GM Shares Fall as Barra Sees Chip Shortage Lasting Into 2022

(Bloomberg) -- General Motors Co. said it expects the production-snarling semiconductor shortage to last into next year, a view that weighed on its stock price even after reporting better-than-expected earnings for the third quarter.

The automaker on Wednesday reported adjusted earnings per share of $1.52 for the third quarter, above the 97 cents analyst consensus forecast compiled by Bloomberg. That compares to $2.83 a share a year ago.

GM said its full-year guidance would come in at the high end of its forecast, but shares erased early gains after the company indicated a computer chip shortfall that has curbed production for months won’t end anytime soon. The muted outlook for chip supplies also implied the fourth quarter could be weaker than expected.

“It will linger into next year and right now our feeling is that we’ll be in much better shape in the second half of 2022,” Chief Executive Officer Mary Barra said in an interview with Bloomberg Television. 

GM’s shares fell 4.5% to $54.79 as of 9:52 a.m. in New York. The stock had gained 38% this year as of the close on Tuesday.

Higher Vehicle Prices

The flip side of lower production volumes is higher vehicle prices due to depleted inventories. That helped lift GM’s revenue 10% in the first nine months of the year to $93.4 billion.

The upbeat earnings came despite a previously announced 33% drop in sales volume for the quarter, stemming from low production at factories and thin inventory at dealers.

Barra cited pent-up demand for GM’s sport-utility vehicles and trucks, characterizing the chip shortage as a “near-term” issue. She said that GM is working with chipmakers to ensure this type of supply chain glitch isn’t a recurring problem. 

“Our third-quarter 2021 results clearly illustrate the strength of the underlying business that is funding our future, especially when you put them in the context of the calendar year,” Barra said in a letter to shareholders. “As a result, we now believe GM’s full-year results will approach the high end of our guidance.”

The Detroit automaker expects adjusted earnings before interest and taxes of $11.5 billion to $13.5 billion in all of 2021, or $5.70 to $6.70 a share. GM’s results were helped by lending profits and a one-time gain from LG Electronics Inc., which agreed to pay GM $1.9 billion for nearly all of the costs of recalling its Chevy Bolt electric vehicle.

Even though the company raised its earnings target, the new numbers implied that the company will report fourth-quarter pre-tax profit of about $2 billion, which would be below the consensus forecast of $2.6 billion, Credit Suisse said in an analyst note.

GM Financial Shines

A bright spot for the company is GM Financial, the company’s growing lending arm. Profits fell slightly in the quarter since GM sales were down, but for the year its adjusted earnings more than doubled to $3.9 billion.

GM Financial writes the loans for vehicle leases and once they are up, it sells cars at auction to dealers. With used-car prices at record levels, the GM unit was able to profit from the lack of vehicle supply throughout the industry.

Thge automaker’s all-important North American business made half the earnings before interest and taxes that the company brought in a year ago at $2.1 billion. Income from China -- GM’s second-biggest market and the world’s largest -- was slightly better, rising to $270 million from $262 million.

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