GM’s Q1 Results Blow Away Wall Street Expectations

(This story has been updated with additional information gathered from GM’s earnings conference call.)

General Motors’ first-quarter financial results not only smashed through the automaker’s year-earlier numbers but also far exceeded even the most optimistic Wall Street estimates.

The automaker on Wednesday morning reported net income of $3 billion, a 1,000% year-over-year increase, while EBIT-adjusted earnings of $4.4 billion were up nearly fourfold. Adjusted earnings per share of $2.25, meanwhile, handily exceeded the consensus forecast of $1.04.

“These strong results demonstrate once again the underlying strength of our business, especially in North America and China, and at GM Financial,” General Motors Chairman and CEO Mary Barra said in a letter to shareholders. “We continue to execute our strategy and make significant progress on our transition to an all-electric future with the growth opportunities it creates.”

Upturn expected

The first-quarter numbers were expected to show strong gains when compared to the results from January through March 2020. Like the rest of the industry, GM was hit hard by the COVID-19 pandemic last year, March bringing not only a massive downturn in sales but the start of what was to become a two-month shutdown of its North American assembly lines.

Since automakers make most of their money once vehicles roll out of their plants and are shipped to dealers, GM is likely to show continuing improvement during the second quarter of this year, according to industry analysts.

That said, Q1 2021 faced its own problems, largely linked to the pandemic. The most serious issue was the worsening shortage of the semiconductors that now are used in large numbers in every new motor vehicle. Like competitors such as Ford, Volkswagen and Toyota, GM was forced to slow down production on numerous models, including some of its most profitable pickups and SUVs. That shortage is expected to continue through much of the year, according to IHS Markit and other analysts.

There have been additional shortages developing, including petroleum-based goods like seat foam. Barra acknowledged these and other problems in her statement, noting, “This remains a challenging period for the company as we emerge from 2020, but the team continues to demonstrate its ability to manage complex situations.”

Few dark spots

Not all the numbers moved in the right direction for GM during the first quarter of this year. Revenues slid slightly, at $32.5 billion, a roughly $200 million decline. The automaker’s autonomous subsidiary, Cruise, saw its losses grow slightly, from $228 million to $229 million

But those were rare dips. The automaker’s net income margin surged from 0.9% to 9.3%. Income per share increased 262% to $2.25 – while handily beating analysts’ consensus forecast of $1.04.  

In the North American market, net income was up nearly a third, climbing from $2.194 billion to $3.134 billion. GM International posted $308 million in net income compared to a $551 million loss a year earlier. And GM Financial posted $1.182 billion in net income, up from $230 million.

Positive forecast

Looking forward, Barra told investors that, “While we will have production downtime in the second quarter, we expect to have a strong first half, with EBIT-adjusted of around $5.5 billion.”

The forecast for the rest of 2021 is positive overall, according to Barra. GM expects to see the EBIT-adjusted total reach the $10 billion to $11 billion range, or $4.50 to $5.25 per share.

But the numbers will still be weighed down by the chip shortage which is expected to deliver a hit of between $1 billion and $2 billion for all of 2021.

Changes to come

During a conference call, Barra and other GM executives spent time outlining the company’s plans for the future with an emphasis on electric and autonomous vehicles. Among other things, new CFO Paul Jacobson said there will be “no change” in its plans when it comes to its cap-ex spending of between $9 billion and $10 billion this year on its battery-car program. It has been ramping up that effort up, recently announcing a second battery production plant, located in Tennessee, while offering more details on all electric products, such as the Cadillac electric SUV.

The automaker has been losing money on its Cruise subsidiary and that is likely to continue, but the autonomous subsidiary is moving closer to a point where its technology will have real-world applications. It is already testing driverless vehicles in San Francisco and Dubai.

Barra also noted the new VIP electric architecture that will debut in the GMC Hummer electric pickup makes it possible to create a new revenue stream, software as a service. This could allow for downloads of updated or entirely new features to its vehicles, as well as entertainment and other services. The VIP technology will be in 7 million vehicles and 38 global models by the end of 2023, she said.

Stock rebounds

Even where GM faced setbacks this year, it’s been able to turn some of them to its advantage. Shortages resulting from the pandemic shutdown last year have been worsened by the semiconductor shortage this year. As a result, dealer inventories are down substantially this year. That has helped in some ways, reducing marketing cuts, specifically incentives.

“We’ll never go back to levels of inventory we had pre-pandemic because we’ve learned we can be much more efficient,” Barra said.

GM is the latest automaker to report a big rebound in first-quarter earnings. Last week its archrival Ford Motor Co. weighed in with net income of $3.3 billion, the second-largest Detroit automaker’s best results in a decade.

Though General Motors shares surged to a 52-week high during the first quarter, its stock price has been on a downward slide since early April. But investors began driving the numbers back up again following GM’s early morning earnings announcement.