General Motors Reassesses Profit Outlook Amid UAW Strikes and Slowing EV Growth
Ahead of an impending walkout by the United Auto Workers (UAW) at a crucial plant, General Motors (GM) startled investors by pulling back its profit forecast for 2023. The move came shortly after the automaker announced third-quarter results that surpassed Wall Street expectations.
The targeted factory, located in Arlington, Texas, assembles high-end SUVs such as the Cadillac Escalade and Chevrolet Suburban. Its significance to GM’s bottom line amplifies the potential impact of the UAW walkout. Notably, Shawn Fain, UAW President, initiated the labor action less than four hours post GM’s earnings release.
Strained Relations and Financial Impact
Fain’s decision indicates the union’s intent to leverage GM’s strong performance. They are pressuring the automaker to enhance its contract proposal, which presently offers a 23% wage increase over a span of 4.5 years. Referring to the company’s robust Q3 performance, Fain stated, “It’s time GM workers, and the whole working class, get their fair share.”
As per GM’s earlier estimates, the ongoing strikes by the UAW could result in weekly expenses far exceeding the previously mentioned $200 million. The repercussions of this labor strife, combined with potential escalation in labor costs post-contract negotiation, augmented warranty costs, and an uncertain global financial environment, has compelled GM to reconsider its annual financial objectives set in July.
GM’s Q3 Performance
While the backdrop is dominated by industrial tension and strategic shifts, GM did have positive news in its latest earnings release. Third-quarter results showcased a 5.4% growth in revenue, amounting to $44.1 billion. Net income, however, slipped by 7.3% to $3.06 billion. The adjusted earnings per share, a key metric for analysts, was $2.28. This is an increment from the previous year’s $2.25, partially due to the impact of share buybacks.
GM’s share prices experienced turbulence in early trades, plunging to a three-year low before recovering by roughly 1.5%.
Rethinking Electric Vehicle Strategy
With the growth of electric vehicle (EV) sales decelerating in North America and Tesla, the sector’s leader, exercising caution regarding its growth trajectory, GM is recalibrating its EV roadmap. GM’s CEO, Mary Barra, communicated to stakeholders that the company will prioritize profitability, temporarily sidestepping ambitious sales targets. This includes delaying the launch of select EV models to mitigate costs and scaling back on EV-related expenditures.
In a significant strategic pivot, GM plans to revamp the Chevrolet Bolt EV. The new design will incorporate cost-effective lithium-iron batteries sourced from China, eliminating a prior commitment to invest $5 billion in several entry-level EVs. GM’s Chief Financial Officer, Paul Jacobson, highlighted that the company would no longer emphasize interim production goals, hinting at a shift in strategic focus.
Cost-Cutting Endeavors and Long-Term Outlook
While the company remains committed to its EV mission, it’s taking steps to streamline costs. For instance, a delay in overhauling its Orion Township, Michigan plant, intended for electric pickup production, is projected to save GM $1.5 billion in 2024. Jacobson expressed confidence that such measures would enhance profit margins once production of electric models like the Silverado and GMC Sierra commences.
However, GM has joined other industry peers in appealing to the Biden administration to reconsider aggressive environmental regulations, which aim to elevate EVs to two-thirds of the U.S. market by 2032.
Despite the challenges, GM’s sales in North America appear resilient, with an average selling price of $50,750 per vehicle in the recent quarter. Yet, the quarter’s profits were impeded by higher costs and an increasing emphasis on EVs, suffering a $1.5 billion dent.
Jacobson voiced concerns about potential market challenges, such as rising interest rates and geopolitical tensions in the Middle East. Nevertheless, he highlighted the resilience of the consumer market, pointing to stable transaction prices as evidence.
Robotaxi Venture Expands Amidst Losses
GM’s Cruise robotaxi division reported losses totaling $732 million for the quarter. Despite the figures, GM asserts that these losses align with projections, given the unit’s expansion into 15 cities.
In summary, while GM has shown resilience in its financial performance, challenges loom on the horizon. The ongoing labor disputes, combined with a changing landscape for electric vehicles, necessitate a recalibration of the automaker’s short and long-term strategies.