General Motors Company (GM) Earnings Call Transcript & Summary

Thank you so much for joining us for this session with General Motors as part of Deutsche Bank's AutoTech Conference. My name is Emmanuel Rosner, and I'm the senior U.S. autos and auto technology analyst at Deutsche Bank. I'm extremely pleased to be joined this morning by Doug Parks, who's EVP of Global Product Development, Purchasing and Supply Chain at General Motors. So all the topics that I'm sure I and you all want to hear about right now, the most interesting topics going on. The format for this session will be a short introduction by Doug followed immediately by a fireside chat with questions from me, but also all of you on the call. [Operator Instructions] So with that, thank you so much for being with us, Doug, and over to you.

Thanks, Emmanuel, and thanks to everyone for joining. I just wanted to start with kind of touching on 3 very important areas for General Motors or, at least, how we see going forward. And we've talked about these before, but of course, the first one is our electrification platform, we call Ultium. We're very close to shipping our first product for Ultium, which is our all-new HUMMER EV. We have the Cadillac LYRIQ coming next. We have multiple entries coming after and we'll be talking more about those here very soon, in terms of consumer electronics show et cetera. So we're very excited we're on the verge of launching our first products. I'm happy to talk about parts and pieces of this, but this -- I'll call it vertically integrated Ultium platform with GM, significantly involved in driving the supply chain, we think, is super important for us. And there's a lot of benefits for that. We've made some announcements on the supply chain. We'll continue to make more of them. We can talk about that. I'd like to talk about that a bit more in creating a, I'll call it, GM control North America-based footprint for that whole entire supply chain. I think that's a very exciting discussion and we're just at the precipice. A second major area for us that we'll also be launching with the Cadillac LYRIQ is our software platform. And this is a big departure where in the past, we've had all of our software functionality kind of embedded into all our physical controllers on the vehicle, and we're making a major departure where we're -- we call it, the mechatronics layer. It's the physical layer where all the brake, stop, steer, safety type functionality will stay, but all of the customer functionality, HVAC controls, infotainment, frankly, even downloading services, turning them on, turning them off. That's all going to be controlled up in what we call a software platform we call, Ultifi. And this software platform will allow us, dramatically, different levels of capability with our customers, the ability to add features, to use features for a certain amount of time and then turn them back off. It's just -- it's a complete change from where we've been in the past in terms of enabling that kind of digital capability. The other thing interestingly allows us to do is de-proliferate the physical layer of semiconductors and controllers on the vehicle because we're separating some of the functionality. And again, I could talk very deep about all that. The third thing I wanted to touch on is our assisted driving technology, all the way from what we have in the marketplace is Super Cruise, and we're growing rapidly this year to a new functionality we call Ultra Cruise, which is basically Super Cruise in 95% of the roads. And then what I call San Francisco Cruise, our fully self-driving autonomous platform. And I happen to have the pleasure last Thursday evening at about 11:15 p.m. in San Francisco, of taking my first driverless ride about 30 minutes through the streets of San Francisco. No driver in the car. I'll never forget the experience. So we are very close, and we're very excited about all those. So I'm happy to talk about any of those areas or I'm sure anything else you guys would like to ask. So with that, Emmanuel, I'll turn it back to you.

Great. Yes. Thank you so much, Doug. Definitely, we'll address all these topics. And we're already getting some questions from investors on the line. So certainly looking forward to a very good discussion.

Maybe just to start with on the supply chain topic, which -- since this is one of your large areas of responsibility. So just last week, and trying to get -- understand this better, just last week, General Motors expressed they're feeling -- you're feeling better about the fourth quarter, things are looking up versus maybe a previous view. Seems like some of it was related to better trip availability, maybe better volume. Can you maybe talk a little bit about what you're seeing out there in the marketplace? How are supply chain conditions? What’s exactly playing better than what you thought maybe a few weeks before?

Yes. Thanks. It's true. We are seeing -- not an unleashing, but we're seeing an ease of the restrictions. Now we track all of our semiconductors. It's a super sophisticated spreadsheet, if you will. I'm sure everyone can imagine. So there's a lot of different things going on in a lot of different areas. But overall, we have -- and we've been working very closely with our suppliers. I actually think, in an interesting twist, we're a lot closer with our suppliers than we were. Certainly, our semi-suppliers, we have -- we are in very direct relationships. And I think you guys know what that means with our Tier 3s, Tier 4s, with the STMicros the TSMCs. So we've gotten, frankly, a lot closer. And we did go through kind of a tight -- probably the tightest period for us, maybe Q3-ish. But as we exited, as we kind of finished Q3, pass out of it, we've seen, I think -- I don't want to say the worst is behind us. I'd like to say that because there's still a lot of volatility, but we have seen an easing. We have increased our outlooks. I think that's some of the information you got from Mary and Paul maybe recently. And we are seeing -- and that's why we upgraded some of our outlooks because we are seeing a bit of an ease. And then that'll continue to get better into Q1, Q2, Q3. We still have a lot of people working a lot of issues, but -- and it's far from over, but hopefully, we've -- we're slightly on the other side of this.

All right. That's great to hear. And definitely sounds optimistic. So going back to sort of this topic of relationship with your supply chain, what steps are you taking with suppliers to optimize the supply chain moving at -- of these last couple of years?

Yes. Great question. So kind of in the short term, we've just gotten a lot closer. We weren't as close to the -- we worked with our Tier 1s, and then the supply chain was communicated up and down. But one result is we've gotten very close with our Tier 3s and Tier 4s, the direct semi-producers. So we're very close, sharing schedules, working through difficulties. So we've improved that relationship, I think, quite a bit. Our team has done a great job, when we are short on a particular semiconductor, pivoting and using a different one, even changing software. We've gotten very agile. We've done a lot of work here, and we'll continue to do it. That's maybe more a short term. The thing I'd like to tie a couple of thoughts together, and I'll try to be brief, is this whole software platform we're creating, what we're able to do there is we're able to, I think, stabilize what we call the mechatronics layer. That's the physical layer with a lot of the microcontrollers where a lot of the semiconductors reside. And as we stabilize that, frankly, we're able to de-proliferate it. So Mark Reuss talked here recently, our President about a major de-proliferation campaign we have going on, where we're going to migrate down to primary, we call them, MCU families. And these will be tens of millions of MCUs per year for each one of these families. And then so we de-proliferate the very complex layer of controllers we have today into a much more de-proliferated. And then we're going to make -- we're going to create partnerships on those families. So we're going to take much more control, so to speak, of the families and of the supply from a capacity standpoint and a partnership standpoint. And that'll be a much different model than what we've had in the past. So that's a little bit farther out there as we get into our Ultifi software platform in all of our EV programs and kind of the next wave of that activity. But I think, again, both in the short term, much better relationships, as well as longer term, I think much better, frankly, control of that capacity for the semis. And frankly, I think, a better cost position and a much better complexity position.

Okay. A couple of questions came in from investors about the relationship with suppliers and then some of the actions you're describing there. So first of all, on the chip supply, have some of these recent direct relationship with some of the semi-suppliers, have they been able to yield higher supply than what you've had historically? Or is it essentially a mechanism to ensure that you get back to the run rate of capacity that you used to have historically?

I think it's one and then the other. Absolutely, the short-term focus is on getting more supply of what we're building on a daily basis. And that's part of why we're a little more optimistic. We are getting a better supply. It's working direct with our semi-suppliers and our Tier 1s and Tier 2s and integrating. We just have constant, almost daily conversations about new impacts and new shortages. And of course, there's no inventory in the pipeline anymore. So any small little disturbances cause us to act. So it's certainly that, but it's also, longer-term, especially in the area where we're going to focus on certain families of controllers, we're actually going to secure greater supply than what we've had in the past and to -- we're trying to not only mitigate the impacts of what we're seeing, but learn and set up a much more stable controlled supply chain in the future. So I think the answer is both.

Okay. And then another follow-up from investors, how long until you launch these three families of semiconductors? And how do you expect this domain consolidation to affect the amount of wiring and connectors in the vehicle?

Great question. It's -- when we first launched our Ultifi platform, it's going to be with the existing physical architecture. So when the LYRIQ launches here early next year, that will be with the existing. But then soon after that, we will be deploying this next phase of physical architecture. And we'll probably do it in pieces. It won't be a big staggering move. Because what we want to be able to do with Ultifi is we want to be able to -- independent of the physical hardware, we want to be able to update it and add features to it and continue to modify it. It needs to fit on the architect -- the hardware, if we will, the mechatronics layer that we launched with as well as the ones going forward. So it will be a little bit more of a measured rollout. And that's actually going to happen here in the fairly near future. I'm sorry, Emmanuel. I forgot the second piece of the question.

I think it was expected impact on some of these wiring and, basically, connector content.

Yes. Yes. As we stabilize and de-proliferate, that will simplify. And so some of the wiring and some of the number of controllers, I do -- we do see, definitely, opportunity to reduce costs there. And frankly, it will help stabilize our cybersecurity service -- attack services, et cetera. So it's kind of all good going forward from there.

Okay. And then a couple of other follow-ups. So you'll be directly ordering and holding supply of some of these chips, is that right? And then how much safety stock are you looking to hold?

Well, I'm not making any particular announcements today, but that's the direction, right? When we are working directly with our semi-suppliers, we are looking at much more of a direct relationship in the things that come with that. So I'm not really announcing anything specific today, but you can be sure that, that's a natural -- those things are natural outcomes and we're working. We mentioned several of the supply -- major suppliers we're working with, and we continue to work on those type of deals. And as we're ready, we'll be announcing those here in the future.

Okay. Great. And then maybe final one on this topic, and then would love to turn to the EV product and strategy. But a few investors are asking about -- so the implications for relationship with the Tier 1 suppliers, obviously, they've been under pretty decent amount of pressure recently from current condition, volatility, increased cost. And so how are you approaching this as you move into 2022? Are there more constructive conversation to sort of support them? And are they happy with your direct sourcing of chips? Does that put a threat in some of the things that they were doing before?

Well, I -- the businesses will continue to be dynamic, right? And so I think these are changes that we're all looking at. I think there's -- so maybe the old model is changing a bit with our Tier 1s and our Tier 2s, Tier 3s, et cetera. But these are things we feel we have to do. We very much need our Tier 1 suppliers. They're a great community. We want to continue to work with them. I think there's new opportunities. For instance, in this -- on our Ultifi platform, it may be that -- one of the things about our Ultifi platform is it's going to be Linux-based. And Linux is a great platform, an OS for third parties. So we are going to be trying to add functionality for our customers, add features, add things that typically wouldn't happen in the current vehicle. So perhaps the Tier 1s can get involved and help creating those terrific capabilities for our customers. And whether it's hardware combined with applications that a Tier 1 can develop that they're not doing today that we could integrate in our vehicle and offer some new terrific features for our customers, I think there's -- there'll be some changing of the old business model, and I think there'll be new opportunities going forward. So our Tier 1s are super important to us, and we're certainly going to continue, I think, to look for great opportunities with our Tier 1s as well as the rest of the supply chain.

And in terms of addressing their near-term pressure, is that the discussions that you're having now?

Absolute -- on a daily basis, yes.

Okay. All right. So let's maybe shift gears a little bit and speak about the product and strategy in the electric vehicle side. So GM seems to have started its easy rollout from the higher price, lower volume models. What high-volume EV models will help you get to the 1 million-plus units of global EV by 2025? What's the time line for the introduction? And if I may ask also, tied to this, a little harshly worded question from an investor on the line. But given GM's earlier and clear commitment to EV, how did Ford beat you to market by a year on electric full-sized pickup?

So I think the answer to the first question is through -- and I'll try to make this brief, through all of our background, all the way even to EV1, and Chevrolet Bolt, I think one of the things we realize is we needed to create an architecture and a platform that would be able to deliver a portfolio of vehicles and -- vehicles like SUVs and CUVs and trucks and full-sized SUVs. And in order to do those profitably, we need to do it at great scale and reuse. And so I'm not going to repeat the whole Ultium story, but it's essentially one battery cell that's built into a module of cells and then that module's reused in all of these vehicles we do. So it's an architectural high-scale, high-industrialized approach with significant value that GM is now exercising in the supply chain to get to the leading edge of the battery cost. So it's not about the first entry or even the second. It's about the entire architecture in the portfolio of entries and the overall scale and cost. And by the way, we believe EV life starts at 300 miles of range, not 200 or 250. We've been there. We've done that. I think when you really start to get mass adoption, people interested, it's got to start with the 3. So that's why Ultium packs will deliver 300, 350, 400, 450 plus miles of range, not 200 or 250. Starting at 300. So I think with that greater approach, I think it's natural, when we have a terrific new architecture and capability, to bring it out in some very exciting models, like a HUMMER EV, HUMMER SUV EV, a beautiful Cadillac LYRIQ, a Silverado E, a Sierra E, if you will. And in a very short period of time, maybe like a month or so, if you know what I mean, we're going to start to roll out more of the details of those programs. And one of the programs that we've talked about is we -- I think we've called it an Equinox-sized EV. This is a $30,000 EV that's going to have 300-plus miles of range. This one's also coming out quite soon. So more details to be announced in the very, very near future. But we are operating exactly as we tended to in the plan of rolling out Ultium. We have 30 entries coming out by 2025, not 1 or 2. And they're all going to be terrific entries. They're all going to be great range for our customers. They're going to have fantastic capability. And this is always the way we intended to go to market. And in terms of the last question, I'm not going to say anything negative about our competitors, but I will focus on -- when you see the Silverado and Sierra, and when you see that $30,000 Equinox -- and when you see them at 300 and 350 and 400 miles of range, that's the right discussion, and that's the right platform and we'll have a significant number of vehicles that, I think, will really capture the hearts and minds of our customers. And that's our plan, and that's what we've been running and can't wait to do it.

Yes. And obviously, the Silverado will be unveiled at CES in less than a month. What other models can we expect start of production in '22?

Well, you'll see, in '22, of course, the HUMMER SUV will launch. The Cadillac LYRIQ will launch. And then very soon after that, you'll start to see the Silverado E, the Sierra and then there's a couple of other vehicles we're going to talk about at the consumer -- at the CES show that we'll also launch in '23. So '22 is a big year for us as we start to launch the first Ultium products. And then '23, you'll see multiple launches, and we'll be off to the races at that point.

Okay. Great. And I think GM made a couple of announcements this morning around agreements in place to secure the raw materials needed to support your electrification and battery needs. Can you talk a little bit about those and how confident you are in your ability to source enough supply to support this kind of planned volume ramp-up?

Yes. Emmanuel, I'll try and be brief. This is a really big topic, right? So if you're talking about batteries, you talk all the way from the lithiums and the nickels and the materials in the ground. You have to mine the materials and you have to process the materials. You can create things called sulfates and hydroxides and precursors and then you create things called cathode-active materials and then you actually build cells. And every part of that supply chain, we are getting -- we are securing, what I'll call, a North America-based footprint for all pieces of that supply chain. We had an announcement here recently, POSCO. That's a JV with a Korean company that's going to be a North American footprint on the chem material. We had some announcements this morning that we're really -- well, let me hold on that for a second. We've got an announcement in the past with CTR, where we'll extract lithium as a direct extract process from the ground. So all of the parts of that process, we are working on. And we will -- of course, we have the joint venture with LG about manufacturing cells. So all pieces of that supply chain, we're securing. We think it's important to secure that supply chain based in North America. Currently, some of those parts and pieces go through other parts of the world, and that's okay. But we think to really build to our high volume and get a stable cost-effective footprint, that's going to be North America. So lots of things are underway, and we'll continue to announce those. On the rare earth side of the business, there's certainly materials, for instance, for magnets. That was the announcement this morning. Two different companies. They're going to help us mine and manufacture magnets. So we -- and these will be North American-based footprints for the magnets used in the motors as well as other rare earth materials. So you'll see continual rollouts of announcements that are helping us secure the supply chain, again, not for 1 or 2 vehicles, but for a portfolio of electric vehicles. We're in fairly short order. We're projecting to be manufacturing and selling 1 million EVs a month and -- or I mean, a year, sorry, annually here by 2025, if not sooner, perhaps, and this is all about securing that footprint. So we actually think that there's enough material in the ground, so to speak. We just need to secure it, process it and build it out in a clean way with a stable footprint. I will say that the one material that is probably -- is something we would like to get out of a long term is cobalt. For instance, the Ultium cell that we're launching here with the HUMMER has got a significantly reduced amount of cobalt, 70% less cobalt than the previous cell, and we're continuing to look to drive towards a no-cobalt cell here in our future as we look at cathodes and anodes and everything else for the next generations of chemistries and the next generations of cost reduction for the Ultium platform. So I said a lot there. Hopefully, I covered -- I hope covered the question.

Yes. No, absolutely. Just one quick point of clarification on an earlier comment. So the Silverado EV, in terms of production, that's 2023 or 2022?

That is going to be early '23.

Okay. And then just focusing on your Ultium battery technology. Can you talk a little bit about the differences between Ultium and what is seen currently in the Bolts today? And then I guess from a supply chain point of view, what steps are you taking to ensure some of the battery problems you had with the LG batteries will not be recurring?

Yes. So the Ultium cell chemistry is different from the Bolt. As I said, it has a lot less cobalt in it. It has new formulations. The Bolt is a pouch cell. And the Ultium is a pouch cell, but it's a bigger pouch cell because what you want to do is you want to get as much energy in a specific cell as you can. And I think you looked at other manufacturers or I'm sure you've looked at other manufacturers that are growing the size of the cells, it's just more efficient to do it that way. So it's a different chemistry, a better balance of chemistry, more energy as well as more efficiency packed into a cell. And then the way we use that cell, as I said, is we reuse that cell in all of the modules, in all of the packs, whether it's a HUMMER pack or an Equinox EV-type pack, they all use that same cell. And so we get a lot of scale and benefit from that scale in the supply chain, which we didn't really have any of that on the Bolt. We had kind of a 1-option vehicle in the Bolt. We didn't have that kind of scale, et cetera. So it's not just the chemistry. It's the entire manufacturing of the cell, the supply chain as we just talked about, the footprint of the supply chain. And then when we bring that inside and we manufacture it inside, this is probably the best way to describe the lesson from the Bolt, we really need -- this is our future. EVs are our future. And so we need to, frankly, not purchase battery packs from suppliers. We need to at least have the capability of designing our own cells, designing the manufacturing for our own cells and actually manufacturing those cells. And that's what we're doing now with Ultium. And so back to the Bolt. Really, what happened is there were two separate manufacturing defects that happened. The details of the defect are not difficult to imagine. They're the kind of defects that happen in manufacturing with equipment and process control and things like that. It was very hard to put together, these two defects occurring at the same time. Over time, it created a lot of chemical reactions that eventually could lead to fire. And so that was the difficult part, tying all that together. But once we figured that out, it really came back to some basic manufacturing control of certain key dimensions. We have, certainly, deep-dived all of those issues as well as, frankly, we went all the way up and down what we call the DFMEAs and the PFMEAs. These are the failure modes that can happen from a design and a process standpoint. We went back through all of that information, we added the lessons learned to the Bolt and we applied all of that to Ultium. So we have all the lessons learned and we'll be doing the manufacturing ourselves with our own quality systems, our own inspection system. And you can absolutely guarantee that we're verifying that none of those failure modes, especially the ones that we found on the Bolt, will be happening in Ultium. And in addition to all of that, we have -- we now have sophisticated diagnostics running on every car. And we know how to detect this fault now. So even if somehow it happens, we can detect it. And so that software that is being deployed into Bolt will also be put into Ultium. So we really learned on this particular set of failure modes. And the good news is we have kind of relooked at everything, every possible failure mode, and we've doubled down on all our efforts to build the highest quality. And at the end of the day, General Motors and General Motors' quality and industrial systems are going to ensure that those defects don't happen again.

Okay. Great. I want to definitely leave a few minutes to talk about Cruise and Super Cruise. Just going to be some really a quick one just to finish on previous topics. One investor is asking the raw materials. Spot pricing has started to decline a pretty good amount from the peaks. Is that helping your expectations for material headwind into the back half of 2022? Could things be better than previously expected?

I think it goes on a commodity-by-commodity basis. There's certainly some commodities that have come down. That's a very welcome sign, obviously. There's other commodities that are still -- we're unsure about. So some of the really big rare earth-like type stuff that we've seen is subsiding. That's great. We still have a lot of uncertainty out there in some of the other commodity areas, and we're seeing headwinds there that we're trying to at least offset.

Okay. So then shifting to that -- the Super Cruise and the Cruise topic. You have outlined plans to introduce Super Cruise on 6 new models, I think, in the first quarter of '22, if I'm not wrong. How should we think about the rollout through the rest -- the next few years? And are there any penetration or unit targets that you can share with us?

So I believe in -- between now and 2023, I think we have 22 new models rolling out with Super Cruise. So it's a very aggressive rollout. I think our full-size trucks and SUVs and many other models, you're starting to see availability now as we speak. And so Super Cruise, we've now hit the sweet spot of expanding Super Cruise rollout. So again, 22 new models here in the very near term, and you can get them today. It's your GMC, Cadillac dealer, et cetera. I don't have annual volumes to share, but I will tell you that our customers are significantly satisfied. I think when we first rolled it out, 84% of all customers who got Super Cruise said, "I either have to have it," or "I very much want it in my next vehicle." That's the kind of feedback we're getting. And if you haven't, I would encourage you to look at any of the comparisons of self-driving assist technology between us and Tesla and anyone else, I think our Super Cruise capability is terrific. And actually, we've got two new features that we've rolled out that are already in production. One is -- we call it, lane change on demand, where if you're driving and you want to change lanes, you just hit the blinker and the vehicle will check and move when necessary. We've got another one, it's called automatic lane change. You don't even need to do that. The vehicle, if it senses it's coming up on slower traffic, it checks the lane next to you. If it's open, it will move over and change lanes. And as it gets around the vehicle, it will change back in. So Super Cruise will continue to get better and smarter and more capable as we roll these features out. And then by '23, when Super Cruise is across literally our entire portfolio, that's when we'll launch Ultra Cruise. And what Ultra Cruise is you'll actually be able to put an address in your NAV system and the vehicle, effectively, drive from where you're apt to that address. And it will -- if it gets a very difficult situation, we'll ask the driver to take over and navigate through a very difficult intersection. But if it can handle the intersections, it will drive the entire way to the destination. We do need you there as a supervisor, but it will hand off under extremely complicated situations, if needed. Otherwise, Ultra Cruise will feel like self-driving to a lot of people, but it'll be done in a smart, responsible way and only when we're completely safe that we can handle that particular area. We won't deploy saying, we'll cover everything and then hopefully, you grab the wheel if you need to. This is a technology that we're going to know when we need the drive or do assist. We'll escalate to the driver and have the driver take over in certain particular areas. So the rest of the time, the driver can be very comfortable and capable that the vehicle's got it, so to speak. And we think those will be terrific technologies. Again, those are deploying now through '23. And then you get to -- well, what I call San Francisco Cruise, which is full self-driving. And that is a terrific technology that's moving very, very fast.

So yes, let's maybe focus the last 2 minutes on this with a couple of questions on San Francisco Cruise. The -- what important milestones can we expect to see and hear from Cruise over the next year or so? How should we think -- and so that would be sort of like the first point. Second point is, obviously, you're probably read about Intel's intention with refloating Mobileye, while keeping some of the majority stake. It seems like Cruise is a very big part of long-term strategy of GM. Is this sort of model to access capital markets, something that could be template for what GM could look to do?

Well, I think relative to Cruise, we have started with employees giving driverless rides in the city. That has started. So late in the hours of the evening, we are actually conducting driverless rides. And I have participated in one of those rides. And I can tell you it's astounding. And so the technology is really coming. We're on our way targeting commercial deployment next year. So those are the kind of big milestones that we're targeting and I believe we're on track to. So that will be very exciting as we do that. And I do think there -- we're creating a tonne of value there, but we think Cruise and General Motors, together, as an integrated unit, provides a significant amount of value. And whether it's Super Cruise or Ultra Cruise and sharing some of our data annotation and our simulations and working together where it makes sense and trading those systems for those particular markets where a focus on those markets make sense. So we still very much believe in the combined value of Cruise and General Motors. And in a company that there's a lot of -- has a significant whether it's Super Cruise or Ultra Cruise technical capability going forward, both in the EV space with the Ultium and the Ultifi platform, along with the continued increase of self-driving capability all the way to fully autonomous. So we really like that play. We think it works, and we think it brings the most value. So that's what we're focused on.

Great. Well, I really appreciate all the color, insights and really enjoyed this discussion. So Doug, thank you so much for being with us today. Thank you, everyone, on the line for participating and for sending us all these questions, great questions. Sorry, we didn't get to all of them. Really appreciate it. And then stay tuned with us for the rest of AutoTech, today and tomorrow. Thanks a lot. Thanks again, Doug.

Thanks, Emmanuel. Thanks, everyone.

This concludes our session.