GM aims to cut costs further as Q2 profits fall in North America

By Joseph White and Ben Klayman

DETROIT (Reuters) -General Motors lifted its full-year profit guidance on Tuesday, in large part because it plans to invest less in new products and cut operating costs by an additional $1 billion through the end of next year.

But the automaker also said adjusted pre-tax profit and margins in its key North American market fell from the first quarter, despite a jump in revenue and per-vehicle transaction prices.

On a year-to-year basis, GM said net income for the second quarter rose by nearly 52% to $2.6 billion, as revenue grew 25% from the same period in 2022 when production was hobbled by semiconductor shortages.

Shares were down slightly in premarket trade, at $39.17.

The Detroit automaker said it now expects full-year net income of $9.3 billion to $10.7 billion, up from a previous forecast of $8.4 billion to $9.9 billion. On a per-share basis, GM is now forecasting net income of $7.15 to $8.15 for the year, up from a range of $6.35 to $7.35.

The new outlook does not factor in the potential costs of a strike by the United Auto Workers union should it fail to reach a new contract with GM by the Sept. 14 deadline.

GM’s more bullish outlook comes after six months of stronger demand and richer pricing than expected earlier this year, Chief Financial Officer Paul Jacobson said during a media conference call.

But GM’s profit margins and profit per vehicle in North America declined from the first quarter, as inventory remained flat at 428,000 vehicles. GM earned $3,841 in pre-tax profit per vehicle in North America during the second quarter, down 23% from the first quarter.

GM’s higher profit outlook reflects decisions to ratchet down spending.

GM said it will spend $11 billion to $12 billion on capital investments this year, down from an earlier plan to spend $11 billion to $13 billion.

“There’s a lot of focus on winning with simplicity,” Jacobson said.

The automaker said it also will expand a previously announced drive to cut operating costs by $2 billion through the end of 2024, targeting an additional $1 billion.

In contrast to Tesla (NASDAQ:) CEO Elon Musk’s strategy of cutting prices to accelerate demand, GM pushed average transaction prices in North America up by $1,600 to about $52,000 in the latest quarter, Jacobson said.

“We’re focused on profitability. Our recent results demonstrate that we’re not sacrificing margin for volume,” he said.

GM’s decisions to cut new product investment and operating costs come as the automaker’s profit margins are under pressure. GM’s pre-tax profit margin for the first six months of the year fell to 8.3% of revenue, down from 8.9% a year ago.

GM’s second-quarter results included a $792 million charge for “new commercial agreements” with South Korean battery maker LG Energy Solution.

GM CEO Mary Barra, in a letter to shareholders, said the automaker is aiming to build “roughly 100,000 EVs in the second half of this year and we’ll grow from there.” In the first half, GM built about 50,000 EVs, most of them the older Chevrolet Bolt model.

GM’s earnings statement reiterated a previous target of building 400,000 EVs from 2022 through the first half of 2024, and projected EV revenue of $50 billion in 2025, with pre-tax profit in the low to mid single digits.

In a note to investors, CFRA analyst Garrett Nelson said he remains “cautious due to the near-term earnings drag from GM’s EV transition and its ability to execute an aggressive production ramp, as well as ultimate demand for its EV models.”

Pre-tax losses at Cruise, GM’s robo-taxi unit, widened in the latest quarter to $611 million from $543 million a year ago. Cruise’s losses for the first half of the year increased by 35% to nearly $1.2 billion.