Big Profits, Big Costs: GM Earnings Show Affordability & EV Challenges

SPEAKER_1 (0:01)

Welcome back. It's time for our watchlist panel. We're breaking down today's earnings report from General Motors. Joining me right now, Rebecca Lindland, Managing Director for Alson Worldwide, and Karl Brauer, Executive Analyst at iccars.com. So let's go through this here. What did we think about the quarterly results? I mean, we did see the beat on earnings and their buybacks. They didn't necessarily raise the midpoint of some of the numbers there, but the takeaway was that the revenue was higher despite selling the fewer cars. So is this a bright spot or not necessarily so? Rebecca, I'll start with you.

Rebecca Lindland (0:37)

I actually think it's a bright spot. And thank you so much for having me on. And if Karl and I, if our backgrounds look similar, it's because we're actually at the same event and we didn't realize we were both gonna be on. So it's kind of funny. So no, I think this is fantastic actually, because what I really like about the earnings is that we're seeing consumers buying full-size pickup trucks, buying full-size SUVs, but we're also seeing some real traction from mid-size SUVs and smaller vehicles like the Chevy Trax and the Trailblazer. So I love the combination of revenue that GM has generated. And the other thing that I'm a huge fan of is the diversity of revenue they're getting from things like Super Cruise and OnStar. This recurring continuous subscription revenue has incredibly high margins and it continues to grow and it provides them with revenue well beyond just the sale of the vehicle.

SPEAKER_1 (1:34)

Right. When you said the discipline of the pricing, Rebecca, what did you mean? That was a bright spot as well quickly.

Rebecca Lindland (1:41)

Yeah. So I think that they really have been very disciplined with their incentives. So they're not slathering on incentives like we used to see. And so they are getting great margins. They're not putting on these crazy incentives that are not sustainable. And that's really helping their balance sheet as well.

SPEAKER_1 (2:02)

All right. And then Karl, what say you? We know they've been doing very well with the trucks. What did you think of the outlook for this company overall? I mean, we do know that they do have some great revenue streams.

Karl Brauer (2:16)

Yeah. I mean, they're able to sell these high-profit vehicles like Rebecca said. And so as long as they can keep doing that, they're kind of set, you know. The domestics, particularly General Motors and Ford, they just rely so much on the large trucks and SUVs, and those are really driving the profit. It is good to see some money coming in from some other streams like Rebecca said, but we know the bulk of their profit comes from these. And to me, what's fascinating is a lot of these companies globally have invested a lot in EVs, we know, and then they've had to pull back.

Some like Volkswagen are really having trouble and struggling because they don't have a lot of trucks to sell in the meantime. But the domestics here, they've really got an advantage even when they invest or maybe over invest in EVs, they've always got this backstop waiting to help them on the revenue side called big trucks and SUVs, big profits per unit.

SPEAKER_1 (3:08)

So when we look at the high margin software and services, which is bringing in a lot of revenue there, Rebecca, that was something you noted as well as its leadership in the trucks industry. Do you think that the stock can have, I mean, right now, it's the worst selloff that we've seen in a long time for this name here. It was right now, it's down about 8 percent overall, and having its worst day in over a year. They're also facing higher prices such as copper at all-time highs, steel at four-year highs, which is something that the CFO wanted everybody to know.

But can this name continue to be a strong name, let's say, for a shareholder?

Rebecca Lindland (3:46)

Well, you're always going to face challenges from a supplier standpoint. And I would say one weakness with General Motors is that they are so heavily dependent upon the US market specifically. They are working to diversify, like launching Cadillac in Europe, but they are quite reliant upon this, upon full-size SUVs and pickup trucks.

I think also, as Karl mentioned too, every manufacturer is trying to recoup the incredible investments that they made in EV technology. With the rollback towards the cafe or fuel economy standards, and the rollback of incentives, we are just not seeing the type of uptick in demand for electric vehicles. Now, I do think that that means that they are, that GM and others are able to match what consumers want a little bit more closely on the powertrain side, and they're able to provide choice. So what I would tell people when you're looking at General Motors is really looking at understanding that they still have recovery they need to do. They just announced that they're closing a battery factory, for instance, and they're pulling back so much of the investment that regulations really almost forced them to make in the last 7 to 10 years. So there's a lot to recoup still, but I do think that the diversity of revenue helps a lot.