General Motors Company (GM) Earnings Call Transcript & Summary

[Technical Difficulty] Global Automotive and Mobility Tech Conference. I'm Dan Levy. I lead autos research coverage at Barclays and very pleased to have with us GM, and specifically, Alan Wexler, who leads GM's Strategy and Innovation efforts. Alan is relatively new to GM, 2 years now, joined in the middle of COVID, was previously CEO of Publicis Sapient. And I think this should be a really helpful discussion on some of GM's efforts in software, in new business efforts and broadly growth. You had a very big Investor Day a year ago on just broadly the theme of different growth avenues, and I think you can touch on a lot of those things. We're going to ask a series of questions, fireside chat style. For any of you in the room, please raise your hand if you want to ask questions. And for those on the webcast, if you want to ask a question, honestly, please e-mail my colleagues, Jason Stuhldreher or Trevor Young, [email protected], and they can ask your questions. So with that, thank you, Alan.

You're welcome. It's good to be here.

So I think maybe a good place to start is you are -- you've been at GM for 2 years, but relative to some of the folks who have been there for 20, 30 years, you are new. So you came from outside the auto industry. Maybe you can just give us a sense of, thus far, what your impressions have been? What has surprised you? What are your impressions as someone who's been an outsider to the auto industry?

Yes. Thanks, Dan. And my background in leading Publicis Sapient, the company -- our company was a consulting company or about 20,000 consultants worldwide. And our focus over the years, I spent 21 years with the company, was on digital business transformation. And that was really helping companies transform not just in terms of the products that we built for them relative to what was going on with digital disruption, but also how they actually go about building products themselves and how they go about competing from a business strategy perspective, a customer experience perspective and then leveraging new technologies to compete effectively against traditional and maybe nontraditional companies. So what's really interesting is I got through that work over the years. I get insight into well beyond the auto industry in terms of what it takes to transform to succeed in today's age. So part of the requirement for my job or my role when I first spoke to Mary was someone that was coming from outside the industry who have perspective of other industries, who've gone through the transformation curve. And I would tell you, in terms of what surprised me or maybe what pleased me that I found pretty quickly within GM, the leadership team, the tightness and the connectedness of the leadership team, not just in the depth of experience over the years, but the openness to new ideas from outside of the industry. If you look at myself coming from outside the industry and being a consulting, Paul Jacobson, who many of you know, our CFO, who came from Delta, Craig Buchholz, our Head of Communications, who came from Procter & Gamble and many others throughout the company that we've hired to bring an outside perspective in actually helping the company transform and the willingness to do that. I would tell you that one thing I've learned over the years is the companies that transform and transform well and do it at speed, a lot of it has to do with the culture. And is there a culture for innovation? Is there a culture for embracing new technologies, leaning into the unknown and just an openness to change? And I would say that I've been pleasantly surprised by how special GM's culture is. And I would say everyone is in on our change. When you walk around a manufacturing floor, and I've done many tours with Gerald Johnson, our Head of Manufacturing and Mary, people in the company in all levels in all roles are embracing the transformation to EV, AV to becoming more of a software company. And it really stands out relative to my experience with many other companies and industries over the years.

Yes. It's interesting that you say because the legacy automakers historically have been known as slower moving organizations more resistant to change, but you haven't seen that at GM. That's you've seen.

Yes, I don't really see the resistance. I mean it's human nature, I think that not everyone likes change. But I would tell you the way that we're approaching it, we're thinking about it from a cultural perspective in terms of we created our first ever purpose. We pioneer the innovations that move and connect people to what matters. And we were activating that purpose around the company because we do believe that relative to -- I mean, our business today will look nothing like it will 10 years from now, everything is changing, but our purpose won't. So we want people to connect it to our purpose and part of this journey and our transformation. We're approaching this from many dimensions. While there are a lot of people that have been in the company for many years, and there's thousands of years of experience, obviously, throughout the company, 80% of our hires over the last 2 years are millennial or Gen Z. 70% of our software hires over the last 2 years, about 6,000 hires or so, come from outside of the auto industry, big tech and consulting and other industries. So -- and I would also look at some of the start-ups and some really aren't start-ups these days, like the success that we've had with Cruise, if you watch the way Cruise is operating with commercial rides now in San Francisco and next up, Austin, I believe, is next on the list there in Phoenix. Cruise is a start-up within GM, if you want to look at it that way. And what we've done with Cruise is we've allowed them to run at startup pace. We work collaboratively with them across different technologies. So we're advancing our AV technology in collaboration with Cruise. So on one hand, we're -- we have Cruise running like a startup within GM and on other hand, GM is benefiting from the talent and the ways of working with Cruise. BrightDrop would be another example. So if you look at what we're doing across the board, not just culturally, but how we're expanding to go after our TAM, how we're actually giving space for these new start-ups and many of them are software-based. And we're bringing in new leadership across the company to actually run these businesses who've come from outside the industry. It's all of these things combined that's really helping drive our transformation.

Great. Let's drill down on software, because I think that was a very central theme to the growth narrative that you laid out last year. I think probably safe to say the software piece today is OnStar $2 billion of revenue, at least that was outlined last year. And you laid out a target of $20 billion to $25 billion of software revenue by 2030. Can you conceptually give us a bridge of where you are today and how you get to that $20 billion, $25 billion? What initiatives need to be done? What pipes need to be set up organizationally what has to change? How do we get from the $2 billion today to $20 billion to $25 billion by 2030?

Yes, it's a great question, Dan. And historically, not just for GM, but for our industry, it's been a business of selling new vehicles and software does enable a lot of technology. But historically, it wasn't the core to our business. It was a hardware business enabled by software. That is turning upside down now. We are becoming a technology company. And some of the things we're doing relative to that are the platforms, first of all, and again, leveraging a lot of what I've done in my past and I've seen successful, you need to take a platform approach to this. So that's platforms within our vehicle. So a software-defined vehicle. We have a platform that we're rolling out called Ultifi that we can actually use to create experiences and then monetize those experiences. It's our digital retail platform. We're working in partnership with Tekion to actually -- it's already live. We have about 80% of our dealers that are on the platform already, which will allow people to shop for new vehicles and decide in combination with our dealers, how they want to actually buy some dealers -- some people want to buy completely online. Some want to learn about it online, go to a dealer, some people want to do a combination. So what we're doing, very similar to what's happened in the retail industry is we're modeling that, and we're building a platform out to support the digital relationship with our customers and our dealers. CarBravo, similar platform that we've rolled out for used vehicles that not only is a platform, but it's a brand-new business for us. So the first thing I would say is it's e-commerce platforms. I think we announced at Investor Day in 2021, we had 5,000 parts available online, parts and accessories. That's now over 100,000. So that is an entirely new kind of business opportunity for us from a digital perspective. So platforms would be one. The second is organization. We've stood up over the last -- about a year -- a little over a year ago. It was right around Investor Day 2021, we established a digital business organization. And so -- and this is a big shift for our business. I mean, before software was in support of vehicles and a lot of our software talent worked up through vehicle programs. So the vehicle was really the centricity of the company and the strategy. What we've done is we brought in the gentleman named Edward Kummer, who is an e-commerce expert, a digital expert, who worked for Disney and Nordstrom and a lot of companies have gone through this digital transformation curve, and we've established 8 lines of businesses, including infotainment, including loyalty, including e-commerce and parts and accessories, and they are now seeing and run in the company as businesses. So this $20 billion to $25 billion target is established, and we have real organizational accountability for that target. With that, and again, seeing this in my past experience, it's not a role of influence within the company. We realigned our software development, people into Edward and that organization. We realigned our product management folks and then we brought a new Chief Experience Officer, Donald Chesnut. And so you take experience, product management and technology, all in service of business leaders and those business leaders sit at the same level of people who are running the vehicle programs. So it's now software as a business to us, and we're bringing in the talent actually to make that happen.

Does anything technically or from a product standpoint need to change? I mean you've talked about your electrical architecture. What technically needs to change to unlock these revenue streams?

Yes. I mean starting with the vehicle, it's interesting as thinking a little bit about the conversation today, and I was recollecting something that I've dealt with in my past experience. For those who remember when the e-commerce -- the whole e-commerce wave started in the late '90s and early 2000s. I'm not sure if everyone remembers, but Target, at one point, used Amazon as their platform for e-commerce. And it sounds shocking today to think that. But Target actually white labeled through Amazon their business and look what happened with Amazon obviously becoming one of their biggest competitors. I would tell you that we have the benefit of learning that, that is not our approach. So let me start with that. It's very important for us that we own the operating system within the vehicle, the Ultifi operating system that we're building is very important for us that we leverage the data, we protect, obviously, privacy and the information, but we have tons of telemetry data that we've leveraged to create a great OnStar business. That data is useful for our insurance business. It's useful for creating great experiences for our customers within the vehicle. It's useful for monetization efforts across not just within the vehicle and outside the vehicle. So it's really critical for us to own that architecture, provide amazing experiences for our customers. We also need to own, be very clear. We need to own those experiences. We can't outsource those experiences. But we also have to make room to work with partners to help us develop the applications to move at the speed of what people do outside of our industry. So our strategy is we own the data. We own the experience. We own the architecture within the vehicle, but we will -- it's a Linux-based architecture, so it's an open source architecture. We will then work with partners to develop applications and experiences to move at speed to delight our customers and sharing the monetization efforts.

You're talking about partners. I think that one of the questions that frequently comes up is everyone is always indexing all other automakers against Tesla, which has taken a full go-it-alone approach, everything. They own every component of the stack. So maybe you could go a level deeper on the layer partnership. We know on the software stack, you are working with Red Hat. What parts do you want to own? And then just broadly, I think we've seen efforts on creating the software-defined vehicle, why has it been -- and this is not a GM question, but just a broader industry question. What has been the challenge in unlocking this? And how does that change now?

Yes, it's a great question. It's a challenging, very good question. I have a lot of respect for what Tesla has done. They've had the benefit, first of all, of starting from scratch and developing an operating system within the vehicle and knowing that software is core to their business. They move it at speed. They also, I think, played very smart in terms of what the experiences that they created, what they would outsource the partners versus what they would own. So they've taken an API approach to working with different tech partners as opposed to fully outsourcing and experience to a partner. One thing for sure that we see is the experiences we're creating in the vehicle, they're not just experiences to delight the customers. That is, for sure, we need to do that, but it's our business. So we see that infotainment screen and the experiences we create, both omnichannel inside the vehicle and out, that is our business. In terms of speed and where we're at, in 2019, we created what we call VIP architecture and it's vehicle intelligence platform, and it's basically the -- if you looked at a picture, it looks like a nerve system within the vehicle. And that really is sort of the nerve system and the wiring of the vehicle that enables us to create this Ultifi platform. So akin to an iPhone, you take the hardware and all the sensors that's built into it, that would be VIP. You take the iOS and that would be our Ultifi. We must own that. We're building that. We started that journey a few years ago. The first vehicle that will be live with Ultifi comes next year. It's the Silverado EV. And then following that, many of our vehicles will be live on Ultifi. So we didn't start from scratch. So for us, it's a little more difficult. We have to transform our car park. We have to be sensitive to our existing customers, both ICE and EV vehicles. So it's a little more complicated, I think, than starting from scratch, but we're taking a very similar approach around the platform and how we work with partners.

I want to touch on another aspect of this that you mentioned, and that's owning the retail experience more. And at the recent Investor Day that you just had, you highlighted a target of $2,000 per vehicle efficiencies that you can capture by modifying the retail experience. So maybe you can talk about the DRP. I know there's other components as well in terms of owning some of your EV inventory, selling out of inventory, just how easily you can capture that $2,000, which some would say, okay, that's taking money out of dealers' pockets? What is the path to getting those efficiencies?

Yes, it's great. It's a great point. And Mark did bring that up on Investor Day, the $2,000 we can take out. And we're confident about it. Let me start by saying, during the pandemic, we all learned a lot around how to optimize inventory. And frankly, the chip situation that we all faced didn't help matters, but it did create a lot of learnings around how to better understand what customers will be looking for, how to get the vehicles in customers' hands in a more efficient way and be more considerate around what needs to be in a lot versus what can be preordered or reserved. And so we've done a lot of learning through this period and actually customers' behaviors have changed relative to how they shop. So I think that accelerated the transition to digital. We think we can be smarter around how we do distribution, and we just announced recently what we're doing with EVs in creating these distribution hubs, where we will house vehicles as opposed to having to assume every vehicle is on a lot of a dealer. The DRP system that we refer to are digital retail platform, we've done in conjunction with our dealers. So as I mentioned, 80% of about 3,200 dealers are already on that platform. So this isn't simply a platform to go direct. It's a platform to create more efficiency with the experiences that we're creating with our dealers. So they are part of that process. And so part of that $2,000 is the efficiency of using this digital platform, being smarter about knowing what our customers want and then being smarter about how we actually get these vehicles in their hands. And then along with that, once we have more of that digital relationship, there's savings around marketing and incentives and just being smarter and having more information from a pricing perspective.

Great. Another aspect of the software strategy has been the push to try to get more recurring revenue streams. So one of those that you've talked about is Super Cruise. Maybe we could just get a sense right now, and we know Super Cruise has been rolled out to more and more vehicles. Mike was talking about the Super Cruise experience on his BEV. Maybe you could just give us a sense of the path to taking Super Cruise from to onetime fee rate to something that is potentially on a monthly subscription fee? What is the interest level from consumers that you're seeing?

Yes, it's a great question. So far I think the plan right now a plan of record for next year, Super Cruise will be available in 22 vehicles. So we're going very wide Ultra Cruise beyond that, which I'll talk about in a second. But our customers, I think Super Cruise relative to some of our competition, the technology is, by far, from my perspective, more advanced. Also, safety has always been a very strong part of the DNA of GM. And we believe our technology is safer. We think it's better. It's a true hands-off experience within the vehicle. There's aspects of them, the software where we have an option for trailering specifically, which is something that a lot of our customers are interested in, I know Michael is. And so while there is a onetime fee today, we're doing a lot and a lot of -- part of my team is a data and insights team. We have about 300 data scientists within my team who are understanding, doing analysis and forming insights into what our customers are interested in buying, when they're interested in buying it and how they're interested in buying. So imagine one of the things we're working on as an example is we noticed a pattern of a certain highway you're driving on or a certain time or traffic pattern. And based on our knowledge, we could send an OTA offer to a customer. Dan, we can send you an offer saying, hey, would you like to try Super Cruise for your way home tonight or you're weekend away or based on a ride that you plug in. And so we can offer it to you is a try and buy. And so we're just -- with OTA and with the vehicle constantly changing beyond the initial purchase experience, we can cater to the needs of our customers in a much more interactive way than we do today. We've also in Investor Day '21, we shared a share of wallet study that we did to understand people's buying behaviors and needs and wants, what people would like to and are willing to pay for subscriptions. And so we have extensive analysis that led up to this $20 billion to $25 billion part of that is around subscriptions. That is based on customer research. And I'd say that research is very detailed. It's not just, do you want to pay onetime, do you want to pay a purchase, some of it is do you want to pay monthly, do you want to pay annually, do you want to pay quarterly, giving those different options. And we also -- and we're all probably overwhelmed with this now. We looked outside of what people are willing and interested to pay from a vehicle perspective. We looked at subscriptions in people's lives. What are you paying for Netflix or your music app or -- so we took a very comprehensive look to understand people's willingness and experience to buy, but I also think it's one that we just need to be agile with over time to make sure we're delighting our customers with what we offer them and they see value in it.

Another part of this, and this is something we discussed in the dinner last night. I gave you the example of how this idea of a monthly fee. There's one automaker that's offering the opportunity for $18 a month you can turn on heated seating. So the challenge with that is now that means that every vehicle is going to have the heating element and there's a hardware component, right? So you have to start to make some assumptions on, okay, if we're going to standardize the hardware, the take rate on the subscription is going to be whatever, to make sure that you're making money on that ROIC. So as your different teams that are managing now P&L for software, think about the opportunities, how are you thinking about standardizing certain hardware and especially to make sure that any hardware additions that become standard throughout all vehicles get a proper ROIC?

First of all, I'd say I wouldn't expect us to charge someone $18 for heated seats a month. So we're very in touch with our customers around where they find value. As I mentioned, what we're doing with Super Cruise and then Ultra Cruise, which will be a door-to-door automated driving experience going live with our Celestiq, but we're doing it very closely with our customers interactively. And so we have a whole customer research team. We don't think it's a matter of rolling something out like that that's going to set a customer. We know when it comes to features like safety or standard features that our customers expect, it has to be included within the vehicle. So I would say that the -- obviously, or maybe not obviously, as much as we can standardize the hardware in the vehicle and then unlock features with software, we will. But we do look at a very detailed level for different segments of vehicles that some will be equipped with certain hardware that we don't think maybe has to be in there for a truly affordable EV. But as much as possible, we're going to standardize the hardware. And we're able to do that because of the Ultium platform. It's one architecture. So if you -- whether you look at our Silverado EV or [indiscernible] or GMC Hummer or LYRIQ or what's coming with our Blazer or Equinox, it's one -- you can imagine, it's one vehicle hardware platform that we're using. And with that platform, these vehicles, they're approximately 25% less parts than an ICE vehicle. So on one hand, it's more complexity when you want to offer more features and services, but we're moving into a world of simplification relative to the hardware. And then we'll capitalize on it based on different segments and what people's desires are in what they want to buy. So it's a challenging problem, but in some cases, EV makes things and our platform approach makes things a lot simpler relative to dealing with the issue you're addressing.

Great. I want to talk about another responsibility you carry, and that's managing the global innovation function at GM. We know there's a start-up incubator. You've talked quite a bit about BrightDrop being probably one of the best new graduates of that incubator and $1 billion you're targeting $1 billion of revenue. Maybe you can give us a sense of what other ventures you have coming out of that incubator defense, hydrogen? What are the other ventures you're seeing?

Yes, thanks. And BrightDrop, and I'm incredibly proud of what we've done with BrightDrop. And for several reasons, I mean, BrightDrop was the fastest vehicle we produced in the history of GM. I think 20 months from concept to actually build and putting it in customers' hands. If you remember, CES of '20 -- I think my year is right, '21, I believe, is when we announced BrightDrop for the first time and it's already in customers' hands. We have -- there's better construction, I see them running around here, but FedEx, Walmart, Verizon, merchant fleets, we will have the capability to build 50,000 of these vehicles per year in our CAMI plant in 2025, but it's already a real business. And it goes beyond the vehicle itself. It's a software platform to solve the first and last mile problem for grocery delivery for any commercial delivery. And we've seen with FedEx already, they've had efficiency gains of about 25% for their delivery and optimization. And that's just based on the BrightDrop vehicle with the software that we're helping simulate routing with E-Trace, which is our e-Pallet configuration to actually handle the last mile from the vehicle to the end customer or a store. So what I'm really proud about, I mean we did it in 20 months, and it was a start-up within GM. So we had the benefit. We hired a software entrepreneur, Travis Katz, who is a Silicon Valley repeat software entrepreneur to run that business because we have plenty of vehicle experience within the company. As we lean more towards software, we wanted a software person to run that business and orient us towards a solution. So I couldn't be more proud like what we said we would do with that business, it's up and running. Insurance is another business that we've launched is now live in 50 states. When you think about the insurance opportunity for us, it's not just a stand-alone insurance company, but we have expertise leveraging all the telemetry data within the vehicle for OnStar. We've been doing it for over 20 years or 25 years. When you think about the value of that telemetry data to provide insurance to our customers, along with financing within GMF, there's -- it's incredibly valuable. We've just in 4 states, I believe, Arizona, Illinois, Michigan and Texas, we actually started testing with our customers, looking at the driving behaviors and seeing how much money we can actually save them with our algorithms. And we're saving approximately $500 a vehicle per year in insurance. And it not only is saving customers money, but it incents them to drive more safely as opposed to the current model of looking at demographics, income, education level, we're actually looking at what's really important, and that's driving to safety. And so that's a business that we launched in my area. Defense is another one that you mentioned, really proud. That's a completely new segment market for us. We've got a lot of success there. And the ones that I'd say we're focused on now that I can talk about, it's really enabling a lot of these newer businesses within the company. So we recently announced GM Energy, which is our energy ecosystem play around charging infrastructure, but it's also about energy and the home, V2G, vehicle-to-grid, vehicle-to-home. It's about fleet use of our battery technology in Ultium. And it's also about Ultium technology, obviously, outside of the vehicle. And so what we're doing within my team right now is we're developing a lot of the software aspects of how we actually help our commercial and consumers, customers, consumers manage their electricity, how we're actually helping with the grid. So we're basically -- that would be an area that maybe would not fall specifically within another function within the company. So we're basically enabling that business. That's a program we call e-powered in support of GM Energy. So that's when you can expect to see coming soon.

Great. I want to ask one more financial question before we just open it up. Maybe you can help us frame the resource outlay to software and the new business ventures that you have here. And this is an item we discussed last night. I think there is a contrast in the broader market today that a year ago, the market was saying, grow at any cost. And so the resource outlay broadly from the market to any growth venture was quite significant, and that's not the case today. The market is being much more vigilant about growth opportunities. So how does that -- how is that resource outlay at GM, especially in the context of the market that's much more vigilant about funding growth opportunities?

Yes, it's a great question, and it clearly affects my area of responsibility on the innovation side. But I would tell you there's a long list of things that we can do to enable the businesses that we're launching that we've announced. So I just gave you a good example of the one for GM Energy. It's really clear in my area of responsibility in our business in some ways I refer to it as the glue for a lot of things that we're doing across the company. And I'll give you an example. And we talked about the subscription to Super Cruise or potentially Ultra Cruise. We're actually working on technology and services to think about how we stitch that together to provide value for customers with other businesses we're launching. So take insurance, as an example, which was born in the innovation team. We believe that our autonomous technology, whether it's Super Cruise or Ultra Cruise leads to safer driving. And if it leads to safer driving, it should lead to saving money on insurance. And so when you start to think about our customers' willingness or excitement, frankly, to pay for some of the services, what we're doing within the innovation team now, the focus is how do we bring these different services to life in a way that delights our customers and ones that they're happy to pay for. So I'd say there's a lot of that happening now. How has the work that we're doing with GM Energy bid into the vehicle purchase process? How does the insurance purchase process or desire to buy insurance work within GM Financial. How does all of this sit within our digital retail platform. So that's a lot of where the innovation is happening right now. It's stitching together a lot of these new businesses in a way that provides value for our customers and should provide value to us.

Okay. Great. I know we're right at time. So I think we'll leave it there. Alan, Mike, thank you so much for joining us.

Yes, you're welcome. It's a pleasure.