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Hampered by chips, other deficits, GM profit shrinks 40% in Q2

DETROIT – General Motors’ second-quarter net income fell 40 percent from a year earlier as shortages of computer chips and parts hampered factory production and cut the company’s U.S. sales by more than 15 percent.

The Detroit automaker earned $1.67 billion from April to June, in part because it couldn’t deliver 95,000 vehicles in the quarter because they were built without one part or another. Last year, it made $2.79 billion.

The company reported adjusted earnings of $1.14 per share, missing Wall Street expectations of $1.27. Revenue was $35.76 billion for the quarter, beating estimates of $33.9 billion, according to FactSet.

Like other automakers, GM has been forced to slow its factories since late 2020 largely because of a global shortage of semiconductors.

Despite the profit drop, GM kept its full-year net income forecast steady between $9.6 billion and $11.2 billion. The company still expects pretax revenue of $13 billion to $15 billion.

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“This confidence comes from our expectation that GM’s global production and wholesale shipments will grow sharply in the second half,” Chief Executive Mary Barra said in a letter to shareholders on Tuesday.

Still, Barra said there are concerns about economic conditions, so GM is taking steps to manage costs, including cutting discretionary spending and limiting hiring to critical positions needed to support growth. “We have also modeled many downside scenarios and are prepared to take deliberate action when and if necessary,” Barra said.

GM shares fell 3% before the first bell on Tuesday. Other automakers outpaced broader market declines.

Chief Financial Officer Paul Jacobson said the company has already begun clearing vehicles that were built without some components, and still expects dealer sales to rise 25 percent to 30 percent over last year. “We’re feeling pretty good and we feel like we’re on track to have the year that we set out to have,” he told reporters.

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GM earned $2.3 billion before taxes in North America, its most profitable market, down 21 percent from a year earlier. The company said strong demand combined with reduced production continues to limit dealer inventory. During the quarter, the company had only a 10- to 15-day supply of vehicles on dealer lots, it said.

In normal times, automakers liked to have 60-day supplies at dealers, but that could change as they try to shift to a business model of more customers ordering vehicles.

The company reported a $100 million loss in capital gains in the quarter from its joint venture in China, largely driven by a pandemic-related lockdown. But GM said production began to recover in June.

The company’s liquidity, measured by cash and available credit lines, fell more than 10% year-to-date to $33 billion.

Jacobson said the cash burn was temporary, much of it caused by the spending schedule in the second quarter, including increased capital investment. The company started the quarter thinking it would produce more vehicles than it did, he said. “Essentially all of these vehicles will come back in the second half,” he said, adding that demand remains strong.

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Also Tuesday, GM announced it has commitments for all the raw materials needed to meet its goal of building 1 million electric vehicles a year by the end of 2025.

The company also said it has a deal with LG Chem to supply nickel, cobalt, manganese and aluminum to make cathodes for electric vehicle batteries. LG Chem will supply over 950,000 tonnes of material over the next eight years. The two companies will explore a cathode material manufacturing facility in North America by the end of 2025, it said in a statement.

GM also announced a contract with Livent to supply lithium hydroxide for brine batteries in South America for a six-year period beginning in 2025. The Philadelphia company’s lithium will also be used in cathodes.

Cathodes are the negative terminal of the battery.

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Hampered by chips, other deficits, GM profit shrinks 40% in Q2

Source link Hampered by chips, other deficits, GM profit shrinks 40% in Q2

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