General Motors Co quarterly report, Q3 FY2021

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General Motors Co. — Q3 2021 Form 10-Q

Reporting period: Quarter and nine months ended September 30, 2021. Unaudited consolidated results include GM’s vehicle operations, autonomous-vehicle business Cruise, and captive lender GM Financial. Dollar amounts below are U.S. dollars.

Financial performance

  • Q3 revenue: $26.8 billion, down 24.5% from $35.5 billion a year earlier. Automotive revenue fell 27.0% to $23.4 billion; GM Financial revenue was $3.4 billion, down 2.0%.
  • Q3 earnings: Operating income was $1.6 billion versus $4.4 billion. Net income attributable to stockholders was $2.4 billion versus $4.0 billion; diluted EPS was $1.62 versus $2.78. EBIT-adjusted, a non-GAAP measure, was $2.9 billion versus $5.3 billion.
  • Nine-month revenue and earnings: Revenue rose 9.9% to $93.4 billion. Net income attributable to stockholders was $8.3 billion versus $3.6 billion; diluted EPS was $5.55 versus $2.40. EBIT-adjusted was $11.5 billion versus $6.0 billion.
  • Margins: GM North America EBIT-adjusted margin was 10.3% in Q3 versus 15.0%; for nine months it was 11.0% versus 9.7%. GM International’s nine-month adjusted margin improved to 6.3% from negative 10.5%. Cruise reported an adjusted loss of $286 million for Q3 and $847 million year to date.
  • Cash flow: Consolidated operating cash flow for nine months was $8.4 billion versus $10.0 billion; investing cash outflow was $10.9 billion versus $16.8 billion. Automotive operating cash flow was $0.3 billion versus $2.3 billion, while capital expenditures were $4.2 billion versus $3.3 billion. Automotive cash flow after capital expenditures was therefore approximately negative $3.9 billion before any management-action adjustments.
  • Balance sheet and liquidity: At September 30, cash and cash equivalents were $17.4 billion and marketable debt securities were $6.6 billion. Total available liquidity was $36.3 billion, including $17.2 billion of available credit facilities and Cruise-designated funds. Automotive cash, equivalents, and securities were $15.5 billion. GM Financial separately reported $28.5 billion of available liquidity.
  • Debt: Automotive debt was $16.8 billion and GM Financial debt was $92.1 billion at quarter end; GM Financial debt is largely associated with its financing activities and secured funding. Total liabilities were $178.2 billion.
  • Other metrics: Inventories rose to $14.5 billion from $10.2 billion at year-end 2020, largely reflecting vehicles built without semiconductor modules. GM’s common dividend declared per share was zero in the first nine months of 2021, versus $0.38 in the comparable 2020 period.

Material changes versus prior periods

  • Q3 automotive sales and adjusted earnings were sharply lower, principally because semiconductor shortages reduced wholesale volumes. Favorable pricing and vehicle mix partly offset lower production.
  • Nine-month revenue and earnings improved from 2020, which included the pandemic’s disruption and substantial international restructuring charges. Higher pricing, mix, and China joint-venture income helped; higher materials, freight, engineering, and manufacturing costs and lower vehicle volumes were offsets.
  • China joint-venture equity income increased to $854 million for nine months from $264 million. GM Financial’s nine-month adjusted pretax earnings rose to $3.9 billion from $1.7 billion, benefiting from used-vehicle resale gains, lower credit-loss provisions, and lower interest expense.
  • GM Financial’s loan-loss allowance was $1.9 billion at September 30, down $100 million year over year. Management attributed the reduction primarily to better-than-forecast credit performance and improved expected recoveries.

Outlook, commentary, risks, and unusual items

  • 2021 guidance: GM expected diluted EPS of $5.52–$6.52, adjusted diluted EPS of $5.70–$6.70, net income attributable to stockholders of $8.1–$9.6 billion, and EBIT-adjusted of $11.5–$13.5 billion. Expected adjusted effective tax rate was approximately 22%.
  • Management said the semiconductor shortage would continue to affect operations for the foreseeable future. GM prioritized full-size trucks, full-size SUVs, and EVs, and held $2.9 billion of vehicles built without required modules at quarter end. Year-end work-in-process inventory could affect cash flow.
  • GM raised planned investment in electric and autonomous vehicles to $35 billion through 2025, from $27 billion. It cited favorable vehicle pricing and demand but also higher commodity, raw-material, and logistics costs. The company said it did not expect the chip shortage to affect its long-term growth and EV initiatives.
  • Bolt recall: GM recorded approximately $2.0 billion of 2021 recall accruals through September, including $1.2 billion in Q3. In October, GM reached a reimbursement agreement with LG and recognized a $1.9 billion receivable, which substantially offsets the charges. Actual recall costs and recovery could differ from estimates.
  • Other unusual items: GM Financial recorded a $105 million loss on early debt extinguishment. GM established a $316 million valuation allowance against Cruise deferred tax assets after Cruise’s preferred-share issuance changed its tax-consolidation status. Q3 adjusted EPS also reflected a tax benefit related to an investment deduction.
  • Risks and contingencies: Key exposures include supply disruptions, COVID-19, inflation and input costs, vehicle demand and pricing, EV and autonomous-vehicle execution and regulation, China market and joint-venture risks, recalls, litigation, emissions requirements, and pension funding. Recorded litigation accruals were $1.1 billion; the filing identifies possible additional losses in some matters, including indirect-tax exposures of up to approximately $850 million above accruals.
  • GM stated its credit ratings were investment grade, it was in compliance with applicable credit-facility covenants, and disclosure controls were effective as of September 30, 2021.

Important facts for investors to verify

  • Whether semiconductor supply and completion of the $2.9 billion of vehicles awaiting modules affect fourth-quarter production, deliveries, margins, and cash flow.
  • Whether the $1.9 billion LG reimbursement is collected as expected and whether final Bolt recall costs remain within current estimates.
  • How sustainable unusually strong used-vehicle prices and GM Financial lease-termination gains are, and how credit performance develops as lending grows.
  • Whether GM meets its 2021 earnings guidance despite production constraints, higher costs, and the large gap between automotive operating cash flow and capital spending.
  • Developments in material legal and tax contingencies, China joint-venture performance, EV investment commitments, and Cruise’s commercialization timeline.