General Motors Company (GM) Earnings Call Transcript & Summary

So look, everybody knows our next fireside chat is going to be with General Motors. Just to introduce GM, in a pretty challenging environment last year, that tripped up more than a few global automakers. GM hit their targets once again. 2022 earnings were actually at the upper end of expectations that were set at the beginning of the year. And it's really remarkable when you think about what the company faced. They wound up coming in with global EBIT of $14.5 billion, 9.2% global EBIT margin, 10% margins in North America, free cash flow of $10.5 billion. Looking ahead to 2023, GM guided to EBIT of $10.5 billion to $12.5 billion. That was down $3 billion at the midpoint, with most of that decline attributable to pension accounting and an expected decline in GM Financial. And it's worth noting that within that guidance, GM, is absorbing the cost of at least half a dozen growth initiatives that we know of. There's a barrage of EVs investment in new digital distribution network, expansion of Cruise, BrightDrop, OnStar Insurance, big push into software, aftermarket, a new defense business there's a lot of stuff going on at GM. Considering all that investment in growth, we actually were expecting structural costs to go up. But on their call 2 weeks ago, GM said that their fixed cost will go down by $2 billion with 30% to 50% are being recognized this year. And I would say that just stepping back, consistency of financial performance has really been a hallmark of this company's profile over the past decade. And it shows us that that's something that's going to continue even as this company for the first time in decades pivots to growth. And on that note, GM laid out a plan to grow revenue from around $157 billion last year to $225 billion by 2025, and we backed into something like $11 to $13 of earnings per share. And by 2030, GM has its sights on $300 billion of revenue, including $50 billion from Cruise, $20 billion to $25 billion from software and services. Now what's interesting for everybody in this room is that despite that growth, their shares are still trading at roughly 7x forward earnings, more or less the same valuation that we've seen for the past 10 years. If you ask 3 analysts, you'll probably get 3 different reasons for why that is. Of course, there's the economic cycle. Of course, there is normalization of industry pricing. And separately from that, there are certainly questions about the competitive landscape and how that's going to change. And most people presume that it's very hard for big companies with entrenched processes to innovate, to achieve cost benchmarks, and we talked quite a bit about that yesterday. So I'm hoping that today we can set the record straight and that's -- I'm very pleased to welcome Paul Jacobson, Mary Barra from GM.

So maybe just to start things off, I'd like to ask you about competitiveness, and the pace of innovation that you're seeing and whether investors should be thinking about General Motors differently than in the past? And maybe just to introduce this a little bit and make it a little more provocative. So we have this weekly webinar called Car Talk. About a month ago, I polled investors, and I got about 100 answers in my poll. And I asked people whether they thought that generically legacy OEMs could catch-up to Tesla in terms of costs. 92% said no. So we've got a lot to prove, but I think that it says something. And I want to get your impression whether you're surprised by that. Do you think that, that perception, maybe it's correct generically for the industry, but not for General Motors? And within GM, are there changes that you are implementing in design and engineering and other things that are really fostering a different pace of innovation, do we think it's wrong for people to be assuming that it's a big company, and it's just hard to do at GM?

Well, there's a lot in there, Rod. But first of all, thanks for being here. Thanks, everybody, for the opportunity to talk to you. But the way I see it, this is the year General Motors pulls away a lot of what I -- you would call them legacy, I call them traditional automakers. And it's not because of what we're doing right now. It's because what we've been doing since 2015, 2016 and on. In 2015, we looked at where the industry was changing. We said there's 4 major trends that are going to change the way people move. It's the propulsion system, it's autonomous, it's connectivity, and it was sharing at the time. When you look at -- and we know what's happening in sharing, but frankly, I think autonomous sharing is part of our plan. And we do have the leading AV company with Cruise operating now in 3 cities and continuing to scale. And throughout the year, you're going to hear more about Cruise's plans not only to scale, but how they're going to reach profitability. And then when you look at -- and we bought Cruise in 2016. We started working on the LTM platform, which is our foundational dedicated EV platform in 2018, started rolling it out in 2021 at the very end. We now have -- by the end of this year, we'll have 7 products coming off of the LTM platform available in the United States, in addition to the Bolt EV and EUV, which by the way, we can't make enough of, and that's our second-generation technology. A lot of other traditional OEMs are just now working on a dedicated platform. We have it. We started -- we realized, we needed to control our own destiny with -- from a battery perspective. We have one plant running and 2 more will be online in about 15, 18 months. So we'll have our own batteries. We won't be paying for the cost gone on those. We have been systematically changing our organization not try to do it all overnight. But as we did the restructuring in '18 and '20 versus the '18 and '19, we restructured our engineering, dedicating a software engineering group, dedicated electrification. We haven't gone and said, we're going to split the 2 companies completely because there's a lot of the vehicle that's the same, and we can share parts, which we do. We can get a lot of synergies as opposed to having 2 chassis groups, 2 interior groups, 2 software groups for that matter. A lot of the software is the same. So the work we've been doing to transform the company is all -- is here now. We're executing on all of it. And so, we are different than the rest of the traditional OEMs, and this is really going to be our year to demonstrate it. And I think with everything I've just covered; I think we've got a strong year planned ahead. And the other thing you said it, but this company, we do what we say we're going to do from a financial perspective. As Paul has said, no one believed us last year when we said, we were going to achieve our guidance. The year dramatically changed, but I think it also shows the scrappiness and the resiliency of the GM team. We said, okay, this happened that happened, how are we still going to meet our numbers and we did. So I think we are a transformed company. Yes, it's -- we're never done. We can always be more efficient. We can always work and continue to implement and innovate new technologies, and we're doing that. And the last point I want to make, too, is from a battery perspective, I think we set ourselves apart. We never stopped working on battery technology or hydrogen fuel cell technology for that matter, since EV1. And so when you look -- the reason we knew to start the LTM platform in 2018 with all the lessons we learned from the Bolt EV. And so we now -- we have a lot of capability as it relates to battery technology. Yes, we're a partnership in building the cells right now is with LG ES, and they're a great partner. And we have 3 big plants we're scaling up, but we also have the largest battery lab. We now have a battery processing lab. So when we talk to all the different startups or different companies that may have promising technology, generally, what you find is they don't know how to scale, and they don't know how to make automotive grade. We now have a processing center, where we can go in and take promising technologies and get them to market faster because we have battery knowledge inside the company, which most of our peers do not. Paul, did I miss anything?

No, I was just saying -- we're no stranger to skeptics from that standpoint. So I think when you look at the perception study that you talked about, I don't think it's surprising. I hope the 8 people that said, yes, and [ catch-up this year ]. Welcome. Thank you. But at the end of the day, it really is about execution. And Mary and I talked even a lot going into 2022 about how we're going to have some challenges, right, because we knew '23 was the year that all these programs we're going to be rolling out. We kind of called it get through the desert from that standpoint. And the way we were able to do that is really focus and drill hard on execution. And I think that's carried over into '23. So -- yes, there's a lot of macro concerns about there about the environment around us. And what we can do is just continue to execute, pivot where we need to. But I think what you've seen is through it all and through a lot of challenges, whether it was the chip issues or storm issues, et cetera. There are a lot of times that we could have said, you know what, we need to dial back the investment. We need to preserve. We need to back down the hatches. But what did we do? We leaned it. We accelerated twice during the last 2 years in terms of the EV journey, and you see a lot of that coming to fruition now. And you'll see it more as we ramp up in the back half of this year, and then hit that 400,000 goal when it's off the race.

So I'm curious if you can maybe elaborate on whether this is foresight. So you guys were planning ahead. You've been investing well in advance of everybody else because you knew where this was going, or actually within the company, there's really changes in process. This process is important, right? It's a safety critical product. You don't want to skip anything and have big things go up. But the world is changing quickly. We're seeing companies innovate with things like giga castings and 45 second tack times and things that just are happening quicker than we had seen in the past. Within GM, do you see things that are changing in the process that can accommodate innovation or things that you're just not used to, to incorporate that and implement those kinds of things, quickly too?

Absolutely. I mean, one, I think a great example of it is our Global Vehicle Development Process. Let me back up a little bit. In the '15, '16 time frame, we realized our quality wasn't where we wanted it to be. We had took one of our most successful chief engineers would launch a ton of products, and we reworked our Global Vehicle Development Process, and put -- made major changes to it that allowed us -- and that was implemented. We then actually our head of quality work, what we call the Quality Chain, looking at quality starts in design, your ability to deliver high -- it's from design to engineering to manufacturing to your supply base. And any one of those -- if those links in the chain are broken, you're going to have quality issues. And so we put those processes in place. And I think both of them were well underway in the '18 time frame. So why did everyone else's quality go down last year when ours went up. And we just got good great recognition from the J.D. Power durability study as well. So we've fundamentally invested and changed our processes to deliver quality. That then allowed us, as we develop the LTM platform and we did the wireless control system, we realized a lot of engineering that went into powertrain configuration and all the unique things you had to do for every vehicle. We didn't need to do with the LTM platform because we had a wireless control system that we did that allowed us to take over 90 weeks out of our global vehicle development process. So we are changing. You spoke about giga castings. We started with learning about giga castings on the CT6 that is still in production in China, by the way. And it is being used heavily on the CELESTIQ, the Cadillac CELESTIQ, but we just bought 2 -- invested in 2 giga process. I'm not going to tell you what program we're going to be rolling out, getting to high-volume mainstream use of giga casting. So again, have the experience, had the learnings. Now we're putting it -- we're going to be putting it into high volume. We're working on that right now. So we're looking -- we have a ventures group that looks at anything we can do to improve our business, and I would say another important thing is our relationship with the supply base. We've steadily been going up in the rankings of working with our supply base because a lot of innovation in this business can come from your supply base. And what you need the supply base to do is choose to bring it to you first because they know you're going to put it into a vehicle or you're going to put it into your plants, but they're going to get the benefit from it. The relationship we have with the supply base is also beneficial. And we've worked hard. I mean, yes, but when we go work when they have issues, we work in a problem-solving manner instead of trying to divide the pie of cost, we try to make the pie smaller. And I think we've been successfully doing that. And last year, I think, was another proof point.

So you're saying that this is actually not even just an EV thing for GM? So CT6 is not an EV.

Right.

You're applying those kinds of innovations outside of that as well?

Absolutely. And also, one of the things, obviously, I think for the globe, COVID was tragic, but you learn things when you get put in those types of situation, and the company learned how to be more efficient, how to be faster, complexity reduction, the work we do with our dealers, there's a tremendous amount of work that has been done to reduce complexity. That's in our products now, and we continue to look for those.

Okay. I want to ask about EV growth and whether EVs are going to actually be a good business. So we want to own GM as an EV company. So when we talk about EVs, a lot of the focus is on battery costs. Still 30% or more of the build materials in EV. You talked about getting those costs down 40% from $145 today to $87 by 2025. And based on the math we're doing on the pack level; we're thinking it's $170 down to $110. even if you get half of the IRA benefit, it's conceivable that you're going to get packs down to like $90 a kilowatt hour. So for some vehicles, at that point, we could sort of have line of sight on getting close to parity with internal combustion. And presumably, that's why you're able to do Equinox and Blazer products that -- where your pricing gets pretty close. So overall, my questions are, you're targeting 1 million EVs, $50 billion of revenue by 2025. That's a big part of that $225 billion target. How much of that is incremental? Because that's -- that would imply a lot of market share growth, and where does that market share come from? So how does the competitive landscape change in order to get 1 million more vehicles out of GM?

I'll start -- let me start with that. I mean, because I think one of the things is, if you've looked at the products that we've already released, and we have more coming. When you look at the success of the HUMMER and 40% of our HUMMER buyers or people who have the vehicle in order are new to General Motors. If you look at the LYRIQ again, really strong response. By the end of this quarter, we'll have delivered all of our debut addition. And new to General Motors, 40% are new to General Motors. On the Silverado, with the orders or the interest orders that we have, then we're converting to orders right now, 50% are new to General Motors. So -- and then if you look at from a coastal perspective, we are underrepresented from, I'll call it, our fair share of what we should be getting in the coast. We're seeing a lot of interest in the coast as well. So obviously, we've said by 2035, we're going to be an all EV -- a light-duty EV. By the way, your initial question was, is EV is a good business? The answer is yes. But we'll -- we see it as growth in the interim. And then when you look at the quality that they have that we haven't provide, the fact that we have the highest customer loyalty, we think getting these customers early is going to be really put us in an advantageous position to maintain stronger share as we go to all EVs. And Paul?

Well, then I think on the cost side, too, right, whether it's the engineering and what Mary talked about with the ventures team and what we're doing around battery tech, there's also the scaling. We've got 3 LTM plants opening in the next 15, 18 months, right? So we've got a really good platform already built, right? So we're adjusting within this by toggling the lever, accelerating the adoption. But then also, we're looking and being more strategic about all the raw materials and all the commodities that are going into it. You see a lot of announcements from us, and we've been unapologetic in terms of saying, we want to partner with people. We want these providers to be successful as well. We can bring capital; we can bring purchase commitments. We can bring a lot of things to the table that can help them grow their businesses as well. And I think that's been really attractive to a number of partners, and it's really setting the table for success even well beyond 2025, right? So whether you think about it's getting cost down, it's getting strategic relationships established, it's complying with the EV tax credits and the IRA. All of that, we're setting the table for tremendous success.

I'm going to ask you about that in a minute. But just back to this question about whether this growth is going to be compelling. Today, the center of gravity of GM is trucks, right? Crossovers today don't make a lot of money. Should we really be excited about EV crossovers, which haven't historically been very profitable? Will it change in the EV environment versus the ICE environment? And do you see that center of gravity shifting a little bit for GM as that happens?

Yes. That's tough being in the middle here. It -- this is one that I know has been an area of debate for a long, long time. But I think when you look at both the improvement that we've seen in crossover profitability and what we're doing going forward with both the ICE portfolio, the features that we have, the pricing environment that we're in, but also the EVs. I mean, EVs gives a chance to reinvent every vehicle. And you remember from Investor Day, when we talked about the market data that we have are people that want to buy an EV don't want to generally cross out of the segment that they're in. They're not willing to give that up to get an EV. And this is where the platform advantage comes in, right? I'm producing the same cells; we're putting them in a Silverado or a crossover full-size SUV or HUMMER. They're the same cells, right? We can package them differently. But that's what gives us that scale advantage to be able to add features, add content into these vehicles at a level that we think is going to lead the industry from that perspective. And then, obviously, that gives you the platform down the road for the foundation of software services, et cetera, everything else that you could do. So it's about growing that foundation even just beyond the cost of the vehicle. But we think that, that's still going to be a strong business and continue to improve.

Will you be able to sell a 40- or low $40,000 EV and make a 20% gross margin? I mean is that something that you see as is possible based on the cost structure.

Well, what I would say is we're not anywhere we think we can get the cost of a battery cell down. And so we're going to keep driving that. And then with all the synergies we have, what we've invested from a vertical integration perspective, the sourcing work that Paul is leading, by the way, and has done a phenomenal job working with our -- because we're looking at this much differently than just a pure sourcing situation. We're -- our aim is to have industry-leading margins, as we invest. Now we're ramping up some things, but I think it's also to note we're maintaining -- we've said in the 8% to 10% range, while we make this, I'll say, accelerated investment and transformation to EVs, and then once we get everything ramped up, we're going to just continue to work battery costs down, drive the efficiencies, leverage LTM, as Paul mentioned. So -- is it going to be 20%? I don't know, but I'll tell you, we're not going to stop until we lead from a margin perspective.

Should we worry about cannibalization of ICE trucks with EV trucks?

If we said -- we sell a lot of light-duty trucks. And we've said by 2035, we're going to be all EV. But again, we see this as an opportunity to grow, especially in the very near-term, and bring in more customers. We know the truck customer, once they come in, is a very loyal customer. We're seeing that with the data that I already referenced, to 50% are new to General Motors on the Silverado EV. So we see an opportunity where we can continue to have a strong ICE, while we grow our EV, continue to improve the margin structure as we get to scale. And again, we're going to look for ICE like margins or better as we make this transformation. I don't know.

Yes. And we've seen success in the midsized truck launches that we've done. And trucks, and we're actually growing share in ICE trucks right now, right? So while the focus has been on, well, you're going to sell EVs and not ICE, we're actually selling more of both right now. And that's where I think we have a really distinct advantage in the fact -- I'm a personal believer that EV adoption is going to be choppy, right? There's going to be spells like we've seen where we've seen really rapid acceleration that might slow down, might speed up, we've got the flexibility in the product portfolio to be able to manage through that. The important thing here is we keep the balance of cash flow generation across the Board because this is what is funding the journey over the next several years, as we get to 2035. So keeping that balance in the portfolio coming out with new great products, and we're seeing strong take-up of those as well. At the same time, funding that journey and ramping up the EV production. So -- we do see this as a way to grow share over that time period because nobody is going to have the comprehensive suite of products that we have with the type of loyalty, and the type of conquest data that we're seeing in the early stages.

Yes. That's really interesting. Maybe we could talk about competitive advantage a little bit more. You alluded to it when you mentioned the IRA and materials. But I guess maybe backing up a step, LG works with a lot of companies nowadays. And competitors of yours can also buy cells from Samsung and SK and Panasonic and others. Do you think that, that means that in the long run, this becomes commoditized at least the batteries and battery packs? Is there really a sustainable competitive advantage that GM is building here. And maybe you can tie into that whether or not your positioning for IRA gives you an edge?

It's hard to say. I think our positioning for IRA gives us an edge. And I'm really proud of the team because we looked over -- everything we learn from semiconductors and other shortages; we really work to either allay onshore or allay shore. And we were doing that before IRA. So we happen to be very consistent with what we didn't even know was going to happen. We thought it was the right sourcing play. It's turned out to be even better. So yes, I think we're one of -- just a couple that are very -- in very good position from an IRA perspective. So I think that is going to be something that is an advantage. But I think we're also continuing to take cost out in the battery space because what I mentioned before that we're doing -- we're not just dependent on a supplier to say, bring me your best technology as it relates to, like you said, 30% of the vehicle is the battery. We're doing work on our own. We have partnerships with SES. We have a partnership with LG Energy Solutions. We're working with a lot of other sources and frankly, a lot come knock on our door because our volume is attractive. So there definitely is a path. I don't know, 20 years from now. I mean, I'm an engineer, so I believe we're going to just keep improving. Might it be commoditized, but I don't think we're even close to the chemistry and the -- is it solid state or what we're going to have that's going to allow us to take cost down. So I think we have a long time and why I think we're in the lead is because we've got battery expertise in-house.

So even though companies and others can engage with LG, form joint ventures with them or buy batteries from them, you think that your costs and your joint ventures for a variety of reasons are better?

Well, I think I want to be very respectful of our partner. But I would say what most people don't understand is that we have a joint venture to manufacture battery cells. We also have a joint venture doing battery development. I don't think many others have that.

Okay.

And I think this is also a resource gate too, right? So you might be right over the long-term that things do converge into single chemistry and to single manufacturers, et cetera, may get commoditized. But that's a long longways. Right now, what's happening is in the race to EV adoption and satisfying that demand that's out there, there's a race for constrained resources, right? So virtually every battery manufacturer has more customers they can handle. They don't have enough capital to do everything they want to do. So when you're in a position like General Motors, and you've heard me say this many times are out. This still, at the end of the day, it's a scale business. right? And I think Tesla has done an amazing job of demonstrating how to achieve scale. Is there room for more folks to do that? Don't know yet, right? We don't know when a world where resources become really, really constrained. So when you think about the scale, you look at the capital base that we have, you look at the cash flow, you look at the demand that we can bring to the table, and you look at the head start that we have. Nobody is working on as many battery plants as we are right now, as we've talked about 1, 2, 3, 4 is coming, 5 is coming, 6 is coming. We know that as part of the transition, and that's where we're able to get the resources. It's why we're able to do the deals with POSCO and with Livent with others, where we're able to go out and start looking at long-term agreements because we can bring that to the table. So I don't think that it's at risk of getting commoditized anytime soon, while the industry is ramping up that capacity base.

Yes. I'd like to ask about competitiveness and distribution, just switching gears a little bit. So this is a pretty heated subject, I think, in the marketplace. You've talked about taking plants to take $2,000 of costs out of your distribution costs. Can you talk about what that's going from? And two, how are you changing it? Why should dealers go along with that? Because it's got a pretty good gig right now? And when will we start to actually see the benefits of that?

So there's a lot that we've done in this place. But I think one of the key points I want to reinforce, we've done it with our dealers. And when we talk about -- what we talked about at last year's Investor Day of taking $2,000, that's what's going to attribute to General Motors. We took more cost out than just the $2,000. And we sat down and look together, how can we take cost out. One of the things we saw from a dealer perspective, they spend a lot of money on IT. We invested in the digital retail platform. It's -- and we have a small ownership in Tekion, I think it's 80% of our dealers have signed up to use the digital retour platform, which, by the way, I think I can't remember who someone just rated all the different online digital systems and General Motors was recognized as being the best. And so as we're already using it on the Bolt EV and EUV as we have more electric vehicle rollouts, the system will be used, like I say, 80% of our dealers have already signed up, that's going to take cost out. There's also a back-office system that Tekion did that many of them have already used it. And it was funny when I first encouraged him to do that, they weren't sure. Now I have dealers when I see them, they're like, why don't you have me do this sooner? I'm saving so much money. So again, IT was one area. And if you think about some of the traditional players there, I mean I think it was a mainframe. So I mean, a huge advantage from a cost perspective. Dealers are also -- every dealer is an entrepreneur. So when you look at what they've been able to do, they've learned through COVID, how to sell with less variance, we use data analytics to help for the different areas to different regions of the country to say, this is the vehicle that you should be ordering. It'll be a fast mover. So they're now -- they're ordering faster-moving vehicles. They need less inventory that saves them money on the floor planning of what's on their lot. With what we're going to do on DRP, we're going to have regional distribution centers. So they'll still have some vehicles for those who literally want to go in and still kick the tires. But for the most part, we're going to have with the standard configurations because we've taken a lot of complexity out of our EVs compared to an ICE portfolio, we're going to be able to have those deliver them more quickly. That's going to take cost out. So we've looked at every aspect of what it takes to sell a vehicle, we've taken it out. Our dealers though, are -- what is it, almost 90% of the population lives within 10 miles of a dealer today. When you need it service because it's your only vehicle, not the second or third or fourth that you can just jump into another vehicle, if your EV is not working, that becomes very important. And to get to the penetration that we need of 40%, 50%, you need to win that customer who only owns 1 vehicle and needs it for their livelihood. They depend on dealers or someone to fix their vehicle quickly or give them a loaner. So again, we started working with our dealers about 3 years ago. I said at a dealer meeting, which I wasn't the most super popular that day, as I said, look, are customers changing, our business is changing. We think you're a competitive advantage, but you've got to change with us. If you try to cling to the business the way it was 5 to 10 years ago, it's not going to turn out very well. You know what a lot of our dealers are coming along, and the dealers are that say,"Hey, I just don't want to be in this business" there's an off ramp for them. So the dealers that I talked to that are signing up to be part of our EVs, they're very excited about where they're coming, and they've seen that we've worked with them. And in many cases, they have long-standing relationships with customers. I think people are going to realize the dealers -- the way that we've, again, transformed that part of the business, the way we're transforming everything is going to be a competitive advantage for us.

So when do we actually see that just externally?

As we start to ramp more EVs, you'll see it. So as we get to the latter part of next -- this year and next year, I think it will start to become more -- much more evident.

Let's talk a little bit about the market, the U.S. market. One of the things that I just found amazing is that you're generating more revenue today in a smaller market. So if I go back to 2018, you generated $113 billion of revenue in North America, and a $17 million U.S. market. Last year, you did $128 million in -- and a $13.7 billion U.S. market. Obviously, our transaction prices have gone up a lot for GM and for the industry. And I know you are anticipating some deflation this year. Can you talk a little bit about how you think this plays out over the next year or 2? Should people in this room be optimistic about the cycle or concerned about prospects for pricing? And is there enough price reduction embedded in your plan over the next year or 2 to sort of stimulate the kind of demand that you're looking for?

I'll start by just -- I want to clarify when you said we're anticipating prices to soften. We built our plan around the possibility that plans will soften, right? We're not seeing anything in the market right now in fact, we commented on our earnings call that January came in really strong. As we said, December came in a little bit stronger than we thought it was going to as well, which is why we came in at the top end of the guided range that we gave at Investor Day in November. So I think what the prudence in this is essentially looking at the macros around us and saying, what happens if, we need to be ready for that. We need to anticipate that rather than reacting to it fact, right? So I just want to be clear that we're not -- we're still not seeing anything out there that signals any major deterioration from that standpoint. So what you've seen happen, right? And this was part of -- a big part of the skepticism, I think, last year on the numbers was that between the inflationary environment and production increasing, we weren't going to be able to hold pricing. We actually took pricing higher last year than '21. And we still have a little bit of that annualization in our '23 expectations as well. So the reality is we're producing really, really high-quality vehicles that people are clamoring for, right? And production hasn't been able to keep up over the last couple of years. But even as we ramped up production, we've still seen that strength with the consumer. And I think there was a couple of sound bites that we had on the earnings call that I think are really, really important, right? We said, one, we're going to manage inventory in a 50- to 60-day band, right, is where we're heading. We also said that the cycle time of getting finished vehicles to dealers has elongated, right? So despite the fact that we've seen inventory levels grow, the grounded stock at dealer inventories is still 30% of what it was back in 2019, right? So we're still not seeing that pressure alleviate, but we're in this inventory band. The second thing that we said that I think is really important is, we're going to balance production with demand, right? We want to make sure that we maintain that strength in the pricing, in the value of the vehicles, in the consumers' eyes as well. And what we've seen over the last 2 years is a consumer migration up trim levels, right? We even created an additional level of GMC above Denali, right, because of consumer demand. And we've seen that release cycle through. So consumers have responded to what we're building. And I know there's a lot of speculation out there about price wars and so on. It's just something that is kind of percolated every month that hasn't materialized. For more than a year now that we've been talking about that. So we still have very good confidence in the market. We want to be cautious because we don't want to ignore the macro signs that are out there because I don't want to be up here a year from now saying, we missed it. We didn't see any of the signs and that would be silly. So we're preparing for that, right. And we've balanced that capital. We've talked about the $2 billion in cost reductions that we're going after and that we're going to achieve over time. That's part of this dynamic approach. I think you alluded to in your first question, what Mary said is our ability to adapt. We had an EV plan 2 years ago. The EV plan we look -- we have today is much more intense than it was 2 years ago because we've pivoted, we've accelerated. We had margins that 2 years ago weren't where they wanted to be. We've seen them expand. We had doubled the inflation last year. We pivoted and we saw that go and you're seeing more of the same. So the commercial environment, we can control what we can control. But so far remains remarkably strong.

Yes. So you've created an outlook that encompasses a wide range of possibilities, including the potential for more deflation but you're committed to making these numbers and adjusting as needed in order to get there?

Yes.

Yes. And everything you said -- one other point I wanted where I think we're, again, exceptionally well positioned compared to a lot of our other competitor -- virtually every competitor, brand new or a brand-new heavy-duty truck coming out right now. Last year, we did a major upgrade to our full-size light-duty trucks. We have a brand-new midsized truck coming out right now. We have -- by the end of the year, we'll have 9 EVs in market. So when you look at our product portfolio and the customer reception we're seeing, and they're all fresh and new or not even out in the marketplace in February. We have, I think, a huge advantage because of our product portfolio. That's why we're getting -- we're seeing the strong prices across the board.

Yes. Great. I want to see -- we've got a question up here. If we've got 1 or 2 that we can take.

I was wondering, can you give a little more color or definition around your -- maybe even your plan on pricing as it pertains to MSRP, product mix, competition incentives? Just kind of a little more color, like when you say we're planning or we're incorporating in our plan, that potential at some point whether or not it's 3 months from now or 6 months from now. Just give a little color like how all those different dynamics play in? And then does the supply chain kind of go along at the same pace, or is it different?

So what I would say is we've got to learn to balance, and we've got to be able to balance production to demand from that standpoint. And that's why I think these inventory bands are so important and that's what we talk about internally, right? We've gotten the vehicles to price levels in the consumers' minds that are very fair, very attractive, and there's a strong demand for them. At the end of the day, we have to find out if it is cyclical, right, and we see prices coming down. What do we have to do between the supply-demand, price balance to make sure that, that works? But like I said, we're not expecting that right now. We're building plans that are cautious, we're pricing our vehicles for us and for our consumers, full stop. I won't speculate on what others are going to, but we've got margin targets. We've got a commitment to hitting our numbers, and you're going to see us behave according.

I want to see if I can slip in 2 more, sorry, guys, but I think that you'll find this interesting. All right. Two questions. One is the China market. Do you see that market changing structurally at this point? Obviously, Chinese domestic competitors are gaining some share. What does GM need to do to remain -- to maintain that as an important contributor to earnings? My first question.

So again, right now, in China, obviously, the rapid rolling of COVID through the country has really depressed. We think it's going to impact first quarter; we'll see if it bleeds into second quarter. Like the U.S. and some of our other markets, this is an important year from an EV launch perspective or NAV perspective for our SGM joint venture. And so we'll see that we expect recovery. There's a lot of work going on from that perspective. Again, I think we've got products. The LYRIQ has been launched there. It's been well received. With what happened at the end of last year and this year, we got to make sure people remember it, we'll do that. Our other joint venture partners, SGMW, Wuling, still has the bestselling with the Hong Guang Mini. From a China perspective, they have another vehicle coming out that's going to be a little -- priced a little higher. So it's very important. I think the biggest issue that we look at from China and what we continually say to both governments when we have the opportunity, as that issue is out there is we think if we can get to a level -- we're competitors. We can get to a level playing field, probably will be better for both economies. And that -- so as long as we have a level playing field to go in country, we think we've got strong brands, especially with Cadillac and Buick and then with Wuling, and the Baojun brand to be a significant player there.

But you're optimistic about that business maintaining its position as a big contributor to GM's profitability?

I think we're positioned well to do that. I think we're watching again the whole -- the geopolitical environment to understand, but I think we're well positioned.

Okay. And then secondly, the market, if it's applying just a 7x multiple on GM's earnings is implicitly valuing Cruise at negative $13 billion. So if you were to put our hat on and say, okay, I'm -- I'm an analyst, I'm a portfolio manager. What do you think happens that makes it difficult for investors to continue to do that?

Well, go take a ride. I mean, literally, go take a ride. The vehicle is so capable. You'll never want to get in an Uber or Lyft again. And I'm just because -- I mean how many people have done an Uber or Lyft ride, probably everyone, right? Yes. Okay. Come on, everyone. And some of them have probably been scary. I know I've been in a few that were a little scary. This vehicle is so capable -- but first, you get in, you're like, Oh, my god, and you're watching this [indiscernible]. Well, I was sitting, I mean, I've been riding in the vehicle all along with the safety rider, but the first time that I was in the vehicle where I'm in the back seat, the steering wheel is moving. 2 minutes in, you forget about it because it's such a good ride. It is so confident. I -- frankly, it's like the perfect driver, and it is because it is paying attention all the time. And the fact that in 90 days, Kyle was able to take the technology that, yes, we'd work for a long time in San Francisco to get where we are. But in 90 days, have a vehicle running in Austin, we've been in Phoenix for a while, so that's why I use the Austin. And now we're continuing to expand the area that we're operating, and there'll be more to come. Gil West is in a conference not too long; Kyle and I will be at South by Southwest. So there's more coming. But I mean, the #1 thing I'd ask you to do is go take a ride.

And you've heard me say before, Rod, buy us share of [ GM G ], you get a share of Cruise for free.

We've got one question out there.

Just as you think about sort of beyond the 3-year horizon, and you think about the car between sort of hardware and software, how does that evolution progress? We've heard from some Tier 1s that are talking about taking ADAS capabilities and putting it -- the software into the cloud and doing a lot of sort of cloud served. How do you think about the GM vehicle sort of beyond maybe '25? How much of it -- how much hardware are you able to sort of reduce the price of? And how much are you able to abstract maybe in terms of software and cloud? And is that something that you would retain if you went that direction as an in-house capability? Or is it something that you would consider partnerships with?

We -- a couple -- actually several years ago down. We brought in a lot of software because the vehicle as a platform, we talk about it as the software-defined vehicle. I think the software-defined vehicle is even more significant than the propulsion change from ICE to EV, and the opportunity that provides. So we've been building that capability for several years now. And what we do in the cloud, we have a lot -- we also, with Cruise, what they do in the cloud versus what's done on vehicle that's all learning that we have in those team -- even though Kyle runs Cruise, and we have a separate team, they collaborate a lot and share best practices and lessons learned. And when you look at it, even our semiconductor strategy of going to 3 families and really changing, again, the architecture of the electrical system in the vehicle. We very much see that it's going to be a huge future. And I'm not saying we're going to write every line of code because I think there's some that make sense to get from a supplier, but anything important, like we did with the battery control system, we're going to do in-house.

Great. Well, I think we're out of time. I want to thank you, Mary and Paul, for taking the time with us. This has been fantastic in addressing so many different questions from me and from the audience. Hope to see you again next year.