GM sees a ‘breakout year' for EVs and key gasoline vehicles

General Motors has an optimistic outlook for itself in 2023, raising its earnings projections on the strength of its core automotive business and the upcoming launch of multiple new gas-powered and electric vehicles.

The automaker last week said it would raise its full-year guidance for adjusted earnings before interest and taxes by $500 million, to a range of $11 billion to $13 billion. Executives said demand and pricing have been steady so far this year as they look ahead to the launch of key new vehicles, including premium trucks, entry-level crossovers and mainstream EVs.

GM also stressed the importance of reining in costs as it scales its transition to EVs. The company this year expects to see nearly half of the $2 billion in cost reductions it wants to achieve through 2024, CFO Paul Jacobson said.

About 5,000 salaried employees opted to leave the company through voluntary buyouts, and GM is looking to simplify its operations and reduce discretionary costs, such as travel and marketing budgets. At the same time, GM will emphasize growth businesses such as its Cruise self-driving technology unit and development of software-defined vehicles, "which offer the biggest returns on revenue and margin," Jacobson told analysts on the company's first-quarter earnings call last week.

"The enterprise value of these fixed cost reductions will have even greater than $2 billion value because we're strengthening our culture, which has consistently delivered strong results," CEO Mary Barra said on the call. "We're reducing our executive ranks by more than 15 percent through voluntary separations, which will help reduce bureaucracy. And we are empowering our leaders to structure their teams to be faster and more agile."

Even as GM raised its outlook for adjusted EBIT this year, the automaker lowered its full-year net income forecast to a range of $8.4 billion to $9.9 billion, from its previous outlook of $8.7 billion to $10.1 billion, largely because of the employee buyout cost.

GM said net income declined 19 percent in the first quarter to $2.4 billion. Profit was reduced by $875 million for employee buyouts and $99 million in payouts to an unspecified number of Buick dealers who are giving up their franchise as the brand shifts to a fully electric lineup later this decade.

First-quarter adjusted EBIT fell 6 percent to $3.8 billion. Global revenue rose 11 percent to $39.99 billion.

In North America, pretax profit rose 14 percent to $3.6 billion. Revenue for the region rose 12 percent to $32.9 billion, which GM said is a first-quarter record.

Barra said GM also is "aggressively pursuing" cost cuts in China, where its sales have fallen and its equity income dropped by nearly two-thirds in the first quarter.

"The industry's pretty tough right now," Barra said of China, where GM is working to roll out more EVs to meet consumer demand.

GM is launching several new internal combustion vehicles this year, including entry-level Chevrolet Trax and Buick Envista small crossovers and the redesigned Chevy Colorado midsize pickup, Barra said. Those new products should help GM achieve continued strong pricing and EBIT results, she said.

In a shareholder letter, Barra said 2023 will be a "breakout year" for GM's Ultium-based EVs. It plans to build about 50,000 EVs in North America in the first half of this year and 100,000 in the second half. GM said it's on track to meet its goal of building a total of 400,000 EVs from 2022 through the first half of 2024 as the company works to increase Ultium battery output and prepare for scaled production.

"All of this is coming together in a way that will fundamentally change the narrative that traditional automakers can't deliver competitive EV margins," Barra said on the earnings call. "We have a lot of work to do, but we have the right trajectory, and I believe we can get there much faster than people think."