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GM’s profits suffering from chip and other shortages fell 40% in second quarter – wake-up call

Detroit — General Motors’ second-quarter net profit fell 40% year-over-year as a shortage of computer chips and components disrupted factory production, pushing the company’s US sales by more than 15%.

Detroit carmakers generated $ 1.67 billion in revenue from April to June. This is partly because we couldn’t deliver 95,000 vehicles due to the lack of parts. A year ago, it earned $ 2.79 billion.

The company said it was preparing for a recession, but stuck to previous full-year earnings forecasts.

Unlike Wal-Mart, which lowered its one-year profit outlook on Monday and said consumers were cutting discretionary spending, GM said demand for cars remained strong.

“Currently, we can’t make enough full-size trucks and SUVs,” CEO Mary Barra told analysts on Tuesday. “Many of these vehicles are waiting for you.”

And even when disgusting demand began to decline, Barra said GM still had to build more inventories towards normal levels. When automakers were targeting 60 days, the company only supplies dealer lots for 10 to 15 days. Mr. Rose said GM will recover inventories, but will not recover to traditional levels as it is moving further towards a customer order model.

GM expects full-year sales to dealers to increase 25% to 30% over last year as semiconductor supply improves throughout the year through 2023.

However, it is uncertain whether the year will go as planned. Due to financial concerns, Mr. Rose has taken steps to control costs, such as reducing discretionary spending and limiting hiring to key positions needed to support growth. I said there is. “We have also modeled many recession scenarios and are ready to act cautiously when needed,” Barra said in a statement.

Chief Financial Officer Paul Jacobson said the company has already begun removing vehicles manufactured without some components and plans to sell them all by the end of the year.

He said he wouldn’t foresee layoffs like Tesla, Rivian and other automakers because the company was reorganized a few years ago. Crosstown rival Ford is reportedly considering reducing office workers to fund the move to electric vehicles.

Despite the decline in profits, GM has stabilized its full-year net profit forecast between $ 9.6 billion and $ 11.2 billion. The company still expects pre-tax profits of $ 13 to $ 15 billion.

GM shares fell 2.4% in early Tuesday trading.

The company reported adjusted earnings of $ 1.14 per share, below Wall Street’s forecast of $ 1.27. Revenues for the quarter were up 5% to $ 35.76 billion, above the estimated $ 33.9 billion, according to FactSet.

JD Power estimates that the average selling price of new cars in the first half of this year reached nearly $ 45,000, a record 17.5% higher than a year ago.

Like other automakers, GM was forced to slow down its factories from late 2020, primarily due to a global shortage of semiconductors, but GM was hit particularly hard in the second quarter.

GM generated $ 2.3 billion in pre-tax profit in its most profitable market, North America, down 21% from a year ago. According to the company, dealer inventory continues to be limited, coupled with strong demand and production cuts.

The company reported a loss of $ 100 million in equity earnings during the quarter from a joint venture in China, primarily due to a pandemic blockade. But GM said production began to recover in June.

The company’s liquidity, measured in cash and available credit lines, fell by more than 10% from the end of the year to $ 33 billion.

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Jacobson said cash burns are temporary, often due to the timing of spending, including increased capital spending. He said the company started the quarter with the idea that it would produce more vehicles. “In essence, all these vehicles will be back in the second half,” he said.

CFRA analyst Garrett Nelson said more patience is needed before GM shares, which have fallen more than 40% this year, turn the corner.

“We now see that our full-year results have reached the lower end of the guidance because we are suffering from inflation, supply chain problems and lower trading volumes than we were a year ago,” Nelson wrote.

Also on Tuesday, GM announced its commitment to all the raw materials needed to reach its goal of producing one million electric vehicles annually by the end of 2025.

The company also said it has a contract with LG Chem to supply nickel, cobalt, manganese and aluminum to manufacture battery cathodes for electric vehicles. LG Chem will supply over 950,000 tonnes of material over the next eight years. In a statement, the two companies announced that they would investigate cathode material manufacturing facilities in North America by the end of 2025.

GM also announced with Livent a contract to supply battery-grade lithium hydroxide from its South American brine business for six years from 2025. Philadelphia lithium is also used in the cathode.

The cathode is the negative terminal of the battery.

GM’s profits suffering from chip and other shortages fell 40% in second quarter – wake-up call

Source link GM’s profits suffering from chip and other shortages fell 40% in second quarter – wake-up call

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