GM does not meet Wall Street expectations as supply chain challenges profits

General Motors CEO Mary Barra speaks with the media before the start of the 2017 General Motors Annual Shareholders’ Meeting on Tuesday, June 6, 2017 at GM’s global headquarters in Detroit, Michigan.

Photo by John F. Martin for General Motors

General Motors reported second-quarter earnings Tuesday that fell short of Wall Street estimates after the company was unable to ship nearly 100,000 vehicles by the end of the quarter due to a shortage of parts.

But the company maintained its previous earnings guidance for the full year, saying it was confident that it would be able to ramp up production in the second half of 2022. It also confirmed that it maintained an adequate supply of critical battery-related materials to support it. Its electrical plans are in the middle of the decade.

Shares were down nearly 1% in pre-market trading on Tuesday.

Here are the key numbers, compared to Wall Street consensus expectations as compiled by Refinitiv.

  • Adjusted earnings per share: $1.14, versus $1.20 expected and $1.97 in Q2 2021.
  • he won: $35.76 billion, versus $33.58 billion expected and $34.17 billion in Q2 2021.
  • EBIT rate: $2.34 billion, compared to $4.12 billion in the second quarter of 2021.
  • EBIT rate margin: 6.6% compared to 11.2% in the first quarter of 2022 and 12.0% in the second quarter of 2021.

CEO Mary Barra said in a statement that GM has “binding agreements” to secure all of the raw materials related to the batteries it will need to build one million electric vehicles a year in North America by 2025, including “new multi-year agreements” announced Tuesday with Livent Corp. for lithium, and with longtime GM battery partner LG Chem for cathode materials.

Like other global automakers, GM has worked through supply chain disruptions for the past several quarters as the Covid-19 outbreak — and most recently, Russia’s invasion of Ukraine — shuttered factories and wreaked havoc on logistics around the world.

The turmoil has been felt by GM dealers in the US, with stocks still tight. GM said Tuesday that GM dealers in the United States have only had 10 to 15 days of stock in stock over the past year, including during the second quarter. This is much lower than the usual 60 to 90 days before the Covid-19 pandemic.

But GM expects to get more vehicles to its dealers soon. The company told investors on July 1 that it had about 95,000 vehicles with missing components in its inventory. It confirmed Tuesday that it expects to complete and ship those vehicles — many of which are high-margin SUVs — within the next few months.

GM, like most automakers, withholds revenue when a completed vehicle is shipped to dealers, rather than before.

“We’ve been working with smaller volumes due to the semiconductor shortage over the past year, and we’ve had solid results despite those pressures,” Barra said. “There are concerns about economic conditions, sure. That’s why we’re already taking proactive steps to manage costs and cash flow, including reducing discretionary spending and limiting hiring to critical needs and situations that underpin growth.

“We have also modeled several deflationary scenarios and are ready to take deliberate action when and if necessary,” Barra said.

Barra said GM remains confident that it will meet its previous guidance for the full year. The company expects net income of between $9.6 billion and $11.2 billion for 2022.

“This confidence comes from our expectation that global production from GM and wholesale delivery will rise sharply in the second half,” she said.

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