GM Undershoots Estimates on Chip Dearth, Lifts 2021 Outlook

(Bloomberg) -- General Motors Co. missed analysts’ profit estimates for the latest quarter but raised its full-year guidance as rich margins on pickups vied with nagging production cuts at its North American factories from a global semiconductor shortage.

Soaring new-vehicle prices on high-margin pickups couldn’t make up for supply chain issues in the second quarter and expenses related to battery fires on its Chevrolet Bolt electric vehicle. But GM remained optimistic about its full-year earnings prospects, boosting its 2021 forecast Wednesday after signaling in June it would hit the high-end of its previous guidance.

The Detroit automaker reported adjusted earnings per share of $1.97 for the second quarter, below the $2.08 a share analyst consensus forecast compiled by Bloomberg. That compares to a 50 cents a share adjusted loss a year ago while in the grips of the pandemic and the 13 cents a share archrival Ford Motor Co. posted last week for the latest quarter.

“GM had a very strong Q2 and first half of the year,” Chief Executive Officer Mary Barra said on a call with journalists. “We continue to find creative ways to manage the semiconductor shortage and are putting long-term solutions in place to enhance our supply chain.”

Shares of GM fell 3.7% in premarket trading to $55.73 as of 8:45 a.m. in New York. The stock had gained 39% this year as of the close Tuesday.

Chip Shortfall

GM and other automakers have struggled to keep plants open due to shortfalls in chip supplies. That has forced them to limit production and see inventories dwindle. Barra said GM has just 25 days of inventory in the U.S., about one-third of its normal stock of cars and trucks. It has tried to prioritize chips for its highest-margin vehicles, but hasn’t been able to shield them entirely.

In the latest sign of supply chain stress, GM said Tuesday output of its Chevrolet Silverado and GMC Sierra full-size pickups -- which it sold a combined 237,000 of last quarter -- would be affected by another round of temporary factory closures in Michigan and Mexico through Aug. 16.

Barra told reporters that GM is working to prevent a recurrence of the shortfall and expressed confidence the scramble for chips will ease -- but didn’t provide any specific timeline.

“We’re also working on long-term solutions. And it won’t be an issue as we move forward over a little bit longer period of time,” she said.

Record Prices

Record average transaction prices for new vehicles is helping to pump up profits. GM’s average new vehicle transaction price in July rose 9% from a year earlier -- almost double the industry average of 4.8% -- to an estimated $44,749, according to market researcher TrueCar.

The automaker now expects adjusted earnings before interest and taxes of $11.5 billion to $13 billion for all of 2021, which translates to adjusted earnings of $5.40 to $6.40 per share. That compares to an earlier projection for $10 billion to $11 billion, or $4.50 to $5.25 a share.

In the latest quarter, GM earned most of its profit in North America, which accounted for $2.89 billion in adjusted earnings before interest and taxes. Its home market margin grew to a healthy 10.3%.

But GM said it had to spend $800 million on a recall issued late last month for almost 69,000 Chevy Bolts due to the risk of fires from defective batteries made by South Korea’s LG Chem Ltd.

Profit in China, the world’s largest car market, rose to $276 million in the quarter, compared to $169 million a year ago. That marked an improvement but is still less than the $500 million a quarter GM used to make in China before the pandemic hit.

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