GENERAL_MOTORS_GM Earningcall Transcript Of Q2 of 2024

Paul A. Jacobson -- Executive Vice President, Chief Financial Officer

Thank you, Mary, and I appreciate you all joining us this morning. Our second-quarter results
were driven by ongoing strong performance from our ICE business and stable pricing across the

portfolio that once again outperformed our guidance assumptions for the quarter. And I'm
pleased to share that pricing has remained relatively consistent thus far into July. As Mary
mentioned, sales have been robust.

We launched our new mid-sized SUVs supporting stable pricing and generating stronger profit
margins than preceding models. Highlighting our focus on profitable growth, recent JD Power
data showed that our U.S. Incentive GAAP compared to the industry average is expanding. In the
second quarter we ran roughly 150 basis points below the industry.

While at the same time our U.S. retail market share increased by 70 basis points, more than
offsetting the lower fleet volume to rental companies. Our EV portfolio is gaining momentum. In
the second quarter, our U.S.

EV deliveries were up 34% sequentially from the first quarter, driven by the Chevrolet Blazer EV
and the Cadillac LYRIQ. And moving forward, we'll also benefit from the Chevrolet Equinox EV,
which delivers more than 300 miles of range and will be sub $30,000 after factoring in the
consumer tax credit. On capital allocation, we repurchased $1 billion of stock in the quarter,
retiring another 22 million shares. And in early July, completed the prior $5 billion stock
authorization.

We ended the quarter with a fully diluted share count of $1.14 billion, a reduction of 18% from a
year ago. The open market share repurchases supplement the ongoing $10 billion ASR that is
projected to be completed in the fourth quarter of this year, bringing our share count down to 1.1
billion. As a reminder, on the ASR, we paid the $10 billion upfront in December of last year and
immediately retired 215 million shares. In the first quarter, the first tranche was completed and
we retired another 4 million shares.

In the second quarter, no additional shares were retired under the ASR as the banks continued to
cover their positions in the 215 million shares they borrowed at the outset of the program. In the
fourth quarter, we expect to retire another 20 million to 30 million shares depending on several
factors, including the average share price during that period, bringing the total number of shares
retired under the ASR to around 250 million. On top of these measures, last month the board
authorized an additional $6 billion for share repurchases. Considering our belief that GM's share
price is still undervalued, you should expect us to remain active in future share repurchases,
continuing the great progress we have made toward our goal of driving our share count below 1
billion outstanding.

Getting into the second-quarter results, revenue was up 7% to $48 billion driven by higher
wholesale volumes and stable pricing in North America. We achieved $4.4 billion in EBIT
adjusted, 9.3% EBIT adjusted margins, and $3.06 in EPS diluted adjusted. Recall that in 2023 we
had inventory valuation adjustments of $1.7 billion for battery cell and EV finished goods

inventory. We expected the allowance to be substantially lower in 2024 as we improve EV
profitability and reduce our inventory levels.

We made good progress in these areas during the second quarter and therefore reduced about
$300 million of the allowance. And our guidance includes a similar benefit in both the third and
fourth quarters, totaling around a $1 billion benefit for the full year. We achieved adjusted
automotive free cash flow of $5.3 billion during the second quarter, similar to last year and
driven by our strong core operating performance coupled with our capital discipline. North
America delivered second-quarter EBIT adjusted margins of 10.9%, which resulted in $4.4 billion
of EBIT adjusted, up $1.2 billion year over year.

This was driven by higher wholesale volumes, stable pricing, ongoing cost containment, EV
valuation allowance benefit, and a non-recurrence of the $700 million LG expense that we took
last year. Pricing for the quarter was up $300 million year over year and better than what we
assumed in our guidance, supported by new products like the Chevrolet Traverse. Moreover, our
HD pickups and full-size SUVs continue to drive robust demand, while maintaining low
incentives. We also benefited from our fixed cost reduction program, realizing $100 million from
lower marketing spend, compared to last year.

We remain on track to achieve $2 billion of net fixed-cost savings by the end of 2024. Dealer
inventory levels ended the quarter at 66 days. This is temporarily above where we were tracking
earlier in June, as we believe some sales for dealers using the CDK platform were delayed until
the third quarter. We will continue to monitor our inventory and adjust production as necessary
to maintain our targeted inventory levels of 50 days to 60 days.

GM International second-quarter EBIT adjusted was $50 million, down $200 million year over
year. China equity income was a loss of $100 million, down $200 million year over year. Mary
already touched on the difficult China market and the immediate steps we have taken with our
JV partner to return it to profitability as soon as possible. EBIT adjusted in GM International
excluding China equity income was $150 million, flat year over year, but improved more than $50
million sequentially from the first quarter.

GM Financial has consistently performed well with second-quarter EBT adjusted of $800 million,
up $50 million year over year and tracking in the range of $2.75 billion to $3 billion for the full
year. They continued to drive portfolio growth and paid a $450 million dividend to GM during the
quarter. Cruise expenses were $450 million in the quarter, down $150 million from a year ago,
reflecting a reduction in operational activities and a technology improvement focus intended to
meet the high-performance bar expected for AVs. We're very conscious of spend while at the
same time efficiently expanding operations across Phoenix, Dallas, and Houston.

In addition, Mary explained how utilizing the next generation of the Chevrolet Bolt EV will aid in
scaling our robo-taxi business to create a more cost-effective and scalable option. However, the
decision to pause the production of Cruise, Origin triggered a charge of roughly $600 million,
which we recorded as a special item in the second quarter. Let's move now to our updated
guidance. Given the positive momentum we've seen thus far and our confidence in the rest of
the year, we are raising full-year 2024 guidance to EBIT adjusted in the $13 billion to $15 billion
range, EPS diluted adjusted in the $9.50 to $10.50 per share range, and adjusted automotive free
cash flow in the $9.5 billion to $11.5 billion range.

Our cash flow guidance increases larger than our EBIT increase, primarily due to production
alignment to market demand and further working capital benefits over the balance of the year.
I'd also like to address why the implied second-half EBIT adjusted is around $2.5 billion lower at
the midpoint of our guidance range, compared to the first half. There are three main reasons.
First, we are assuming a bigger pricing headwind.

Our guidance assumes pricing to be down 1% to 1.5 year over year in the second half versus
essentially flat in the first half, which is a substantial improvement from where we started the
year. Second, roughly $1 billion of costs are second-half weighted. This includes about $400
million higher marketing spend to support more launches in the back half of the year. The
remainder is related to higher commodity prices, particularly copper and aluminum, and the
timing of other EV costs, which we do not anticipate to be ongoing.

Third, EV volumes are expected to build sequentially every quarter to achieve our full-year target
of 200,000 to 250,000. We produced and wholesale 75,000 GM Ultium EVs in the first half of the
year, and expect this number to accelerate as we launch and ramp our new vehicles. As a result,
mix will be a bigger headwind in the back half of the year, as EVs have a variable profit lower
than the portfolio average. We continue to monitor EV demand and inventory levels very closely.

We acknowledge that Ultium wholesales outpaced customer deliveries by about 2% to 1% for
the first half of the year. This however is common when introducing a new vehicle given the
need to build availability, options, and customer awareness. As time goes on, if customer
deliveries were to continue lagging wholesales, we will take proactive steps to balance
production levels. The last item on EVs is that I'm pleased to report that we are making good
progress toward achieving vehicle variable profit on our EV portfolio in the fourth quarter.

Key drivers to reach this goal include improved manufacturing scale and efficiencies, including
module and pack assembly; reduce cell costs from improved scale and performance at our
Ultium cells JV, including working through our inventory of cells produced with higher battery
raw materials. This has helped reduce our average cell cost by roughly $30 a kilowatt hour,
sequentially from the first quarter, and we expect further improvements in the second half of the
year. And finally, improved vehicle mix as we scale our electric full-size trucks and SUVs. In

closing, we are committed to maintaining the strong financial performance we accomplished in
the first half of the year and consistently adhering to our capital allocation framework.

It is underpinned by a focus on cost containment, capital efficiency, and agility in navigating the
complexities of our business. We are differentiating ourselves from our peers with superior
product offerings and improving execution. We are market leaders in the truck and full-size SUV
segments. Growing market share in affordable SUVs and our refreshed mid-size SUVs are some
of the fastest-growing vehicles in the segment, while yielding higher profitability than the
preceding models.

At the same time, we are growing and improving profitability on our EV portfolio, along with
developing a world-class software organization and making steady progress at Cruise. As
always, our customers and their safety will be at the center of everything we do and is
fundamental to our continued success. This concludes our opening comments and we'll now
move to the Q&A portion of the call.

Questions & Answers: