vehicles in small numbers. So this is not onesies and twosies that you're making these kinds of things. So I just wanted to ask you, just based on these data points, is it reasonable for us to say that this gives us some indication of when Cruise is going to transition to some scaled commercial operations? Is it conceivable at this -- at the end of next year, or we might be looking at something that's kind of jaw dropping as far as Cruise is concerned?

Well, I'm not going to put a specific timeline today because we are creating technology that, as Dan would say, Dan Ammann, it's the technological challenge of our generation. But I'm incredibly enthused with the progress. We set out a milestone point of what we had to deliver from a safety perspective a couple of years ago, and we are on that plan. We are hitting milestone after milestone, which has enabled what we're doing in San Francisco today with the testing. So it is a very important part and a step toward commercialization. And we know once we have technology that is safer than a human driver, the opportunity to scale quickly will be very important. So I think you're connecting some of the dots correctly. And the Origin will be built in Detroit-Hamtramck at Factory ZERO, which I think is another -- just demonstrates all the pieces that are necessary to have a successful ridesharing business, autonomous ridesharing business, we've got all those in place. And then when you look at the most recent announcement of the partnership and the strategic relationship that we have with Microsoft, to leverage their cloud computing and their technical expertise as well, I think we're putting all the pieces together that, as we get that technology, and as I said, I'm pleased with where we are, hitting milestone after milestone, we're going to have all the pieces in place to rapidly scale and deliver that benefit and talk about a whole new market and growth. And what also is very important is our autonomous vehicles are EV vehicles. And as we talk about EV for everyone, for some people, their AV will be the Cruise rideshare, the Origin vehicle of how they move in a zero-emission fashion.