General Motors Company — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; comparisons are with the corresponding 2021 periods. Amounts are U.S. dollars. GM designs and sells vehicles and related products, provides financing through GM Financial, and is investing in electric and autonomous vehicles through Cruise and other initiatives.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $35.8bn | $34.2bn | $71.7bn | $66.6bn |
| Operating income | $2.1bn | $2.9bn | $4.3bn | $6.2bn |
| Net income | $1.6bn | $2.8bn | $4.4bn | $5.8bn |
| Net income attributable to stockholders | $1.7bn | $2.8bn | $4.6bn | $5.9bn |
| Diluted EPS | $1.14 | $1.90 | $2.49 | $3.93 |
| EBIT-adjusted | $2.3bn | $4.1bn | $6.4bn | $8.5bn |
| GM Financial EBT-adjusted | $1.1bn | $1.6bn | $2.4bn | $2.8bn |
Q2 revenue increased 4.7%, led by automotive revenue, while operating income and net income fell. Q2 operating margin was approximately 5.9%, compared with 8.4% a year earlier; net margin was approximately 4.6%, versus 8.1%. Automotive pricing and volume supported revenue, but higher costs and weaker vehicle mix pressured earnings. GMNA EBIT-adjusted margin was 8.0% versus 10.4% in Q2 2021.
For the first half, revenue grew 7.6%, but operating income declined approximately 30%. GMNA EBIT-adjusted was $5.4bn, down from $6.0bn; GMI was $537m, up from $323m. Cruise reported an adjusted loss of $868m, excluding $1.1bn of stock-award modification expense. Automotive China joint-venture equity income fell to $147m from $584m.
Cash flow: Consolidated operating cash flow was $5.2bn for the first half, versus $8.4bn; investing cash outflow was $8.2bn and financing cash outflow was $762m. Cash, cash equivalents and restricted cash ended at $19.7bn, down from $23.5bn at the start of the year. Automotive operating cash flow was $5.1bn and capital expenditures were $3.7bn, implying adjusted automotive free cash flow of approximately $1.4bn before insignificant management-action adjustments, compared with approximately $0.5bn in 2021.
Liquidity and debt: At June 30, cash and cash equivalents were $16.7bn and marketable debt securities were $10.1bn. Automotive available liquidity was $33.0bn, including $17.9bn in cash and marketable securities and $15.1bn available under credit facilities. GM Financial reported $29.7bn of available liquidity. Automotive debt was $16.8bn; GM Financial debt was $93.6bn, largely associated with its financing and securitization activities. These debt amounts relate to different operations and should not be treated as interchangeable.
Total assets were $253.5bn, total liabilities $185.1bn, and total equity $68.3bn at quarter-end. Inventories rose to $16.9bn from $13.0bn at year-end, including vehicles awaiting components because of supply disruptions. Automotive warranty liabilities net of supplier recoveries were $7.3bn.
Material changes and unusual items
- Automotive revenue growth reflected higher prices and wholesale volumes, while costs increased. First-half material and freight costs rose $2.7bn year over year; engineering, manufacturing and other costs also increased. Lower recall-related expense partly offset these increases.
- GM Financial earnings declined as leased-vehicle revenue and lease termination gains fell and loan-loss provisions rose to $320m for the first half from $33m. Used-vehicle prices remained elevated, but management expected them to decline from 2021 peak levels.
- Q2 equity income from automotive China joint ventures was a loss of $87m, versus income of $276m. The filing cites weaker JV sales and net losses amid market and COVID-related pressures.
- GM’s March acquisition of SoftBank’s Cruise stake and additional investment, together with a one-time modification of Cruise incentive awards, affected cash, equity and earnings. The filing identifies $1.057bn of Cruise award modification expense and a $909m deemed dividend related to preferred-share redemption; the deemed dividend reduced first-half common-stockholder EPS.
- Losses on Stellantis warrants were $221m in Q2 and $419m in the first half, compared with gains in the respective 2021 periods, reducing non-operating income.
Outlook, risks and contingencies
- GM maintained its 2022 outlook: net income attributable to stockholders of $9.6bn–$11.2bn; EBIT-adjusted of $13.0bn–$15.0bn; diluted EPS of $5.76–$6.76; and adjusted diluted EPS of $6.50–$7.50. Expected adjusted effective tax rate was approximately 20%.
- Management cited strong pricing and U.S. demand, with results dependent on supply-chain improvement, pricing, and economic conditions. GM was prioritizing full-size trucks, SUVs and EVs and had more than 90,000 vehicles awaiting components; it expected substantially all to be completed and sold before year-end.
- GM expects medium-term annual capital spending and Ultium Cells investment of approximately $9bn–$10bn, in addition to engineering and product development. It also expected $1.0bn–$1.5bn in 2022 Cruise employee-award liquidity-program expenditures. A DOE conditional commitment for a $2.5bn Ultium Cells loan was announced in July 2022; closing remained subject to final documentation and conditions, and the anticipated loan would not be guaranteed by GM.
- Key risks include semiconductor and other supply constraints, inflation and commodity/logistics costs, weaker economic conditions, interest rates, competition, China market conditions, EV execution and profitability, AV commercialization and regulation, labor disruption, foreign exchange and geopolitical uncertainty. GM suspended commercial operations in Russia; if it loses control of or cannot resume operations of its Russian sales company, it expects a non-cash charge of approximately $0.7bn.
- Legal and contingency exposures include $1.3bn of accrued litigation-related and tax administrative liabilities; reasonably possible indirect-tax losses above accruals of up to approximately $1.0bn; and approximately $95m of reasonably possible additional GM Korea wage-litigation losses beyond recorded accruals. GM could not estimate possible losses for certain emissions, Takata, Bolt battery and Opel/Vauxhall matters. The filing states that loss outcomes could exceed recorded accruals.
Most important facts for investors to verify
- Whether GM can meet its 2022 earnings guidance despite supply, cost, and macroeconomic pressures.
- Whether the 90,000-plus incomplete vehicles were completed and sold as expected, and how supply constraints affected production and margins.
- Cash generation, capital spending, Cruise and Ultium funding requirements, and the level and availability of automotive liquidity.
- GM Financial credit-loss trends, lease residual values, used-vehicle prices, and the sustainability of its earnings and funding access.
- Actual costs and recoveries for recalls and litigation, including Bolt battery reimbursement from LG, and any material changes in unquantified legal exposures.
- Progress and funding terms for the conditional DOE Ultium loan, and Cruise commercialization, safety, regulatory and cash-burn milestones.