General Motors Company (GM) Earnings Call Transcript & Summary

All right. Excellent. Welcome, everybody. We're here with Mary Barra, Chair and CEO of General Motors. Thanks very much for making time and being here in New York with us.

Well, thanks for the opportunity.

Absolutely. We're going to spend the hour talking about all things, General Motors, and I'm really excited, but maybe you want to start off with a few comments, and then we'll launch right in.

Yes. I'll be very brief because I want to get to your questions and your questions. But I feel really good about where we are, our strong performance. We came off a strong year, had a very strong first quarter. April and May have continued to be what we think are going to be very good months for us. From a product perspective, all of our production issues from last year are behind us. And so our Ultium based vehicles are flowing. We're almost done with the month of May, and this is going to be a very important month for our Ultium-based products. We think -- from a Cadillac LYRIQ perspective, we'll be north of 2,500 units; from a Blazer perspective, north of 2,000. We're seeing strong Hummers flowing and really excited that the Equinox EV is just starting to hit the showrooms. So I think we're going to have a very strong -- I mean we think about Blazer and Equinox, especially they're right in that heart of that affordable price, we can talk more about that. Also, I think we have a very strong ICE portfolio. And we're seeing our prices hold with low incentives. So when I look at how we're doing in the market, yes, there's still a lot of change, but we're really trying to be very deliberate and very agile as we manage the business. But from a performance perspective and from getting the year off to a good start, I'm very pleased.

Great. I'll remind everybody that we've got this tool called Pigeonhole, there's a QR code on your agenda. If you want to submit questions, they'll pop up here on my screen. But maybe, Mary, we can start, and I'll say, if you compared to 12 months ago, what are the 2 or 3 things that have changed most visibly to you as you think about your business?

Well, I think one is an industry issue. I think a year ago today, we were seeing really strong EV growth. I think we all know that the growth of EVs has slowed, and we never expected it to be linear. And I think that was very rational. The consumer is very rational. And they're looking for EVs that meet all their needs. They're looking for EVs that are at the right price points, depending on what they're looking for. And they're also watching to make sure there's a robust charging infrastructure. But I think how people thought about EV demand from a year has changed. From a GM perspective, I think it's been a very positive change because we did a lot of work last year. We learned from some of the challenges we have. We're past the module issue. Those are flowing. So our Ultium-based vehicles are flowing. At that same time, about -- just over a year ago now, Mike Abbott had joined. And although Mike had to step away for health reasons, he built in the time he was at GM an incredibly strong team. That are all still there and really made a lot of changes to our software development process and our software validation process. So some of the issues we saw earlier in the year with the Blazer, One of the things we learned because they were issues happening with a handful of our customers. But one of the things we saw is that with the variation of EV charging with all the different providers of EV charging, we needed to harden our software to make sure that they worked on every charger. And that's something that we've pushed across our entire EV portfolio. So I think we're very well positioned with some of our challenges behind and we're just accelerating. I think though, we -- you will see us be very disciplined, as we've demonstrated already in our ICE portfolio, we will be disciplined and we won't overbuild so we can maintain our price and the value of our products and our residuals, you'll see us do the same with EVs.

When you are on notification, I mean, what changes to the Ultium platform, if any, are you envisioning through that slowdown? And how flexible is the platform? And what do you need to do in the business to kind of build on what you've done so far?

So the Ultium platform, fundamentally, we just continue to roll that out as we scaled it up and scaled up our module capability. So cells are flowing, modules are flowing, packs are flowing and whether it's the size we need for an Equinox or the size we need for a Hummer Or a Silverado EV, we're well positioned doing that. We're continuing -- GM is one of the few traditional OEMs that we actually do battery R&D as well. And in our Warren campus, we actually have the ability to prototype and do that work with partners and some work on our own or with universities. So we're going to continue to work on improving the energy density and taking the cost out. Ultium is chemistry agnostic. So with our Cell Plant 1 that's up and running in Ohio, and our Cell Plant 2 that is scaling on time in Tennessee. And we have further cell plants that will scale up as we need demand. We'd always want to stay one cell ahead as opposed to one cell behind, but we'll continue to do that. But as we do that, we're going to continue to say how do we improve the technology to take cost out. So I think that's the benefit that Ultium affords us.

What are the opportunities to take cost out of EV kind of beyond the battery pack, if you think about the whole car. You touched on affordability just a moment ago. How do we get to that affordable EV?

So I think those of you who know me know, I have a strong manufacturing background so I love taking costs out. I mean, I know part of the business, you got to work on the top side and the bottom side. But I think right now, with what we've learned with winning with simplicity across our ICE portfolio and our EV portfolio, we can still -- there's still plenty of opportunity to take cost out. We already said this year alone, we'll save $200 million in our engineering expense simply because of what we've done with winning with simplicity. And what that means is less free flow options, having tighter trim packages, maybe not as many trim packages. But it actually is something that is really important for the consumer because they are much clear on what they're buying. We aren't giving them so much complexity that they get through the order process and they are on step 8 and going, they know what they need to do. So haven't seen any impact at all from a consumer perspective. And that is then if you start early enough in the process, you save on what's being designed, what's being engineered, what's being sourced, what's being planned for the manufacturing floor. If you have too many options coming line side, you've got kitting and sequencing off site or in a different part of the plant that adds cost to the dealer complexity, it's easier for the dealer individual or as we present our offer online for the consumer to understand all the way to -- from a customer care and after sales, we have less parts that we have to stock. So again, with -- I just talked about one of those buckets with the $200 million we saw the savings this year, and as we get and we now adhere to this, and it's being led by Mark Reuss who I think is the best car person in the industry from his knowledge across all aspects of ICE and EV. He's personally championed this through the company, and we know we've got more cost to take out. I would also say we're Obviously, when you talk about artificial intelligence. I think the ultimate application of that is autonomy is our Cruise operations that use machine learning and AI. But there's a lot that we're working on to leverage AI in some of the business process to take cost and complexity out of what we do. So I'm excited about the cost opportunities that we have in front of us, and it's important because we're in a super competitive industry.

If you look at the Equinox EV, for example, how big is the cost difference to an ICE car today?

Well, we don't talk about individual vehicle line profitability on, for the most part, on ICE or EV. But I think when we look at the value proposition that we have on the Equinox, I felt very good. We've talked about from an EV portfolio perspective, will be variable profit positive in the second half of this year and be it to low mid-single digit EV profitability next year. That is including IRA, but then we won't stop. We'll continue to take cost out. So I think we're well positioned with our portfolio, and we look at every product that has to earn its way over its life cycle.

And if you think about the opportunities in battery pack cost out for the car and then maybe also looking towards suppliers what they need to do? How do you think -- what's the magnitude of those buckets as you think about EVs in, I know, 4, 5, 6 years.

Well, one of the things we're doing, and I'm very pleased with the results that we just saw from the latest supplier survey, I think we were the high -- we're #3. And I think that's kind of where we want to be. But we're going in and working with our suppliers. And I regularly meet with our supply base as they get together. And we have quarterly calls with the entire supply base over 20,000 suppliers that support General Motors of bringing their best ideas to us so we can take cost out. And I think when we have a strong relationship, and we're looking at instead of I need better price from you but how do we work together, what are your Ideas? What are my ideas. Let's take cost out and we both benefit from it. I think we're seeing the benefits of that as well. So clearly, the supply base -- and it's almost each one is a different story depending on are they something that's impacted by the propulsion change or is a C2C2C kind of thing. And we're looking for changes and improvements in cost across all.

Maybe turning a little bit to sideshow of electrification, hybrids have been more in the news, have been more in focus on consumers, do you think that's a technology that's going to stick around? Is that something you need to look at for the U.S. market particularly?

We've had hybrids in the U.S. market in the past. We have hybrids right now in China. So we understand hybrids really well. Our plan is to be very focused. And we've announced that in the 2017 time frame, we'll have plug-in hybrids, we're choosing plug-ins because we think they're better from a consumer perspective. But also when you look at the regulatory environment and with what's just been approved and the way the curve, '27 is the year where the curve starts to steepen so we think we're going to be well positioned with the hybrids. We haven't announced which product lines we're adding PHEVs to, but we think we have a very solid plan. But even this year with EVs, a lot of EVs that are out right now, there's people -- if you buy one of those, you've had to give up something, whether it's range, whether it's performance, et cetera. And the EVs we're launching right now, and even if we see much slower growth as some of the EVs that are out there, people are going to be replacing, we think we have a huge opportunity. We're seeing great, as I mentioned, interest in the LYRIQ, the Blazer, I think that's going to continue. But we do see hybrids because of the regulatory changes be a part of it. But let's remember with a hybrid, you have 2 propulsion systems on that vehicle. And it's not the end game because it's not zero emission. So we're trying to be very smart with how we do that and how we deploy capital there, but be prepared and have the flexibility to meet the customer where they're at.

And one of the other issues in electrification, you talked about charging already. Where do you see -- how do you see that developing? I think the industry thought that large capital will be flowing in and kind of other providers will be solving this for the consumer that hasn't happened. And so how do you think that side of the value proposition develops?

Well, I think it is developing, I think, some of the early startups that were in the space when you think about EVgo and ChargePoint and there's a number of others, they've really got to work on it. It's not only getting the charger there, you got to make sure it works all the time. And so I think there's a lot of effort going on from that perspective. So I think that's all positive. And we're working with the charging startups to really help them and make sure they understand their reliability and dependability, we also are working with Pilot Flying J. And again, those are just coming online. And Pilot Flying J has coverage across the United States from an interstate perspective. And the beauty of doing that at Pilot Flying J is there's something for the person to do while they're charging. And these chargers are going to be attended to that we're going to know immediately if there's an issue. So I think that's going to be something positive. IIJA, the Bipartisan Infrastructure bill. So you think about it, like, well, that was a long time ago. The very first charger that hit the -- was activated was last December. But now that money is flowing in the states we're able to apply. So those charges are going to come online. We've also been working with our dealers in local communities because they know best where the locations they think charging should be so that's something that's growing as well. And then finally, GM in the not-too-distant future, we're going to have access to the Tesla charging network as many are, and then GM is 1 of 6 OEMs that's part of Iona that is also looking at how do we scale up charging. So I think there's things we can do to support it in a very capital-light way.

Maybe to round out the electrification topic. Could you talk about the joint ventures you have on the battery side? How does that work? And what's the capacity you're shooting for?

Well, I would say, we want to make sure we're tracking that. I mean, we have a very good partner with LG and others that we're in discussions with right now. But I say LG is our partner on battery Cell Plant 1, 2 and 3. 1 is running well, up to speed actually with great quality and strong performance. 2 is on track in SpringHill, Tennessee. And right now, we're looking at what's the right timing from a Plant 3 perspective to match because we want to make sure we deploy the capital in a responsive way, but we're ready for the consumer adoption because we never expected it to be linear.

And if you look at what you have in Plant 1 and the cost of the battery pack that's ultimately coming out of it, how does that compare to some of the best-in-class, which you see in China right now? How far off kind of is that cost point right now?

Well, I mean I think there's a lot of factors that are in play there. I think we're -- as we scaled, we're seeing our costs come down and with -- in the United States with the manufacturing tax credit, I think we're probably best positioned for anyone who's building cells in this country are right up there. I think you have to look from a China perspective, especially what's happened from a tariff perspective. It depends on what country you're putting in. But clearly, they've got a scale advantage, and that's work that we have to do. There's a lot of talk about LFP right now, and we have announced that we'll use LFP chemistry in -- as we bring the Bolt back online next year. But I think there's still a lot of work to do on improving cell chemistry and getting overall battery cost down. We're working on that as we're trying to make sure we have supply chain resiliency, not only in -- we choose to purchase batteries where they're coming from in addition to the cells that we're making, but also the battery raw material. Because we know right now, every EV has a pathway somewhere in their supply -- battery supply chain that flows through China.

Maybe turning a little bit of the page and thinking about the markets you're in. For the next 5 years, where would you say there are priorities in U.S., in China and then in the smaller countries, rest of world, and how are they different?

Well, clearly, we saw more vehicles in the United States than anyone else. We have the highest customer loyalty. We have the highest quality as rated by J.D. Power. So I think we're very strong here. We think we will be disciplined. We will not overproduce and then have to incent and destroy our residuals, but I think we've been demonstrating that for several years now and actually as you look at our performance before COVID to now, we're even more disciplined that we're lower from an incentive perspective than the industry average. And we're seeing the strength of our products, even when others are heavily discounting good examples in full-size truck over this last couple of months, we grew share. So I think we're well positioned in the U.S. I think as we roll out our EV portfolio, people are going to see, we've got strong EVs. We have a very strategic portfolio across luxury, across trucks and affordability that we're going to have a nice selection for consumers, and they're going to be, I think, very delighted with our EVs as they see that they're not giving up anything to be able to drive an EV, and they've got beautiful design, instant torque, et cetera. So I feel we're really well positioned, and there's so much being said right now about -- I never thought necessarily the propulsion system of a vehicle would be political. But we're well positioned either way because we've got a strong internal combustion engine portfolio and a strong ICE portfolio. So I think we're well positioned in the U.S., and we have a lot of opportunity as you questioned earlier to continue to take cost out to strengthen our position. Already with every ICE vehicle, as we launch a new ICE vehicle, it is more profitable than one that we replaced because of all the cost work that we're doing, not only from a piece cost and a material cost and a vehicle design perspective, but also from our structural cost. We are on track for the $2 billion what we said at the beginning of last year, we take out by the end of this year. And again, we see more opportunities to pull as I've mentioned before. Next, let me go to South America. We are #1 or #2 in many South American markets and in most South America markets, Chevy is considered a premium brand or it's a top brand. So we have a strong -- so we know there's a lot changing in some of those countries with the China OEMs entering. But we think with the strategies that we're employing, we're well positioned. We're watching that carefully. So I think we still have the opportunity to be -- remain very strong as we look at the South American market. Similarly, for the Middle East, there's strength in that market as well. And in Europe, we're just growing into it, and we're going in, in a very asset-light primarily EV way. There's a lot of, I'll say, change happening not only in the transformation to EVs, but also what's happening with how the Chinese OEMs and how they're being received. And I think there's a lot of conversation going on across Europe and different opinions country to country. So we're watching that carefully. But we're very nimble and very capital light in the way that we've gone into Europe. And then finally, China. China is a really interesting market right now. It has, to me -- there's been a seismic shift as the move from ICE to EV has changed. It really has enabled and right now, there's over 100 domestic EV producers in China. But many of them, most of them, there's only a handful that are profitable. So at some point that has to sort. I think the government is looking and there's -- it's public that there's those that are being subsidized so they're picking their winners. But I would also say from our business, I think we could have managed better the EV transition. I didn't think we had the right EVs in the right segments. We're working through that now with our partner, and we have more work to do. But I think there's a place for us to play in China, especially at the premium and the luxury segment. And we're going to continue to make sure we get that business right and get that back to profitability.

What are the steps you need to take or what's missing in China at this point in time to really get back to that position.

Well, I think, again, if you look at what's happening in China, it's not sustainable because it's kind of a price war circling to the bottom. That's not -- no one's going to win in that scenario. It's got to stabilize, but then it's clear you're going to compete. A cost is still going to be very important. And you're going to need to compete with the domestic OEMs. So that's the work that we're doing with our partner there in our 2 JVs. We also have Durant Guild, which is where we'll be exporting direct with some of our premium products. And so I think we're positioned. But again, I don't want to get out in front of the work that our partner, but we're doing work together to make sure we can compete as appropriate.

And what impact do you think the China overcapacity, I think different numbers, but around about 50 million production units, maybe 25 million to 30 million in local demand. What do you think that does to kind of the global landscape?

I mean, I think anytime in any industry, you have that kind of overcapacity, it's not great. And I think that's going to have to be rightsized at some point. And when you look at most companies, most auto companies are required to drive profitability, I think we've got to look at that. I've always said give us a level-playing field. If you give GM a level-playing field, we'll compete based on the strength of our brand, the strength of our design, our products, our quality, et cetera, but cost is going to be important. So I think we've got to stay diligent. I take the Chinese competitors, especially the top ones very seriously. We've got to continue to take cost out so we can compete successfully, and that's what we're doing.

Maybe your view on consolidation, but not in China. If you think about the industry in the U.S., but also Europe, there's a spread of the OEMs. We have some who are performing better on a cost basis and some lagging behind. Do you think there's going to be kind of more consolidation? Or will we continue to see the players we have in the markets right now?

Well, first of all, in China, there has -- I don't know if it's consolidation as much as there will be, some Chinese OEM that go away. But I think that absolutely has to happen. I think this industry -- one of the things that's frustrated me, especially now being in this role for 10 years, there's many more opportunities where OEMs can collaborate and reduce at a minimum, your R&D or your engineering expense, there's a lot of aspects of a vehicle that the customer just wants it to work. It's not a distinguisher. I don't buy a vehicle for its HVAC system. I want it to work. Blow cold air at the right amount of time and blow hot air at the -- I mean, but I'm not going to compete on that. And I think there's things, especially as you look at hybrids and you look at -- as we look at ICE engines are going to exist around the world for a long period of time. But how do we do that more economically. So I think there's opportunities to partner. I think when you look at a lot of OEMs, the traditional OEMs, there's a lot of ties to from a government perspective, many are government -- personally government-owned or -- and also they're important to the different countries that they operate in from a jobs perspective. So I think we're very open to looking for opportunities to continue to take cost out. I think we've had a good partnership with Honda for many years now that we've collaborated on fuel cells, on autonomous, on battery electric. They've leveraged our LTM platform. And so I think those type of opportunities with other OEMs, we are certainly very open to. I don't have anything to announce today. But I think we're very open to how we can take cost down. And I think it's going to be an important part of that equation to compete globally.

I mean 1 example that springs to mind immediately is kind of the Renault, Geely, Volvo drivetrain joint venture, where they're taking...

I'm sorry which one?

The Renault, Volvo, Geely, drivetrain joint venture, where they're creating kind of a joint powertrain unit. Do you think it's easier for an OEM to collaborate kind of globally with partners that are quite distinct? Or could you also see an opportunity collaborating here in the U.S.?