General Motors Company (GM) Earnings Call Transcript & Summary

Thanks for coming. I'm Ryan Brinkman, the U.S. automotive equity research analyst at JPMorgan. Very excited to get going with our next presentation, which is with the Executive Vice President and Chief Financial Officer of General Motors, Paul Jacobson. Paul is going to walk us through a slide presentation, and then we'll engage in a fireside chat.

Thank you, Ryan. Well, good morning, everybody, and thank you for taking the time today. It's been, I believe, more than 10 years since GM has done a public presentation in Europe. So we thought we'd actually take this opportunity to talk a little bit about what's changed maybe since you attended the last one first for some of you in the room or for those of you that may have studied it in business school when you were younger across the board. But super excited to be here, and I want to thank Ryan and the JPMorgan team for allowing us to come into this conference. By way of introduction, for those that may not know a little bit of my background, I spent many years coming to this conference as the Chief Financial Officer at Delta and came to be one of my favorite conferences to attend. And -- so we're delighted to be back here and share a little bit about the GM story for those of you that may not be as familiar as what we've done over the last decade. So I want to thank you for coming, and thank you for the time. I don't usually even stand up in a podium to do this, but we thought it was such a really good resilient story that we wanted to make sure we get it out. Of course, the presentation is going to be subject to our safe harbor statement if we change it. There we go. All the risk factors, et cetera, are in our public statements and public findings. So I want to talk about what is different because a lot of people will look at automakers or sometimes they're called legacy automakers and think that this is a tired dinosaur that is gone by the wayside and being replaced by new entrants across the board with a lot of pressure. But the reality is this is a business that still very much benefits from scale economies and where we are. But what we've done over the last decade is really to make us structurally better. So if you think about the history of this business, it really has been focused on selling that incremental vehicle, high labor cost, high capital intensity, high manufacturing costs. If you can squeeze one more unit out of it and sell it for a marginal profit, you ultimately win in the end. I can tell you from a long history in an industry that suffered from some of the same challenges and behaviors of looking at marginal revenues, we've gotten much more optimized and much structurally better. And we'll talk about how we did that through a number of initiatives that you see on the page here, including restructuring our global businesses. All these businesses were underperforming. And as a result of it, focused not on quantity of sales but rather quality of sales across the board. We have exercised significantly greater discipline in the business, and that is one of the most powerful driving forces, I think, for the U.S. auto industry, but more importantly, for what GM has been able to do to differentiate ourselves. And I think you'll be surprised about how that is. We remain #1 in large pickups and SUVs in the U.S., which is a tremendous accomplishment and obviously an incredibly lucrative business line for us and for everybody that participates in it. We've regrown a large captive finance company that ultimately gives us the ability to withstand shocks to the economy when banks may not be lending in vehicles as much as they traditionally would like to or they're not willing to take that risk. It's not just an engine for us to continue to sell vehicles in those challenging circumstances. It's also an engine that drives loyalty for us with our GM Financial customers being among the most loyal GM participants across the board. We, of course, as always, and what we need to continue to do going forward, focused on a leaner cost structure. We're taking fixed costs out of the business. We're driving more efficiency across the enterprise, and there's surely more of that to come over time. And then lastly, our balance sheet is light years ahead of where we were just 10 years ago. So we're not here to predict a recession, only to say that one will come one day. We know that. But we're going to be far more resilient going through it than what we've seen before as a result of many of these steps that we've taken across the board. So what does that mean? Actually our EBIT, notwithstanding some of the shocks that we've seen globally, is up more than 40% over the last decade. And I'll tell you later that it's much, much more efficient in terms of what we've been able to generate. You'll see that the North America business has actually grown by over $8 billion over that time period. In fact, the revenue we're generating in North America is more than we generated as a consolidated global enterprise back in 2015. But importantly, the quality of sales is much better. So despite the fact that the China business isn't what it used to be and likely never will be what it used to be, we're still profitable there, and we're doing it with far more capital efficiency after our restructuring of last year than what we've done before. So it's still a great accretive piece of business to us going forward. But you can see that ultimately, we're much, much more resilient than what we've been. So how did this start? It really started 10 years ago with the tenure of Mary Barra. And when I first met Mary about 5 years ago today, as I was interviewing to take this role, I was really impressed with what she did out of the gate and what she's been willing to do, which is make the hard decisions. It is really hard to sit back and assess where the business is and close manufacturing facilities and pare back and scale back underperforming businesses. But that's exactly what she and the team did when she took over. And as a result of that, we are more focused. We're more concentrated than we've been historically, but we're actually much, much more efficient than what we've been. So we divested the Opel and Vauxhall businesses. We exited Europe, primarily because we had massive manufacturing complex, massive headcount and footprint here that just wasn't going to be sustainable for the type of market share that we could generate. Interestingly, we are attempting to come back into Europe over time, but we're doing it in a much, much more disciplined way, capital efficient, setting up distribution offices, but really sort of legging our way in with our electric vehicle portfolio where we can, but being disciplined about it and not realizing and setting up a significant amount of fixed costs and capital requirements going forward. We phased out sales and manufacturing facilities in Southeast Asia. We exited India. We wound down Holden. All of these operations were additive to the quantity, not additive to the quality of our earnings going forward. So you can see in the bottom of this page, while we have become more concentrated, actually, we're generating -- in 2024, we generated $157 billion in North America on the revenue standpoint and have actually restructured the international business to improve it by $2 billion annually over the last 10 years. So despite the fact that our wholesale volumes are down 30%, our revenues are up 25% instead focusing, like I said, about the quality of earnings. And we're continuing to strategically look at international opportunities as they might come our way. I hinted in the original page -- the starting page about the discipline and how powerful that is. And I want to spend a minute talking about that because not only do I think we are more disciplined leading to better quality earnings, I think this page highlights some of the biggest resiliency improvements that we've seen. We're not going to take the cycles out of the business. But what we are going to do and what we, I believe, have done successfully is taken out the self-imposed cyclicality in the business. So if you rewind and think about what we've done over the last 10 years, historically, the company would keep over 90 days, almost over 100 days of inventory on the ground at dealers. Customers would walk into dealerships. They'd see a number of vehicles on the lot. They'd choose one that best met their standards and what they were looking for. But the reality was that involved a lot of carrying cost of inventory, but it also required heavy discounting and low to those who would face a recession with that type of inventory balance because with demand waning just at the time you have maybe 4 months of inventory out there, your only answer to meet the production demands -- or supply and production was to discount and discount heavily. So what would inevitably happen as demand was slowing, discounts were increasing on this revaluation of this entire inventory pool out there, often leading to draws on working capital in excess of $5 billion to $7 billion at the time that the company could least afford it. So fast forward to today, we've got targeted inventory levels of 50 to 60 days. So it's probably the greatest lesson that we learned through COVID and through the chip shortage is that inventory discipline can yield better financial results and believe it or not, better customer satisfaction. Because what customers are saying today is I am comfortable waiting a couple of weeks to get the vehicle that has everything on it that I want. And that is a far better situation for us to be in than what we were before where we would have to induce that sale of a vehicle on the lot because we didn't meet 100% of what their needs were, and we would give a discount to the dealers in order to sell that vehicle going forward. So the net result of this is not only our inventory levels down, but also our incentive levels are down. We have the second lowest incentives in the industry, and we look a lot more like Toyota than we look about some of our traditional counterparts. But importantly, if you look at the bottom of that page, look at what incentive levels have done since the last 10 years, and you see that stark decline coming out of the lessons learned of COVID and the chip crisis, and we've stayed there. So that means that the revaluation of the inventory, should we face a downturn is going to be billions of dollars less than what we've seen historically when you're running at a 10% to 11% incentive level across the board. But this lower incentives is worth $3.5 billion of annualized EBIT across the board, and that's cash that flows straight to the bottom line and ultimately through to the cash flow statement with our capital discipline philosophy. Not all of our competitors have adopted this philosophy. And in fact, we have faced pressure from heavy discounting from some of our main competitors over time, but we haven't wavered from this strategy. And as a result of that, we've managed to hold on to this revenue premium that we've gotten versus the industry. At the same time over the last several years, we have gained market share. So that is previously unheard of in the business, and it speaks to the quality and the performance of our vehicle portfolio that is winning customers over despite the fact that we've got premium pricing. That is the recipe for success and far greater and far more sustainable than going through and just cutting costs and ultimately having to pass that through back to customers and dealers because we don't maintain the inventory discipline. We talked a little bit about large pickups and large SUVs. This obviously remains a bellwether in the U.S. industry. And we have a disproportionately large share of this business. And it's one that has been remarkably resilient. In fact, many analysts felt like coming out of the inflation cycle over the last couple of years and higher interest rates that we'd actually see contraction in this business, but we haven't. We've seen pricing stability. We've seen people continuing to demand higher and higher trim levels and packages and get into premium pricing, and we've continued to sustain that. This is going to be really important for us as we see the regulatory environment shifting in the U.S., and I'll talk about EVs a little later in the presentation. We are not abandoning EVs by any sense. In fact, we think that they're going to continue to be a growing part of the equation, although it might be slower than where we were just a couple of years ago because of that regulatory environment. But we're going to keep this portfolio fresh, and it's going to continue to drive the cash flow that we need to continue to invest in the structural improvements that we need to make to EVs going forward. I talked a little bit about the captive finance company. This is an important tool for us. As I mentioned, not just providing sustainability through a cycle as bank lending starts to pull back in a downturn, we can be there to meet the customer where they are. But also, we have a leg up on loyalty. With the relationship that we set up with our customers, we know that they are significantly more likely to buy a GM vehicle at the end of their lease or their loan versus somebody who finances with a third-party company. And you can see we've more than doubled our earning assets since 2015. And this has been a remarkable company under the leadership of Dan Berce, who has just retired, but with Susan Sheffield running the company now, feel very comfortable with where GM Financial is going to be and doing it in a way that is disciplined so that we're not extending credit to people that we shouldn't or to challenge credits, but ultimately driving that high-quality, high relationship-based credit availability going forward. It wouldn't be a finance presentation if we didn't talk about leaner cost structure. But I want to make sure that we stress that this isn't the GM of old. One of the things before taking on this role, I spent time looking through the history books. And GM has been a remarkably financially disciplined company over the years historically. But the problem is when you take a finance-centric view, the tendency tends to be to overfocus on cost reduction. Now you can make the cheapest, most efficient vehicle on the planet. And if you build a vehicle that doesn't have the content that customers want and they don't buy it, it doesn't matter how efficient you are. We have to focus not just on cost discipline, but actually redeploying cost savings into those features and into that content that customers want and are willing to pay for. And that's where you see the real advantage, I think, of what we've done over the last several years is we've gone after fixed cost. In fact, if you look at our fixed costs, they remained relatively flat despite all that revenue growth that you've seen going forward. But we're able to redeploy some of those cost efficiencies into the vehicle to improve both quality and content to make the vehicles more desirable. That pays back in the form of the revenue premium that we talked about before. So while we've seen and these presentations in the states tend to be much more focused on this quarter or this week or God forbid even this day or this month of what's going on in the short run. But we're focused on making sure that we sustain the success, and that means investing in our products. Increasingly, we'll have to use AI tools to make sure that we reduce our fixed costs to drive that efficiency in the business that we can. But we can never ever go and get cost savings out of removing content and removing features from the vehicle. It's going to be more efficient to put them in when we get into software-defined vehicles and we start to get a presence there, but we can't fall into the trap of ultimately cutting back. So we've been focused on doing these cost reductions the right way. And I think we're going to continue to do that, and I think there's additional benefits going forward. Probably the most stark difference from the last time we were here is our balance sheet. And you can see how much improvement that we've seen. Not only have we brought debt down, but we have -- we're almost completely fully funded in our pension as well. We've improved that by more than 80% from where we were before. So the large draws on cash flow at the time that we can least afford them is what is driving a lot of that consistency in our performance going forward, which is also going to help us withstand any shocks that we see to the system, whether it be regulatory like through tariffs or ultimately through an economic downturn. We have the balance sheet strength and the fortress now that we need to be able to fund innovation to be able to maintain cash return to shareholders or take advantage of strategic opportunities that might come our way. And in fact, we've continued to do that this year, in fact, paying down $1.25 billion of debt with cash that was maturing in October. We just paid it down early under the call provisions that we had in that note, further demonstrating our commitment to this balance sheet even as we are actively returning capital to shareholders. So it's one thing to drive cash flow and durable cash flow into the business. But the most important thing is what do you do with it when you raise it. We take a philosophy of capital discipline that's really driven by 2 main variables. Number one is the simple one. That's affordability. Can you afford to spend the capital that you have? And the reality is we're generating well over $20 billion in operating cash flow and have for the last few years. We're adjusting to tariffs, and I think that will rectify itself over time as we're able to adjust the business to that new reality. But the fact is we could afford to spend a lot more on capital than we do now. We're spending $10 billion to $11 billion this year. We're going to spend $10 billion to $12 billion in '26 and '27 to accomplish some of the re-footprinting that we need to do to adjust our business and bring onshore more domestic production. But we can do that in a disciplined way. And a lot of questions that we get are, can we return back to the $8 billion, $7 billion that we spent over the last decade on average? And the answer is I don't think we have to. First of all, if you look at inflation adjustment from the years of $8 billion, that's the same and the equivalent of about $10 billion nowadays. So $10 billion to $11 billion is actually on a real basis, pretty similar to what we spent historically despite the fact that we're generating significantly more operating cash. But that brings us to the second variable in determining what the right capital budget is. And that is what can you deploy effectively? So while we could afford to invest more capital, in order to do that, we would have to hire more engineers, more supply chain people, acquire more real estate, spend more on logistics, spend more on warehouse space, et cetera, to accomplish all of this. And we don't want and we don't believe we can afford that fixed cost burden that comes with deploying that capital and ultimately, the margin compression that will result, which is why we've settled on $10 billion to $12 billion, and we think we can do that effectively while maintaining a quality vehicle portfolio for our customers. And that's what the most important piece is. Oftentimes, and I've had the privilege of being CFO for more than a decade, I never want to work for a company that runs out of ideas, but I never also want to work for a company that tries to employ and implement every single one of those ideas. You can't do it. You can't spread yourself that thin. You can't deploy capital as effectively as when you do it in a tactical and strategic prioritized manner. So what that's allowed us to do is actually be much more shareholder-friendly and return capital to shareholders. In fact, we've retired more than 30% of our shares outstanding in the last 3 years. That's what we mean by commitment to returning capital to shareholders. That hasn't been without its criticism, but it is, in fact, the owner's money. And when we don't have deployment opportunities to grow that money on behalf of our shareholders, we have an obligation and a duty to return it to them, and that's what we've done. We've seen some multiple movement. And as Ashish and I were talking the other day, we take great pleasure in the fact that our free cash flow yield is down to 13% because it's been at 20% for the last couple of years. And what that tells you is people are starting to understand. We don't earn the type of valuation overnight. We took decades to do that, and you see that type of low value multiple, et cetera. But just a few years after deploying many of these tactics that we have in terms of driving the business for cash flow and returning that cash flow to shareholders, we're starting to see that multiple expansion. And we've broken out of that traditional range that we've been in, in the 10 years since the IPO. And the last 5 years has obviously been significantly better than that. That capital allocation framework is something we're committed to invest in the business. That has to be first, maintain a healthy balance sheet. We've done that. And as I've demonstrated, a much stronger balance sheet than what we've seen over the last 10 years. And third, allocate capital back to shareholders. We're doing that with a low dividend, but we're focused and we'll remain focused on retiring shares at these low valuation rates as long as we can continue to do so. And so you look at our proven execution, it's revenue growth, it's EBIT growth, it's margin expansion. And yes, this year, we're going to see some margin compression with $4 billion to $5 billion of tariffs hitting us. But as we've said, we think we can get 30% of that offset through a number of initiatives, including go-to-market strategies, re-footprinting as we talked about, as well as cost efficiencies and taking fixed costs out of the business. As we expect tariffs to normalize and as we see the U.S. entering into new trade deals as it has with Europe, with Japan, with Korea, although that's not finalized yet. And ultimately, we believe with Mexico and Canada, we should see stability in the tariff environment, but we expect that we'll keep the self-help that we've generated going forward, ultimately bringing down and compacting that net tariff exposure going forward and allowing us to work our way back up to 8% to 10% margins in North America over the coming months and years going forward. So we're really well positioned to be able to withstand this and ultimately adjust, but it really comes down to being nimble. How do we focus on these forces that hit us from time to time, whether it be a pandemic or whether it be a supply chain challenge or whether it be tariffs, how do we just really focus and adjust our business? The next one of those is really EVs. We've seen a massive seismic shift in EV demand, EV regulatory environment, et cetera, over the last 5 years and perhaps no greater change than what we've seen really in the last 8 to 12 months going forward. We're coming from an administration that was really focused on electric vehicle penetration such that there were large consumer incentives in place to get customers to buy them, but that was backed by a regulatory framework that was extremely punitive if the demand didn't reach the standards that were set. Those standards were 50% EV penetration in the U.S. by 2030. Last year, EV penetration sat at about 7%. So we were facing a regulatory crisis. And as a result, you've seen a lot of pricing pressure in the U.S., heavy discounting by both domestic and import players because they weren't building an electric vehicle franchise. What was really happening in the industry was they were buying compliance credits to make sure that at the end of the day, we didn't face the punitive GHG penalties that were coming our way in the world where we didn't sell 50% electric vehicles. With the Trump administration coming in, they have said we're going to scale that back. Not eliminate it, but they're going to go back to probably a standard that looks a lot more like what the standard looked like in the first Trump administration, where we have serial achievable GHG improvement year after year. And ultimately, combining the removal of consumer incentives, which will occur in just a couple of weeks, but also combining that with the end of the regulatory framework that was putting us in a box that would have ultimately resulted in significantly smaller U.S. auto industry because we wouldn't have been permitted to sell the internal combustion engine vehicles at anywhere near the volume we would have sold them without selling the EVs that we found customers weren't adopting at the rate that the government wanted. So what does this mean for us? We've invested heavily in a platform, and the platform of electric vehicles has been very successful for us with consumers. We achieved the #2 status in the U.S. with the Chevrolet brand alone as the #2 player. Cadillac is the #1 luxury EV player, and we solidified ourselves as the #2 player in the U.S. EV market to Tesla. Now as we have said, we haven't been able to do that profitably yet. The journey to profitability was heavily driven by scale. And the reality is we're probably going to scale up much slower now over the next few years. But we're in a position now where we have the opportunity to deploy the capital into electric vehicles not to proliferate the portfolio, but rather to focus on structural cost reductions within EVs. So you've seen recently, we've announced a new battery chemistry, lithium manganese-rich, which has essentially the cost profile that looks like LFP with the energy density of the high nickel that we're used to. And when you look at combining that not just at the cell level, but all the way to the pack level, there are savings of several thousand dollars per vehicle while not sacrificing or reducing the customer range that people want going forward in order to continue to want electric vehicles. We're also deploying capital on a new electric vehicle architecture. This will make a significant seismic shift in the profitability per vehicle. And we're going to be able to do that on lower volumes in the short run as we rightsize to customer demand and where we go forward. And ultimately, as I've said, we believe EVs are a winning formula for the U.S. consumer over time. And we can get there by giving consumers the products that they want that meet their range needs and their charging speed and the charging infrastructure. For how much is made about the administration's is often reported war on electric vehicles in the U.S. That really isn't true because one of the things that the administration is continuing to do is actually invest in the charging infrastructure. We know this is one of the biggest obstacles to further adoption is the range anxiety and the availability of charging. But the government is continuing to invest in that. And with us adopting the North America charging standard, we believe that there's an opportunity here to significantly improve the charging capabilities of our vehicles going forward for customers and ultimately continuing to grow our share. But it will be a little bit choppy. We've seen a pull ahead in EV demand in the last several weeks because if anybody is contemplating an electric vehicle purchase in the U.S., they're probably going to do it before September 30 in order to capture that $7,500 tax credit. So we're going to see some noise in October and November, and I expect that EV demand is going to drop off pretty precipitously. We need to give it time. We need to let it settle and understand where is that natural demand going and how do we meet that natural demand and ultimately try to lead customers to electric vehicles. That's going to take a little bit of time. We'll probably have to adjust our footprint a little bit, but we're committed to meeting customers where they are and leading them with the portfolio that we've built in electric vehicles that we do believe will be successful for both the intermediate and the long term as well. So to close, I think we're a very different General Motors than the last time that my predecessors presented here in Europe and one that we're incredibly proud of, but one that I think makes the company significantly more investable than where we've been at any time in the last decade. And I learned early on in my finance days, but worked under some pretty stellar leaders as I learned how to be a CFO. But the one thing that is tried and true from every CFO over time is that cash is king. And when you run the business for cash flow and you're disciplined with that cash flow, good things happen. And that's what we've seen over the last several years with our story and one in which we hope and we endeavor to continue for the foreseeable future. So thank you for your time. And Ryan, I'll turn it over to you for Q&A.

Great. Thanks so much, Paul, for that presentation. I thought to start at the highest level possible. To ask you as the CFO of one of the companies, the S&P 500, with the most amount of revenue domestically in the United States, what your latest thoughts are with regard to the economy since the investors in the room have an odd mixture of apprehension about a slowdown, jobs market revision, et cetera. At the same time, a lot of animal spirits and optimism around rate cuts. What are you seeing in terms of the traffic at your dealership, the retail sales, the latest? And also, too, don't you have a lot of insight into the thinking and forward planning of small, medium, large business owners and fleet operators, your commercial sales operations. Curious what you're seeing on that side of the house as well.

Well, the consumer has been remarkably resilient. And I think as we've talked about over the last few years, there have been a lot of reasons to believe that we were at peak cycle and it was going to come down, whether it was the inflationary cycle that we saw taking money out of people's pockets. It was higher interest rates, increasing monthly auto loan payments by $200 from where they were at the lows. It was industry pricing, et cetera. But the consumer has been remarkably resilient, and we've seen that continue with our vehicles. I think one of the most interesting things, and I touched on it in the presentation, is that nobody would have believed with less inventory and customers waiting for vehicles that customer satisfaction would be up. But that's exactly what we see. The dealers see it in their scores as well. So this has continued. And I think there are opportunities for easing of interest rates to take off some of that affordability burden. But I think time is going to tell on this one. But I think what we'll find is that perhaps the peak wasn't as peaky as it traditionally has been because of affordability concerns. Because traditionally, if we were looking at peak cycle, we would be looking at demand sets in the U.S. of 17 million, approaching 18 million units. We've really been trending around that 16 million to 16.5 million unit mark. And that could be because we've shrunk that because of some affordability concerns. But what we've proven since COVID is whether it was a 14.5 million unit industry, a 15 million unit industry or now around 16 million, we can be remarkably well performing through that time period. And I think those adjustments have helped. So the theory potentially is that by taking off the peak of the peak, the bottom is actually significantly more stable than what we would have traditionally seen. And I think, unfortunately, it's probably going to take a downturn to prove that out over time. But all we can do is just be as resilient as possible. But we haven't seen any signs that there's any weakness or fatigue among consumers right now.

You highlighted the success you've had in electric vehicles in the U.S. this year. Your sales are up substantially, doubling. Tesla sales are down over the same time. Back to the -- I think it was the November '22 Investor Day in New York. I thought it was maybe overly optimistic at the time, you were talking about, hey, EVs are going to be additive to our business because they're on the coasts and it's not going to take away. I'm just curious with the -- I mean in one of your recent months, I think 31% of Cadillac sales were electric, right? Are you seeing any evidence in terms of the trade-ins, et cetera, that people are trading in Teslas for Cadillacs? Or how are you gaining share on that side of the business and not losing share on the ICE side?

Well, we did set out to do that a couple of years ago, and we talked about how our portfolio would be accretive. It's not that somebody would buy a GM electric vehicle at the expense of a GM ICE vehicle that they would have otherwise purchased because when you see the penetration of the vehicles that we produce on the coast, as you mentioned, we were significantly underpenetrated. So this gave us an opportunity to go into markets and see some success that we hadn't traditionally been in. And that's been true. At the same time, we've gained share in our EV portfolio, we've also gained share in our ICE portfolio at the time, and that speaks to the quality of the portfolio that we have overall. And I think as we've talked about, again, many people have speculated that we can't keep that revenue premium that we've generated, but we've done it through a period where we had one competitor that had significant late model year carryover and they did some heavy discounting. We didn't match them, and we picked up share. We had another competitor that had a significant blood of inventory that they had to work through and much was written about how that was going to be the end of the disciplined incentives. We didn't change our incentives. We picked up share. So it's that discipline that I really hand to the go-to-market team and the commercial team in North America to be able to focus on our supply and our demand as a way to actually drive that more efficient pricing and ultimately, consumer behavior that we've been able to do, and it's really worked well for us.

Yes. And you can see that the reduced EV incentives are going to be a headwind for EV profitability. But what about the tailwind to profitability from less ICE engine regulation? Ford's CEO recently stated he thought this could be a multibillion-dollar opportunity over just the next 2 years. What is the latest that is happening there, do you think? And what are the milestones that investors should be watching for? And how could they start to think about sizing the opportunity? Is it as simple as paring back the -- I think you spent $3.5 billion on purchasing credits from other automakers since 2022. Is it the savings in the credit expenditure? Or are there other benefits like maybe you'll sell a richer mix of vehicles sold or maybe you have a higher share in that part of the market or maybe you can -- there'll be maybe more rational pricing for EVs. What do you think the implication is going forward for you there?

Well, I think when I started, a lot was being written about the death of the internal combustion engine and how that franchise should be valued at 0 and everything should be EVs. And certain analysts reversed that very quickly and said, well, it's not about EVs, it's about ICE. But the one thing that this means is that the ICE tail is now fatter and longer than anybody ever thought it was going to be under the regulatory environment before. But you're not going to get there without making some investment because many people were phasing out ICE vehicles in anticipation of having to get to 50% EVs by 2030. So there's going to be some refreshing that has to be done. But the reality is that, that is going to be a much bigger cash flow engine than I think anybody has thought historically. So I think that's net good for us going forward. We never really talked about the regulatory burden on ICE vehicles until it became extreme with the last regulatory environment. But the reality is while this is a negative for electric vehicle profitability because the credit stream that was worth thousands of dollars when you sold an EV and everybody benefited from it and Tesla has had periods where that was the only source of profitability with selling those credits, those are now going to be essentially worth 0 depending on what the administration does with GHG. But while it's negative for our EV profitability, it's accretive for the enterprise because we sell far more vehicles that were subject to needing those credits. And as you mentioned, we've spent billions of dollars buying credits. That was only going to go up over time as we saw that stringency curve increase over the rest of the years of the decade. And that's now potentially not going to be there. That's an opportunity savings, but also the savings within the baseline profitability of what we'll see because what we would do is we would buy credits and then we would amortize those over time. So we do expect -- assuming all of this carries through, we do expect some EBIT accretion as a result of not amortizing those credits into the P&L anymore.

Now after tariffs came out, and we learned it was a $4 billion to $5 billion headwind, and that was really just the 3 quarters of the year. I don't think investors were all that confident you could get back to 8% to 10% margin in North America with that big headwind and yet you've outlined your plan to do just that. And I don't think you've put a year on it, but within a couple of years, I think, is what you might be thinking about. And just building on your last statement about how it's net accretive to the business, the reduced EV incentives and the reduced ICE penalties, could there be even a scenario where you don't just get back to 8% to 10%, maybe you do even better than you targeted pre-tariff because you get back to 8% to 10% on the restructuring, on the in-sourcing, the resourcing, the pricing. And then you can add this net tailwind from ICE and EV regulation changes. Is that possible?

Well, I mean, I think it's certainly in the future, and we haven't even talked about the software opportunity that exists, but we've highlighted $4 billion of deferred revenue that sits on the balance sheet today from Super Cruise and OnStar that's continuing to grow and expand over time. And we are well on our way to hitting those goals that we ultimately crafted back in 2021. We're not going to hit it by 2030, but we're on track to be able to hit it subsequently after that as a result of software-defined vehicles. So it's not just structurally within the business. It's also ultimately evolving to that digital franchise that we've been talking about, and we're much closer to that. So as we think about this journey, in the coming couple of years, I think there is regulatory tailwind. I think there is an opportunity to reduce our fixed costs even more than what we've done. That can be a tailwind. We're achieving this despite the fact that we've seen significant increases in our powertrain and warranty -- policy and warranty expense. Hopefully, and with the work that we're doing to improve the quality and reduce the cost of those warranty repairs, we crest over that. We could see some tailwind there. I talked about in the presentation, the opportunity to improve EV profitability. There's a lot of things that are working for us right now that ultimately are not just margin accretive, but we think cash accretive to the business as well. So we've got our sights set on going beyond that. It's too soon to call that because as I've learned in this business, lots of things happen. And perhaps the best advice I got when I was talking to friends and colleagues about this opportunity, somebody once told me, be careful because you can't sneeze at General Motors without it costing $1 billion. And it's true. This is an expensive business, but it also means that there are sizable opportunities ahead of us, too, with that operating leverage that we're driving in the business. And I'm pretty excited about what that holds.

I'd love to get your thoughts on the robotaxi market, the market for personal autonomy. Obviously, a lot of headlines right now with Waymo scaling with Tesla scaling, albeit with the driver still in the car. But you've charted a separate course, what you're calling personal autonomy. There was a company at our conference last month, Faraday Future, kind of hitting on some of the same themes saying that to make a truly safe, truly capable autonomous vehicle with all the sense of redundancy that is required, that it really is not economical over the foreseeable future to scale robotaxis, but there's a better chance that we could make progress nearer term in the luxury market where people are willing to pay more for that. And just thinking -- obviously, we've got a great strategy with Super Cruise, but beyond Super Cruise, the really autonomous vehicle, what is the time frame you're thinking about there? Why is that more attractive at least for General Motors than robotaxi?

Yes. So we were actually on the leading edge of autonomy back in 2016 when we purchased Cruise. And that team did a lot of great work in advancing the technology and the practicality of getting vehicles out on the road. When we made the decision to wind up Cruise and ultimately bring it in, it wasn't a decision that was based on autonomy. It was based on robotaxi. And the reason for that is we saw a, call it, $10 billion to $15 billion capital need to build that robotaxi business to get it to breakeven and something that we didn't see was sustainable with our cost of capital and some of our capital constraints. We went to the market. We looked and we found people that were willing to invest, but they were only willing to invest subject to our continued investment. And as a result of that, we ultimately said it's probably not the highest and best use of our capital to fund a robotaxi business, but let's take that technology and find a way to put it into our vehicles. So we're mapping out an evolution to go from L2+ in Super Cruise to L3 to L4 over time for our customers. And we think that, that's something that's much more achievable than us funding a robotaxi business. So those tech companies that have the benefit of a much higher valuation, a much lower cost of equity are free to continue to go build that business. And maybe one day, we can play a part in it as a supplier or ultimately, maybe even a technology supplier to them because we do have a lot of expertise. And with Sterling Anderson coming on board, he's done a great job of sort of harnessing all of that and articulating a vision that is rallying a lot of people behind it. So we're excited about what it can bring and what it can mean for our customers in the future.

Okay. Great. Well, with that, we are out of time. So please join me in thanking Paul for all the great color and insight.

Thank you, Ryan.