General Motors Company (GM) Earnings Call Transcript & Summary

All right. Good morning, everybody. Thank you so much for joining us for this keynote session with GM as part of Deutsche Bank's Global Automotive Conference. My name is Emmanuel Rosner and I'm the lead U.S. Autos and Auto Technology analyst here at Deutsche Bank. I'm incredibly pleased to be joined by Paul Jacobson, who is the EVP and CFO of the company, to talk about how things are going for the industry and for GM, this morning. GM obviously bought an exciting update this morning as well and we'll talk about it but very much appreciate the support of the Deutsche Bank's -- coming, so thank you so much.

Well, thanks for having us, Emmanuel. Really excited to be here.

So maybe -- just to set the stage, with first, a few initial questions around industry condition and near-term outlook. Can you provide us an update on operating conditions you've seen so far this year? And I guess, so far in Q2?

Yes. Actually, I wanted to -- if you don't mind, make a couple of introductory comments before we jump in. I think some of that will be responsive to what you just asked. So first, just start with the underlying business. When you think about where we've been and how long we've been there, I think one of the measures we've been holding up is, we want to maintain consistent performance. I'm pleased to say that May was a really, really strong month for us. So when you look at, whether you're talking about just vehicle volumes, which I think it was our best month since December of 2020. EV penetration, really strong gains there. But overall, the business is continuing to show that resiliency. In fact, the roughly 1% discount to industry average incentives that we often talk about actually widened in the month of May a little bit, as a sign of our strong continued commercial performance. So we actually now think, as we look at Q2, we actually think Q2's earnings are going to be better than Q1 from that standpoint. So consensus is still trending a little bit lower than that but we feel strong that Q2 is going to be better than Q1 going forward. On the EV side, while a lot is being written about how the growth rate is kind of diminished, we still see really strong performance in the GM portfolio. Cadillac LYRIQ was up over 3,500 vehicles in the month. We saw really good traction with the Blazer EV. And as a result, sold about over 9,500 EVs in North America in the month of May. So despite the fact that we're seeing a little bit of slowing that growth, for our portfolio it's still pretty strong. But given where the retail penetration is, we've gone into the year, I think most prognosticators were thinking that the EV market would be up to about 10% of total autos. We still see it trending kind of around that 8% level. As a result, we've talked before about 200,000 to 300,000 EVs this year, we're actually going to trim that to 200,000 to 250,000. So at the lower end of that, I think it reflects the momentum that we have in the business. Importantly, we said that we would be able to achieve variable profit positive in the portfolio in the low 200s. We think we can still do that. That's probably Q4 more than second half but we still think that, that's an achievable goal going forward. So really making good progress. And as we come to market with the game-changing Equinox EV, which -- that vehicle has over 300 miles of range and with the $7,500 tax credit, comes in below $30,000 at a retail level, I think is a really strong -- good sign of things to come. And then lastly, on capital allocation. No doubt you saw the announcement this morning. We have completed or will complete by the end of June, the last remaining $1.1 billion, which was left after Q1, of our prior share repurchase authorization. And I'm pleased to say that the Board is continuing to lean into our capital allocation policy and the announcement today of another $6 billion program. Keep in mind, this is over and above the $10 billion ASR that we did. So we've been in the market with some open market repurchases already this year as we're working and the banks are continuing to finalize that. So really strong performance. And then lastly, on the Cruise side. We are going to put $850 million into Cruise this month, that will be a, what I would consider to be like a stub financing. So if you understand the way we had funded it before, we wanted them to have a pretty sizable cash balance et cetera, given a lot of the repositioning that we've done and now relaunching, going forward, it's kind of a pay as you go. But this buys us time to continue to pursue our strategic review going through how we're going to think about Cruise's future as they continue to make good progress, getting back to autonomous and full autonomous driving. So more to come on that but that about sums up what I wanted to talk about. It might wipe out a number of your questions. And I'm sorry for that.

I think we can just go home. Thank you so much. Now this has been really great and yes, great to hear in terms of the progress on a lot of these fronts. So let me maybe talk a little bit about -- go back into some of these things. But first, in terms of the environment, what are you seeing in terms of vehicle pricing and incentive trends for you and the industry. At the time you reported Q1, pricing had remained more resilient than your initial assumption, you're now talking about Q2 potentially better than Q1. Is that partly that pricing strength continuing? And more broadly, do you worry about rising inventories at some of your domestic competitors and what it could do to the pricing discipline of this industry?

Yes. I mean well, first of all, at the end of the day, the performance has been very, very consistent. And I think it's been that way for a number of quarters for us. Average transaction prices so far look very similar, if not slightly better than kind of where we were in Q1. And that's why we can say that Q2 is likely going to come in better than Q1 on an EBIT basis. When you look at inventory levels, I think I'm really proud of the way the team has handled the discipline on our side. We've talked about 50 to 60 days of inventory. We ended Q1 with 63 days. which didn't give me a lot of concern. And the reason is, is because we were working through it, getting into a little bit of a seasonally strong period. So at the end of May, we ended with 59 days of inventory. So back into that range and you'll see it kind of ebb and flow over time. But we're making the right decisions with our production to make sure that we can balance the value that we bring to customers. And I think when you look at the industry, I mean, obviously, our competitors have varying levels of inventory. We've seen different levels of incentives in the market. We are just really focused on our customers and what our customers are telling us is the value and the demand for the vehicles is quite strong. We're excited about bringing the Chevy Traverse and the next-generation Equinox. All of these vehicles, like the success that we've seen with the trucks, not only are they coming with new strong demand, they're also more profitable than the prior models that they were replacing and refreshing. So really coming down this evolution in a way that I think matches the customer expectations quite well.

And then just following up on this. So your outlook continues to be, in general, for like 8% to 10% margins in North America across cycles. It's a level you've consistently generated each and every one over the last several years. But this has arguably been possible because your North American business has benefited from really strong pricing, close to $20 billion in gains over the last...

You say that like that's a bad thing.

It's an amazing thing. And which seemingly continues so far. But it's been offsetting almost as large an amount of cost headwinds and inflation that has sort of like happened at the same time. When and if vehicle prices eventually moderate, what levers does GM have to maintain the consistent profitability?

Well, I mean, I think at the end of the day, this is still a very competitive business and one that we haven't shied away from. And you look at the work that we've done on the cost initiatives side. We took $2 billion of net reductions, which is about $3 billion on a run rate cost when you factor in depreciation increases as well. And we said we're not done. We've got to continue to work. I mean we look at the global threats that are out there. The way you can be competitive is make great vehicles at an efficient price. And that means we need to continue to strive for efficiency and the team is focused on that, not just in getting EVs to the profitability levels that we need them to get to but also in the core business as a whole. And I think we've seen the benefit of that. Pricing, there is, some of it -- that's inflation but I think a lot of it is the quality and the demand for our vehicles. That doesn't happen overnight. That happens with a lot of focus and a lot of commitment from our design and engineering teams. And I think we're seeing the benefits of all that work that has been done over the last several years, putting out products that people love.

Yes. Now following this, a very strong Q1 performance of nearly $4 billion in EBIT. Now you're also talking about Q2 being potentially higher than this. But at the time you raised your 2024 guidance by the amount of the beat, essentially about $500 million, which, at the time, again, suggested moderation in earnings for the rest of the year. This would be even more so the case on the back of a strong Q2 performance. What could drive this moderation? And based on current conditions, are there opportunities to sound more positive?

Well, I mean, I think we've tried to sound, I would say, positively measured or measured positive, however, you want to say that, which is, so just at the end of the day, we're focused on running the business month-to-month, quarter-to-quarter and you've seen that in the consistency of the results. We've got a plan for contingencies, which, as we said at the beginning of the year, we've built in our expectations that prices were going to decline 2% to 2.5%. But while I set expectations, that's not really what we were seeing in the market. It was really an assumption for planning because we've got to set an EBIT budget and a capital budget that allows us to achieve what we need to do. We can't end up setting a capital budget that's based on a set of assumptions that don't work. So we naturally built some conservatism in there. We haven't seen that 2% to 2.5% price decline. And that's why in the first quarter, we were able to say. "Look, we can outperform what we said at the beginning of the year because we've got a quarter behind us." So that's the way we're kind of looking at it going forward. Clearly, as we are marching towards profitability in our EV portfolio, that's got a short-term mix impact. So as we continue to ramp up EVs despite the fact that they're improving in their variable profit, it's still a drag on the mix side of the equation. But we're going to continue to work at it and that's what we're focused on doing, is just executing every quarter.

So let's focus a little bit on your EV strategy. You just updated us at the beginning of this conversation that the goal for Ultium production this year will be 200,000 to 250,000 instead of like the 200,000 to 300,000 units that you had targeted before. Can you maybe tell us what drives this? Is it the demand side? Is it the supply side? Obviously, additionally, earlier, you had some issues with the production of the modules, the battery modules. And how is that going right now? And I guess what, what's driving sort of like the change in outlook?

So it's 100% demand driven. So on the supply side, we've overcome the module issues. We were on track to be able to produce, like we said, up to 300,000 vehicles this year. But what we don't want to do is, get in this trap of, I think, the market a few years ago or even more recently than that, had said you've got to produce more EVs, if we're going to ascribe any value to your company. And I think we, as an industry, overproduced. And you've seen a lot of that pricing impacts result from that residual value impacts, et cetera. So while we're focused -- and I think we've done a really good job of maintaining that intermediate and longer-term horizon of where we are and sometimes to the detriment of public sentiment in the short run that we're not producing enough, et cetera. But we've been very consistent about building a platform and growing EVs off of that and being able to do it in a way that meets customer expectations and we can grow into profitability. So that's where we are. But we don't want to end up in a position where we give out a production target and then we just blindly produce and end up with hundreds of thousands of vehicles in inventory because the market is just not there yet. So we think that this is a really good blend of being able to drive the scale benefits that we need but still not get crazy with inventory levels such that we have to start engaging in deep discounting to where customers who have already brought one start to see their residual values suffer. So maintaining that consistency is really important on our journey.

Can you just confirm also this -- you're expecting these positive variable profits from EVs in, I guess, at fourth quarter of this year, at least -- what drives this? So can you unpack that a little bit in terms of -- how much of it comes from volume? How much of it comes from cost? Is this enabled by some of these inventory write-offs that you took at the end of last year in 2023? And then if I can ask you also, looking forward, that goal of like mid-single digit operating margin by 2025, is that still realistic?

We think so. I mean, at the end of the day, this year has been more about scale than anything else. So if you go back to the comments that we made last November, we talked about 60 points of EBIT improvement this year getting to variable profit positive. About 60% of that was driven by scale. So that's principally concentrated in cell plants. So cell plant 1 operating at full capacity this year, cell plant 2, which is coming. As you can fill the infrastructure that we've built already, that's when you're starting to climb up pretty significantly on getting cell costs down, et cetera. So about 60% of that improvement this year is scale driven. And we're still going to get a big chunk of that, which is why we think we can still get to variable profit positive. The second side was about 20% of mix. So we sunset the Chevy Bolt until we bring that back at the end of next year. The Chevy Bolt's prior technology, customers loved it. We couldn't make any money selling them. But we think with the relaunch of the Bolt with LFP chemistry under the Ultium platform, we'll get a vehicle that customers will love, that we can also make profitably. And that's a big step function change from where we were. But because we're selling Ultium and not Bolt, there's another chunk of improvement. That's about 20%. Then the third 20% is really cell costs and materials. So the raw material costs have come down. There's a lag effect hitting us this year because we had so much in inventory coming off some of those module challenges that we had last year and the early part of this year. So as we work through that, that's the composition. Then as we go from '24 to '25, it becomes less about scale and much more about mix and about costs coming down in the overall piece of it. So we feel good about the trajectory we're on right now. I would rather probably that EV demand was a little bit stronger. But as we've seen in our results, it's nothing that we can't work with in the here and now.

I was going to ask you what sort of assumptions we have to make in terms of volume or pricing or cost in order to get to that point of profitability.

So the only thing we've talked about so far is '24 because I want the team laser-focused on getting to variable profit positive because that's the first step, obviously, getting to EBIT positive. So we're continuing to watch that. We haven't talked specifically about '25 volumes. We'll do that as we get into the fall and into our 2025 guidance but really want the team laser-focused on getting to that variable profit mark. And I think that will be a good -- it will be a good step function indication of the progress that we're making in the portfolio.

And you said a big step up is the mix going into next year?

Yes. So next year is really more about product costs and learning and scaling into what we're doing, about applying those lessons learned and bringing in more high-volume entries. So we'll have the Silverado out there in bigger volumes. We'll have the Equinox and the Blazer ramping up versus some of the starts that we've got this year.

So taking a step back, EV demand has been somewhat disappointing. In the U.S., the global EV market seems incredibly competitive with some new EV players rising, especially from China and established global players like yourself in the middle of an EV transition. In this context, what are the key factors that will help GM succeed and be profitable at the same time?

Yes. Well, I don't think of EV demand as disappointing. I think it's just -- it is what it is and that's what we have to manage through. I mean at the end of the day, we're going to win customers over with high-quality vehicles that are really capable, that are stylish in what they're used to. And I think the more vehicles that get out under our platform, the more people are going to see the benefits. And I think you see that in the LYRIQ and in the Blazer as we are ramping those up. So we've got to manage that. But that's where I think the GM story is a little bit undervalued. Well, I think it's significantly undervalued. But I think a little bit is attributed to -- the market doesn't understand the flexibility that we have. So I think when you see EV demand as softening, at the end of the day, we've got an ICE portfolio that's going to probably throw a lot of cash longer than what some people who might have more of an aggressive EV adoption. But if EVs pivot, then ICE may come down but it's -- at the same time our EV profitability is going up. And that's why I think it is so singularly important that we get to variable profit positive and we get to EBIT margin positive because once we do that, then we've got the ultimate flexibility in our levers, where we're not really hurt if at the end of the day, EVs go up and we see that growth because we can make those profitably, too.

Can you talk about your strategy in China? The fastest EV penetration market to be expected for the next decade or so. Can you talk about your EV strategy there specifically? And do you need new or additional partners to succeed in the region?

Well, I think there's no doubt China is challenged. We lost money for the first time in a while, ex pandemic, in the quarter. I think we've struggled to get traction a little bit in Q2. It's probably trending a little bit behind where we thought. But it's something we need to be laser-focused on. But similar to the way we've got to compete in the U.S. and everywhere else in the world is, we got to get our costs down and we've got to make sure we've got a portfolio that works for our customers. So we are focused on that business as we talked about in Q1. We've obviously got some challenges to fix but we're absolutely on it.

And I guess, strategically, though, like when you think you're focused, I mean, is it -- do they need their own separate product? Is it?

No. I think at the end of the day, it's a lot of tactics that inform the strategy going forward. The reality is, we've got vehicles that have struggled. That means we've got to get costs out, et cetera. And I think that's where tactics and strategy really come in as we've got to be competitive in that market.

Now there's quite a bit of regulatory uncertainty surrounding EVs. Recently, the Biden administration rolled out a series of tariffs on batteries as well as some critical materials imported from China. At the same time, the IRA benefits in terms of tax credits for EV buyers, they could potentially be at risk after the upcoming U.S. election. How do you manage all this uncertainty?

Well, I mean, at the end of the day, produce products that customers want and do it profitably. At the end of -- we have said that we support IRA as a bridge to the compliance mandates that public policy has established because we need that to be able to scale up as rapidly as policy has indicated. So we're focused on doing that. But as we've said that while we'll benefit from IRA, we need to be focused on getting to profitability, excluding all of that. And that's why we're aiming to get to parity by the end of the decade, which is what we've talked about before between EV and ICE. That's the important step. So I think it's important for consumers as a matter of helping them on that journey because in the short run, EVs are more expensive, they're more expensive to build than ICE vehicles. They've got lower ownership costs overall in terms of what your monthly spend is. But you've got to help get consumers over that hump. And that's where I think the IRA benefits and the EV tax credits are helpful for consumers in the short run but it's not like we can build an industry that's dependent on that.

Will the tariffs have any material impact on GM?

I don't think so. I mean we've talked about having LFP chemistry in the Bolt. So there's some impact on that project. We're still working through to assess what the final impact is going to be, in terms of how we source and how we build that vehicle. But we're committed to making sure that we can get that vehicle profitable as part of the portfolio. So all things that I think in the ordinary course of business, we've got to manage through, no excuses.

What is GM's strategy with the hybrids? And what is your view of the penetration of this powertrain in the mid- to long term?

So we actually have come out and said that we're going to bring a plug-in hybrid to the market in 2027. We haven't talked about what that is yet. But I think it can be a very effective bridge to compliance. So as we're marching towards these increasing EPA stringency levels, if the consumer isn't ready for full battery electric, bringing an option to them that also qualifies as an EV under the compliance standards is going to be really important for us as a flex lever. And at the end of the day, if we invest the capital in a plug-in hybrid that we ultimately don't need because battery electric has taken off, that's actually okay. But we can end up in a position where we're fully dependent on credits at the end of the decade that might not be there if EV adoption isn't there. So we see plug-in hybrids as a really good tool for us to help bridge to that compliance path depending on where you see demand taking shape.

Let's pivot maybe to Cruise. Your update before and at the start of our conversation was that GM will -- has poured in some money into Cruise this quarter. But I guess, in a way that it's sort of like a bit of a bridge until sort of like more permanent type of solution. I think in Q1, Cruise earned maybe like $700 million or so. So the amount that you're -- I mean, I don't know if there's some seasonality but the amount you're describing, it seems like it's about a quarter's worth of runway, maybe or sort of like a little bit more than that?

Well, they still have cash on their balance sheet today. So we're looking at essentially getting them through the end of this year into Q1. So there was a little bit of seasonality in that. But if you just generally look at that $1.7 billion EBIT level that we've trimmed it down to after pulling $1 billion of expense out that's the run rate and the trajectory that we're on as a general rule. Again, like I said, some quarter-to-quarter mismatch but this is where it puts us. And the team there is doing a really good job. They've got autonomous vehicles back out on the road in Phoenix. We have backup drivers as we continue to build data for the safety case and work proactively with the regulators. And I think the team has executed well. We're in the midst, as we've talked about for a little while, of the strategic review of how do we think about that business going forward because I think the idea that -- 6, 8 months ago, there was a pool of capital available for robotaxi, we've got to earn our way back into that. And right now, we don't have that. So getting momentum back in the business is going to require some capital and we're trying to figure out the best way to provide that.

Yes, I was going to ask you, so it's obviously back on the road, mapping in Phoenix. But in terms of your outlook on how critical is it to the overall GM portfolio, besides I guess, the lack of outside financing, where does it generally fit in terms of GM's success?

I think this is a really important R&D phase. Not just for the notion of robotaxi but ultimately for personal autonomy. And we all know that the next arena of competition in the auto space is really going to be fought over vehicle technology and what that does, whether it's software-defined vehicles or autonomous or Level 2 plus driver assist. We think we've got a leg up. I mean, Cruise, before the incident on October 2, we logged almost 6 million driverless miles. So we've got a really -- had a really good head start. I think as we paused, others have caught up but we haven't stopped. We were still running a lot of simulations. But establishing that credibility by getting vehicles back out on the road and getting them done in an autonomous, fully autonomous again, is where we're aiming to do but we're not going to do that before it's ready. And that's going to be with a heavy sort of oversight from our new sort of regulatory and safety team that's over there.

In terms of the time line on your update -- decision around the strategy for it, now that you've scheduled an Investor Day with a specific date for October, it had been, I think it's been rescheduled a couple of times. Is it fair for investors to assume that by then you would have a Cruise strategy or it's not necessarily related?

Well, I think it's fair for investors to assume whatever they want. It's a free country. But at the end of the day, we'll have more information and be able to demonstrate more progress on Cruise. But we're making sure that just the way we're running the EV portfolio, we're doing it deliberately and methodically and doing with the intermediate and the long term in mind.

Let's talk a little bit about the product for your consumer cars, Super Cruise. Can you talk to us a little bit about the -- what your success is there so far in terms of take rates, where the goals are and the ability to monetize it?

Yes. We're actually seeing some really, really strong increased penetration in Super Cruise now. So we went through a period through the chip crisis where the chips relating to the Super Cruise technology were some of the most heavily impacted. And as we had to prioritize getting vehicles out that ended up slowing down and facing more of an impact than it otherwise might have. But we've gotten a lot of that resolved. And when you look at the penetration of vehicles sold with Super Cruise on it, it's actually seeing some really good improvements and increases going forward. It's still too early in terms of after the subscription period ends, what's the take rate going forward. But we're optimistic based on at least customer acceptance and what we hear from customers about Super Cruise that, that take rate is going to improve as we start to see vehicles coming off their initial subscription.

And then separately on Ultifi and OnStar, so some of your software efforts. How are you currently leveraging that connectivity? Can you remind us what you believe is the opportunity for GM to sell software and subscription?

Yes. So we obviously talked about a multibillion-dollar software enterprise at the end of the decade. I think as you've seen some of the challenges, whether it be with chips or as others have had with software issues and we've had with the Blazer launch, et cetera, we're focused on making sure that we get the vehicles right at the same time that we're building that platform. So it's probably a little bit behind. But the -- I think the promise of what it can be there in terms of connected vehicles and particularly with that OnStar brand and what we've seen in terms of customer acceptance of that, there's still a lot of opportunity there. And as we come out and get closer to Investor Day, we'll be talking more about software as we get to the back half of the year.

But I guess, generally speaking, is it about selling to consumers? Is it tied to ADAS? Is it more for fleet?

I think it's all of that. I think it's -- what can you do with a vehicle that's connected in ways that historically, we haven't been able to participate in the revenue chain. So if you think other than customer care, aftersales parts, et cetera, accessories, we are pretty much out of the picture after the vehicle wholesale, not counting the finance captive, which is obviously a very important piece of the business. But that was our revenue stream. Now with the connected vehicle, we have so much opportunity to interact not only with the purchaser of that vehicle but the second owner and third owner and fourth owner of that vehicle, which is just significant additional revenue opportunity by driving in those connection points, not just physically with the vehicle but also with the customer. And that's what our mission and our mandate is, is to make sure that we can capture some of that addressable market that historically has never been available to us.

Maybe a couple of questions on capital allocation. So when you announced the ASR back last November, that was obviously very well received by the market, $10 billion...

And even shocked if it wasn't.

It is, in a way, it only represented excess cash on the balance sheet, right? Now you're announcing an extra $6 billion, which is presumably sort of like a portion of the free cash flow. What is your framework for returning free cash flow to shareholders on a go-forward basis?

So we're not signing up to any minimums or anything like that. But I think what we've got to do, what we said pretty consistently is, we've got to have a much more regular and serial application of our capital allocation policy. So we haven't changed anything about it. We still invest in the business, $10.5 billion to $11.5 billion of capital is very manageable and it's something that we can execute. #2 is, maintain a strong balance sheet. The balance sheet is quite strong. We've got really good relationships with the rating agencies. And I think the fact that we did a $10 billion ASR in the fall with no rating agency implications at all, in terms of bringing us down or changing our outlook, I think, speaks to the strength of where the balance sheet is. And then the third is returning capital to shareholders. And I don't think we've been very consistent about that and, therefore, investors don't know how to model in, what do I do with free cash flow. So beginning with the $10 billion share repurchase, which, as you mentioned, is really a reflection of the cash that we had generated prior to that. That we had a lot of uncertainty in the business through COVID, through the chips, through the UAW, et cetera, getting all of that resolved and sort of derisking going forward was what paved the way to be able to do that. But as I said at the time, if that was just a one and done transaction, it's gimmicky, it's financial engineering and there's a place for it. But the reality is, how can we consistently apply free cash flow going forward. So at the time we did that, we still had $1.4 billion remaining under our prior authorization. We've now gone through that. So that 1.4% that we just talked about this morning that we had, is already done or will be done by the end of June. And that's where the $6 billion comes in. So that's just the next phase of returning cash back to the shareholders and it represents really continued conviction on the cash generation capabilities of the company going forward.

I guess in terms of capital allocation framework, is there a percentage of free cash flow that you're thinking about for share buybacks? Is it 50%, 70%, 100%, are there any larger priorities than -- or higher priorities than returning cash to shareholders with the free cash flow?

That's a softball question. Our highest priority is shareholder return, in everything we do. But no, on the -- nothing on any specific allocation of free cash flow because we need to have flexibility strategically but consistent return of capital back to shareholders is important. And while we've been leaning heavily into share repurchases, that's really a function of our valuation, we're still valued at a discount to where we were 5 years ago. And it's striking to me that the business which is much, much healthier today than it was 5 or 6 years ago, in a bigger industry is striking that we're valued at a discount to what we've been historically. It's also striking that we're valued at a discount to the industry and many of our peers when we put up the type of consistent results that we have. So I get it. I come from an industry that was pretty heavily discounted in the past and worked hard to try to make sure that we can reverse that trend and get people focused on the value side of the equation, which is a lot of really strong cash -- free cash flow generation even despite the run-up that we have now. I mean we're still talking about 15% to 20% free cash flow yield. So as long as we see that discount, buying back shares, in my view, is superior to a dividend. But we can also, as we did at the end of the year, [indiscernible] the dividend up as our share count goes down. And hopefully, we get into a position where we get a better valuation and a better multiple in which case we can probably lean more into dividend.

Yes. I wasn't going you specifically about valuations but I always feel like it's the investors job to figure it out. But since you're mentioning it, stock being sort of undervalued. There's always this sense that the reason is, investors don't want to put a full multiple in this year's earnings because this year's earnings is not necessarily sustainable in a cyclical industry and with all sorts of other pressure. What can you tell investors? What can you tell the market and why people should take what you expected to earn in 2024, which is obviously incredibly strong and why they shouldn't apply sort of like a discount to this on a go-forward basis? Why is it sustainable?

Well, I will accept that valuation is the investors job. At the end of the day, if our investor -- if our valuation suffered and the management team said, that's not our job, it's your job, I think we'd all be replaced and we probably should. So we take that very, very seriously from that perspective. But I used to say in the prior industry that I was in -- and I think there are a lot of similarities. When you look at the discounts to the market, the discount wasn't earned overnight. It took decades of cyclical -- in a lot of cases, wealth and value destruction over time. So you're not going to earn your way out of that overnight. So I don't expect people to say. "Oh, you should be at an S&P industrial multiple because you've got 4 quarters in a row of really strong performance." That's a journey. We've got to earn our way out of that. And I think one of the ways we do that is we just consistently run the business and get it to a level that can be more counted on. And when we talk about our inventory targets, when you talk about our incentive strategy, when you talk about our margin targets, when you talk about our [indiscernible] and our go-to-market strategies, when you talk about capital discipline, which is, I think, undersold because so many people want to look at where you used to invest $7 billion to $8 billion, now you're investing $10.5 billion to $11.5 billion. Well, #1, inflation adjusted probably takes that $7 billion, $8 billion, to $9 billion to $10 billion and to $10.5 billion to $11.5 billion. We're actually doing it while building a portfolio, investing in ICE, investing in EVs and rebuilding our infrastructure for the long term. I actually think that's pretty good stewardship across the board and we can actually afford to do more. And that's one of the debates I think that corporate finance tends to have across companies is, we're throwing off more than $20 billion of operating cash flow. We could invest more. The problem is, it's not just a question of affordability, you've got to execute. And in order to execute a higher capital budget, we've got to hire more engineers, more planners, more supply chain, acquire more real estate, build more facilities to actually affect that additional capital spend if we're going to deploy it in a way that's going to generate value. That then puts pressure on free cash flow and it puts pressure on margins, et cetera and we can't be competitive. So having that added discipline lever of, I can afford it but what can I deploy effectively, is what's creating all this cash flow and we're able to do that in a way. So I think there's a lot of safety lines built into the performance that if we start to see cyclicality that we can't reduce our costs or throttle back a little bit on production, if we go into a recession, I think there are a lot of levers [Technical Difficulty] is by getting through that consistency. So the downside case in your mind and in the mind of the people that aren't all on board, you take out that sort of really dire circumstance and it brings in a lot of value to the equation because you can more fully recognize what's actually happening in the business.

And that's really helpful. Final one for me. Maybe we'll have some -- a couple of minutes for questions in the room. So yesterday, you announced a date for your upcoming Investor Day. What will be the focus?

So we're really going to be talking about the journey that we're on. So we're going to do it in Spring Hill. So it will be a great opportunity to see not only the Ultium cell plant but a lot of vehicles out there. In Spring Hill we talk about -- a lot is the ability for us to flex between EV and ICE production. It's, I think, a really good example of, if we believe EV adoption is going to soar, we can put more LYRIQs on the line. If it's not, then we can put more XT6s on the line and continue to balance that. And the more nimble that we can be, I think the better our performance is going to be through the cycle. So we'll talk about the EV journey. We'll talk about where we are. We'll talk about Cruise. We'll talk about software, all the things that I think people want to hear about.

Sounds great. I think we have time for 1 or 2 questions in the room, if there are any.

Paul, [indiscernible] Capital. I actually want to just follow up on Emmanuel's question on Cruise and something that you just mentioned. Plan A, obviously, is deployment of EV fleets sometime in the coming years but it might not happen according to some of the industry experts. You mentioned something about leveraging the R&D on a broader perspective. And my impression historically was this was a very separate R&D team with different technology hardware. Is that something that has a Plan B? There's a real return on opportunity here in terms of R&D spending that GM would have ultimately been spending for Level 2 plus moving to Level 3 versus the high-end AV that was being worked on. Is that a -- I don't want to say Plan A is off the table. Maybe it's right around the corner. But is there a real opportunity here to get significant R&D savings that you would have been spending in the next couple of years at GM, if, in fact, that is emerging towards that path.

Well, there's definitely a really strong skill set and unique skill set at Cruise and the team has been doing an amazing job, just seen what -- the progress that they've made on full Level 4 autonomous across the board. We've always said that, that's an expensive solution that we aim to get the cost down. There's 2 ways to attack that problem. One is, take existing technology and try to scale the tech up to keep it low cost. The other is start big, spend money and then work to get the cost down in terms of compute capabilities, et cetera. We've clearly taken that approach as it relates to Cruise, whereas on the Super Cruise side, we'd always traditionally said, okay, let's take a retail platform and try to continue to improve functionality and capability. I think the level of coordination between GM and Cruise is actually at an all-time high. And I think that's a good thing going forward. So I don't want to give the impression that robotaxi isn't something that we think can work down the road, just simply saying that the capital requirements of that in the short to medium term kind of overwhelm where we were. And that's what's causing us to take a little bit of a different strategic look. But absolutely. And that's why Mary and the team bought it in 2016, it's because there are ultimate strong connections into retail vehicles down the road.

Right. Any final questions? You were abundantly clear. Thank you so much for your time and insight today.

Excellent. Thank you, Emmanuel. Thank you, everybody, for being here.