General Motors Company (GM) Earnings Call Transcript & Summary

Great. Thanks, everybody, for joining our next session. I'm John Murphy. I cover the U.S. autos here at Bank of America. We're very happy to have GM's BrightDrop, the new business session with us. We're going to have BrightDrop's CEO and President, Travis Katz, give us some background info on it, and we're going to grill him after that. But I think it's really important to recognize that BrightDrop doesn't just represent a single opportunity for GM, right, it is, more importantly, a great example of GM's management leveraging the core of the company to develop numerous avenues of incremental growth outside the core auto business, right, so there's a lot of opportunity here. There's also an astute recognition by GM's management that, in some cases, these new businesses need to be seeded and developed by outside management with new perspective that's not necessarily inside, so they're bringing in folks like Travis, who recently joined BrightDrop from venture cap -- from our Redpoint Ventures, where he was a very successful, emphasis on very successful, entrepreneur and investor. So we're very happy to have Travis here today. I will turn it over to you, Travis. Thank you.

Thanks, John. Thanks for that nice introduction. So as we all know, demand for e-commerce is soaring. Global e-commerce generated $4 trillion in 2020. That's up nearly 27% year-on-year and nearly 3x versus 2015. And not only are we ordering more and more online, we want our deliveries to arrive faster than ever. At the same time, consumers are increasingly saying they want their packages delivered without harming the environment or creating congestions in the city where we live. Enter BrightDrop, a better, greener and more efficient platform for commercial customers to deliver the things we want while delivering better cities for all of us. Allow me to show you a quick video to show you a little bit what we're talking about. So if we could roll that video. [Presentation]

Okay, so if we could pull up the first slide. So as you saw on the video, BrightDrop is not just a vehicle company, we're creating a true ecosystem of all-electric first-to-last mile solutions, from e-pallets to electric vehicles to software and services. These solutions are going to allow delivery and logistics companies to move everything more efficiently, driving down costs while reducing harmful emissions in our cities and congestion on our streets. BrightDrop solutions are designed to help businesses lower costs and maximize productivity, improve employee safety and freight security, all while supporting their overall sustainability goals. Together, these solutions are going to help bring us closer to a world with zero emissions, zero crashes and zero congestion. Let me tell you briefly about our first entries, if you could queue up the next slide. So this is the EP1. This is a propulsion-assisted connected electric pallet that was developed to move goods and services over short distances, for example, from the sorting aisle to the van, or from the vehicle to your doorstep. The EP1 can move more than 200 pounds of cargo effortlessly, helping to reduce package touch points, delivery costs as well as physical strain on delivery teams. When you put this into practice, EP1 can help a delivery company not only save money, but also reduce the impact of their work on the flow of pedestrians, bikes and vehicles in our cities. And how big a deal is this? Well, in a pilot what we ran last year with FedEx, they were able to deliver 25% more packages per day using the EP1 for package delivery, 25% more packages per day. In a world where we are fast approaching 100 million packages delivered every day in the U.S., a 25% improvement in efficiency is game changing. Okay. Next slide. This is the -- so this is the EV600, which is our first electric light commercial vehicle. This vehicle was purpose-built for delivery based on our spin par design teams driving along with delivery drivers to really deliver a vehicle that's perfectly tailored to their needs. It's going to be built on GM's Ultium platform and is targeted to have a range of 250 miles on a full charge. It's also going to have segment-leading safety features to protect both drivers as well as pedestrians. And not only is it a cleaner vehicle, it's also significantly cheaper. We estimate that the EV600 will save fleet owners nearly $7,000 per year compared to a traditional diesel, making the decision to upgrade pretty easy. How do we do this? Well, it's pretty simple. The cost of fuel of a plug-in electric vehicle is substantially lower than the cost of gasoline or diesel, maintenance costs are lower, and you have more efficient use of energy with things like regenerative braking to allow less money to be spent per trip. And next slide. And at the heart of the BrightDrop ecosystem is software. So all of our products from our vans to the e-pallets are connected Internet of Things devices. The BrightDrop solution includes an integrated cloud-based software management platform which will allow customers to have visibility and access to their BrightDrop products through both web and mobile interfaces. The built-in connectivity of these devices will allow businesses to have detailed data and insights that will help improve overall operations, including route efficiency and asset utilization. Some of the features we have are things like location monitoring, battery and charging management, remote commands to lock and unlock the vehicle, remote diagnostics and predictive maintenance as well as over-the-air updates on our connected features. So the software platform gives customers greater operational visibility, control and insights for their vehicle fleets and their EP1 mobile assets, and the benefits are even greater when you use the whole system together, when you're using both our vehicles and our pallets together, providing end-to-end visibility and efficiency. So as you can see, BrightDrop really is a very new kind of business, designed from the ground up to help delivery companies power e-commerce and grow while delivering more sustainable future for all of us.

Well, Travis, that sounds really fantastic. And I think being a New Yorker living in Manhattan, we would love for you to get that here right now, tomorrow, clean up some of the traffic on our streets and really organize things. But more seriously -- that's very serious actually.

But just on the first question, this sounds like a great business model. It sounds like it's reasonably well-formed. I'm just curious how the concept of BrightDrop was originally developed, how you came to GM and really, how does that work with GM's innovation and growth group? I mean -- this all lost because it's not something core to GM historically.

Yes. So as a little context, GM has an innovation and growth group whose mission is to identify and incubate new high-growth adjacent businesses and really help to sort of grow the overall TAM for General Motors. So this group was studying this explosive growth in e-commerce. And it's massive, the opportunity is massive. So global package delivery alone is expected to be a $300 billion market this year, and we see the opportunity for BrightDrop is much larger, so including grocery delivery and reverse logistics. The team spent the last year really developing and testing solutions, partnering with companies like FedEx to make sure we really understood what was the opportunity and where were the pain points. And from that, BrightDrop was born. And GM reached out to me back in the late summer to talk to me about this, and their idea was they didn't want to -- they wanted this to really run like a startup. I could leverage the strength and scale of GM, but it can actually move -- this is a very software-centric business, you need to be able to move at startup time. And so we stood up BrightDrop as a separate company. We have our own sort of internal board of managers with the goal of really moving quickly and scaling the business.

Really interesting. I mean, as you think about the sort of -- you mentioned that you would leverage the scale of GM, I'm just curious how important it is to leverage the Ultium platform for the EV600? And if you think about sort of other opportunities for BrightDrop down the line versus what you're just showing here, I mean, it's great. But are there other vehicles in the pipeline that might -- you might be able to leverage as well, bigger or maybe smaller than the EV600?

Yes. Absolutely. So first of all, the Ultium platform is great. So for those of you who aren't familiar with Ultium, what's cool about it is, Ultium cells can be arranged in all these different combinations that will allow you to provide energy for any vehicle that you hit the road, whether it's a performance sports car or a work truck. And if you think about it, package delivery is the perfect use case for electric vehicles. So unlike consumers, fleet companies have typically predictable routes, they're usually less than 150 miles, and they park their vehicles in the depot for charging overnight. That said, battery range can vary a lot depending on how you use the vehicle. So depending on temperature, depending on terrain, but also, we've all seen the delivery guy driving in the middle of winter, with the heat blasting and the doors open. So we're introducing a vehicle that has a 250-mile range to make sure that no matter how you're using your vehicle in what circumstance, it should cover your needs for most routes. And the EV600 and the EP1, which we showed in the video, these are really our first offering for BrightDrop. We are going to be continuing to grow our product offerings, both on the vehicle and non-vehicle side over time.

Got it. Okay. And when you think about the business -- I mean, you're launching with FedEx late this year, I mean, how should we think about milestones and measuring and understanding how the business gets developed over time? And being a -- the head of this new startup inside of GM or leveraging GM, maybe not even -- you would consider maybe necessarily inside of GM, but what is your vision for where this goes?

Yes. So ultimately, our vision is to drive efficiencies. Am I still on? I suddenly went dark.

We just lost the video.

I think the video's in the air. Oh, we're back. Okay. I'm going to assume everyone can still hear me. So our vision is really to help commercial customers drive efficiencies and sustainable growth and really built towards this future world where there are zero emissions, zero crashes and zero congestion. We've got a bunch of steps we need to hit on the way, but we believe this is going to be a very large business. The team is working very hard. We've already announced the first EV600s will be hitting the road later this year, and we are on target to hit that milestone -- scale commercial EV manufacturing. I was actually with the CAMI Assembly team 2 weeks ago as they were doing that, what's called the slow build where you manufacture, you sort of assemble by hand the first vehicle and you find out where all the challenges will be in the assembly as you can get ready for scaling. The EV600 will be the fastest vehicle GM has ever brought to market, building on a lot of the work that was done by the HUMMER EV team, and we are going to be taking orders for the EP1 soon in both the U.S. and with Canada shortly to follow. So things are moving very fast. We are moving full tilt and really excited. We have a lot of momentum.

So if you think about this, I mean, you've got a partner that can really drive scale and volume if you need it. How do you think about sort of maybe the short, mid- and long-term revenue opportunity and what is the potential TAM for BrightDrop? I mean, I know we've talked to Mary about other things in the past you're working on, while BrightDrop's really successful, do you have the capability of driving scale, and the answer usually is yes. So I'm just curious, if you think about this, it sounds like you got a great part that might not be limited by capacity if the business goes pretty well. So where do you see this going with the addressable market?

So like I said, I think the opportunity is large and growing. So if you look at the strong secular growth you're seeing in e-commerce and then sort of the tailwinds of both total cost of ownership being lower and regulatory pressure sort of building for companies to sort of become cleaner and greener, we see a lot of secular trends that are supporting the overall market. The TAM for just electric light commercial vehicles is expected to be $30 billion by 2025 and $60 billion by 2030, but the opportunity is much bigger than the vehicles, like we said. So if you look at the cost of delivering an average package, only 15% of that cost actually is vehicle-related costs, so purchase, fuel, maintenance and all that sort of stuff. The other 85% is really people, and the business that we're building around BrightDrop is how do you get more efficiency from the people that you're using and really going after the other 85%. So when you think about that, both the secular growth trends and sort of the size of the opportunity, we think it's a big, big market and one that's going to have strong growth for years to come.

Okay. And it's something that -- this is a very attractive opportunity. I mean, obviously, GM is all over this and they got you working on it, but there's some other players out there, particularly EV start-ups that they're looking at delivery vans as well. I'm just curious, as you think about BrightDrop versus this competition, some of them are your entrenched large automakers and some of them are start-ups, it seems a little less doable, if you will. I'm just curious how you think you -- BrightDrop, will be positioned in the market and really what the competitive advantages are and maybe what some of the pitfalls of that many names, some of the other folks might be.

Yes. So I think there's 2 big things. I think the big thing that sets us apart is that we're building this one-stop shop ecosystem for deliveries. So we're not just offering a van or a suite of software, but we're offering a connected suite of tools that are really helping delivery customers with every aspect of their needs, from lowering cost, maximizing productivity, improving employee safety as well as supporting their sustainability goals. So this overall connected ecosystem is something that nobody else is really talking about today. And when you talk to delivery companies, it's something that they really need. They're facing a lot of pain points, and so it's not just about the vehicle, it's much broader. At the same time, we have a really unique structure where we have the independents to be able to move quickly and move on start-up time while leveraging GM's strengths in logistics, in manufacturing, in supply chain. That's going to allow us to scale very, very quickly, to get down the cost curve very quickly as well as release vehicles that are reliable and of quality. So a lot of the early days of some of the electric vehicle companies, there are a lot of challenges. Your car would break and there's no spare parts available and so you might have to wait weeks so they'd just send you a new car. We got 100 years of experience behind us to make sure we can deliver something that works and is reliable so you don't have any downtime. And when you talk to commercial delivery customers, that downtime is death. We have the ability to make sure you're going to have that reliability. So I think as a total package, we're offering something that's much different and much stronger than anything else we see out in the market.

So when you think about that and you look at the partnership with FedEx, and you have one of the best logistics companies that you're partnering with as well as one of the best automakers on the planet, I mean, I'm just trying to understand what you think the opportunity is with a customer like FedEx has got their own logistics and buying a lot of trucks already. I mean how does this relationship develop over time? And how else are you collaborating with them with maybe -- did you have them even more than what they're getting right now from anybody else?

Yes. The partnership with FedEx from the beginning made a lot of sense. First of all, like you said, they're one of the biggest logistics companies, and so they really understand what are the challenges and needs in the space. But we're very -- also very like-minded companies when it comes to things like sustainability, so both GM and FedEx have announced goals to become fully carbon-neutral by 2040. And so I think in a lot of ways we see a lot of similarities in terms of our aspirations and goals. We've been working very closely with FedEx from the get-go, so early studies we did with FedEx Express provided some of the initial insights and design feedback that helped us shaped the initial products that we developed. And as you heard, we've done pilots where we've seen a 25% improvement in package delivery, leveraging our EP1s. We have other pilots that are underway right now with FedEx. And FedEx is also slated, by the way, to be our first customer for the EV600. So I think we see this as not just a commercial transactional relationship, but really a partnership where we both see the huge opportunity in keeping pace with the demands and the growth of e-commerce. We both see the critical importance of decarbonizing the sector and really getting to a carbon-neutral stance. So I think there's going to be a lot more that we'll be able to share and a lot more to come in our relationship with FedEx.

So I mean, it seems like you're going to learn a tremendous amount here. The vehicle is going to be out there and maybe more to come. It seems like you're going to have a lot to offer other folks, I mean, so how do you think about your customer strategy near-term and maybe long term? And is there anything else in the pipeline that we should be thinking about or any other customers that you might be able to talk about?

Yes. So we don't have specifics that we can announce today. We've already announced not only that FedEx is going to be our first customer, but that merchant's fleet, which is the fastest-growing fleet management company, has already expressed intent to buy 12,600 of the EV600, so a pretty big number. What we haven't announced is that we're seeing just tons of excitement and tons of interest from customers. We have a lot more customers who are raising their hands, they're really interested. We're getting calls every day, and one of our challenges, frankly, is scaling our sales team fast enough to be able to make sure we can handle the inbound interest. So that's a good problem to have. But my sense is, the demand is really strong, and people are really excited. The momentum in the commercial delivery space is quite high, and so I think we'll have a lot more to share over the next 12 months.

So when you think about the -- as your customer relationships develop over time, some of them might not be big FedExes that have some of their own great logistics, so there might be an opportunity to leverage software, and the logistics side that's in addition obviously to the vehicles themselves. So I mean, how do you think software is going to develop and how big a role is it going to play as BrightDrop develops over time? And could this be the kind of thing where you ultimately maybe make more money off the software and logistics than you do on the vehicles themselves?

Yes. We believe that, that software is fundamentally the heart and soul of everything that we're doing here, so the big shift that's happening in the automotive sector overall is the shift from really products that are primarily mechanically engineered products to software-driven technology products. And so we really think about whether it's the e-pallet or it's the EV600, that these are just connected nodes in an overall logistics system, and the goal of that logistic system is to get the package from the warehouse to your doorstep as quickly and cheaply as possible. So we think the opportunity is just absolutely massive on the software side. We're investing really heavily. We're planning right now to double our -- the size of our team over the next year. We're building a very heavy presence in the San Francisco Bay Area as well as 4 other markets, but San Francisco in particular because that's really the heart of software and technology in the U.S., and we feel like we need to have a presence there to really tap into the talent pools and sort of the new thinking that's happening there. So yes, we believe that the market on the software side is going to be big. We're going to work with different companies in different ways. So for companies like FedEx, they have a pretty sophisticated logistics systems. The thing that they really want is the data to help feed that and make it -- help them optimize that system. For smaller customers, they may need a more robust suite of tools to help them manage their fleets and be able to compete with the larger guys, and we're planning to provide the whole spectrum.

Yes. It seems like a really interesting opportunity on the software side. So I mean, as you look at this, I mean, you're going to be -- you're telling me, as you said, 12,600 to merchants. And I guess, there's a big question, as the auto industry develops over time, and this is really outside of the traditional auto industry, so it's certainly a bit different, I mean, how do you -- how are the vehicle is actually going to be sold and serviced? I mean, is GM's dealer distribution network something that might be leveraged? Or is there another service channel? I mean, how are these EV600s and other vehicles that come over time going to be sold and serviced and maybe remarketed even in the second and third iterations of their life?

Yes. It's a great question. So we are going to be establishing a new BrightDrop dealer network that will be supporting both the sales and the service of vehicles. A lot of the details of how that's going to work, the ordering, fulfillment and service processes are still -- we're still sort of finalizing the details, so I don't have details I can share with you now, but we are planning to stand up our own dealer network to help support delivery.

And would that leverage existing dealer relationships, some of the best commercial dealers that GM has right now, because you have a lot of dealers that are doing a lot of truck volume that are really well-regarded by their commercial community around them? I mean is that something where -- maybe giving you an opportunity? Or is it still early days to really figure out how this might develop?

Yes. So what a lot of people don't know is GM has -- maybe you obviously do, John, GM has a very robust fleet business today. We've got dealers all over the country that are serving fleet customers, and that's a big business for GM. We are obviously going to be tapping into a lot of the experience, the customer relationships and those kind of things that GM has built over the years. That said, this business is very focused on not just vehicles, but an overall ecosystem of products, e-pallets and software, and so it's a very different kind of conversation and different kind of a different kind of sale, essentially. It's going to be a longer sales cycle for things like e-pallets as people need to figure out how do I integrate this into my overall delivery system. So we will be setting up a network that will allow us to have these kinds of conversations that tap into the strengths that GM has developed, but also really serve the needs of a very different set of customers that are buying a very different type of products.

And the -- I mean the big question with EV is always battery management. If you have fleets handling this or you're working on this with your the software and logistics or the serve side of the equation, I'm just curious how the battery management will be handled, how recharge and recharging will be handled? Is that the kind of thing you'll work with the customers on at their depots? Or -- I mean, just how does that going to work? Because obviously, batteries are going to be in a new thing in powertrain for a lot of folks, and they don't know necessarily what they're doing. So I mean how is that going to be handled over time?

Yes. It's a great question. And already, we've seen in conversations with fleet customers, I think they look at the total cost of ownership number and they're like, great, that's -- I want that. But on the flip side, they look at charging and targeting infrastructure, and it's a big barrier because they just don't know a lot about how does it work, how do they set that up. The EV600 is going to have both Level 2 and DC fast-charging capabilities, and we have a lot of expertise, both in BrightDrop and GM about EV infrastructure. So we will be spending time, we have a support team and a sales team that will be helping fleets to model their charging needs, help with design, installation and maintenance of infrastructure. We're not going to be providing those services ourselves, but we have a network of partners that we will be connecting people with, and we'll help you do the heart -- the heavy lifting and the modeling so that you know exactly what you need to try and make that process to -- charging as seamless as possible.

I know we only got a few minutes left here, but I just want to really try to sneak 2 last ones in. Sort of more traditional side, there is this ability to upfit the vehicle, I think in one of your -- at some point, in one of your presentations. I'm just curious, will that be done at the dealership? Will that be done in conjunction with GM maybe at the factory? And how do the economics of that maybe -- well, I mean, it's going to be tough to say how the economics work as it's early days. I mean what kind of an opportunity is there, right? Because a lot of these work trucks and these delivery vans are the kind of things that a lot of the fleets want to customize to a decent degree. So I mean what kind of opportunity is there? And how will that be done?

Yes. So upfitting, for people that aren't familiar with upfitting, upfitting is everything from putting the FedEx logo on the side to installing shelves, and customers have different needs that they're looking for. We're going to have a customer support team that's going to assist customers with every aspect of operating and servicing their BrightDrop products. We'll be connecting customers with trusted resources to help with everything from the charging infrastructure, which you talked about, to upfitting, to retrofitting their current fleets so that they can integrate with BrightDrop products like the EP1, maintenance needs, securing parts, scheduling repairs. So our team is really looking to be the one-stop shop to help you figure out. If you're going to buy a BrightDrop vehicle, we will help you with every step in the way. And whether those services are provided directly by BrightDrop or by a third-party, we'll make sure that it's seamless for you as a customer so that you can take delivery of the vehicle, it's in exactly the condition that you want.

And this last one I just wanted to sneak in is, I mean after you go through sort of this experience and some of the fleets go through the experience with the EV600 and other vehicles you might be supplying over time. I mean could there be an opportunity to have maybe smaller batteries? Let's just take the EV600 as sort of a foundational vehicle, some smaller batteries, so the vehicle costs a lot less money for short routes, sort of predictable routes. And then maybe even on the flip side, longer routes than maybe a little bit less predictable to have maybe even larger batteries and get longer ranges. I mean, could you shorten and lengthen the range to maybe reach even a wider range of customers in addressable markets?

Yes. Yes, absolutely. And so the benefit of the Ultium battery is its flexibility and the ability to configure it for different needs. As we mentioned, we're going out with a pretty strong battery range, specifically tailored around making sure that customers, the downtime, like we said, is just catastrophic if a driver gets stuck on the side of the road, it's not a charge, and so we're going out with a strong battery range, specifically to make sure customers can feel confident that even if the doors are open and they're blasting the AC in the middle of the summer, they're going to be able to finish their route. That said, we will be, over time, releasing different battery ranges so that you can really start to tailor your fleet exactly for the needs you want. We'll have more to share on that in the months to come.

That's great. Well, I mean, it seems like a really great opportunity for you, a great opportunity for GM and something where you provide a superior service to a lot of fleets and customers out there, so thank you very much for joining us today, Travis. We're really decided to learn more in the future and really see how this goes. And hopefully soon, once we all can, hop in the EV600 and go for a ride which is really where the real fun will happen.

Yes. I think that's where the real fun is. So thanks so much for having me. It's great to be here. Great talking to you, John. And yes, we look forward to continuing the conversation.

Thanks, Travis. Thanks, everybody, for joining us. We really appreciate it.

Thanks, everyone.