Impressive Q2 Earnings For GM In 2023, But Electric Vehicle Deliveries Slip As Labor Negotiations Approach

Key takeaways

• GM’s second-quarter earnings beat topped expectations with increased EPS and sales
• It now expects to make $3 billion in cost-saving measures, helped by its voluntary redundancy program earlier this year
• GM’s share price was initially up 2% at the earnings but closed 3.5% down after analysts questioned the company’s EV production timetable during the earnings call

General Motors had a rough ride on the markets yesterday, despite its second-quarter earnings report showing primarily positive news. With earnings per share and sales up, plus a second full-year guidance increase, investors should have been buzzing; instead, the focus was on GM’s EV strategy and production ramp-up, leaving the share price down.

It’s a tough nut to crack for automakers transitioning to manufacture and sell EVs. Part of GM’s strategy to save on costs has been strategic layoffs and a voluntary redundancy scheme, which was a success; the sticking factor could be the unions, who are ready at the table. Here’s the lowdown.

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What happened with GM’s earnings beat?

GM reported on Tuesday morning that its second-quarter had beaten expectations: earnings per share came in at $1.91 and operating income was at $3.2 billion from sales of $44.7 billion. In comparison, analysts had expected $1.87 a share and operating income of $3.2 billion based on sales of $42.1 billion.

The automaker has also raised its full-year guidance for the second time. GM now expects an operating profit of between $12 billion and $14 billion, up slightly from April’s $11 billion to $13 billion projection.

Thanks to the supply chain crisis easing and semiconductors becoming more readily available, GM delivered 691,678 vehicles in the U.S. for Q2. Last year’s Q2 was at 582,401 vehicles delivered, which is a significant improvement.

GM’s CEO, Mary Barra, also teased an upgrade to the Chevy Bolt, GM’s EV truck. EV deliveries were down to 15,354 for the second quarter from 20,670 in Q1. There was a dampener on the earnings – an unexpected $792 million charge related to the Chevy Bolt recall.

Is GM making layoffs in 2023?

As the automotive industry transitions to making only electric vehicles, each company has had to implement cost-cutting measures in a bid to claw back some of the losses made on EVs that need expensive batteries. GM has previously stated it will invest $35 billion between now and 2025 on EVs, with the plan to have a full EV line-up by 2035.

One of the most obvious routes for companies is to make layoffs, and GM cut around 500 roles in February, but GM took a slightly different approach to the matter earlier this year. In March, the company announced it would run a ‘voluntary separation program’ where eligible employees would get a lump sum redundancy payment and additional severance benefits based on how long they’d worked there.

The program was offered to U.S. salaried employees with at least five years of service and executives with two or more years. Around 5,000 employees globally opted to cut and run, with GM predicting the move would save the company $1 billion out of the overall $3 billion it plans to save. Other reductions include sales and marketing budgets and reconsidering hiring for new roles.

The success of the VSP meant GM could avoid further layoffs this year. “The steps we are taking will allow us to maintain momentum, remain agile, and create a more competitive GM”, a company statement said.

GM grapples with unionized workers

But GM’s workforce woes aren’t over. The thorny issue of the United Auto Workers (UAW) union also affects GM, Ford and Stellantis. The union has around 50,000 workers from each company, with the negotiations, which take place every four years, potentially resulting in a 30% wage increase over the next four years as inflation runs hot.

If a deal between the car industry and the UAW can’t be agreed, the union will likely organize a strike, hitting GM’s bottom line. The last strike GM had was in 2019, which lasted 40 days. It’s uncertain what will happen next, given new hard-line leadership at the UAW, inflation pushing wages higher and the transition to EVs.

In a statement earlier this month, GM said it has “a long history of negotiating fair contracts with the UAW that reward our employees and support the long-term success of our business”.

What was the market reaction?

Thought that GM would be able to make some lasting stock gains off the back of such a good earnings report? Think again. While the share price jumped 2% after the beat was released, it dropped as much as 4.4%, and the shares closed 3.5% down on Tuesday after investors questioned the company’s EV strategy and its ability to ramp up production.

During the second-quarter earnings call, Barra said, “We have experienced unexpected delays in the ramp because our automation equipment supplier has been struggling with delivery issues that are constraining module assembly capacity”.

There are other concerns. Perhaps a UAW strike’s potential impact is weighing heavily on investors’ minds, or the improving, but still uncertain, supply chain process is the fly in the ointment. Another more abstract factor could be the Fed’s anticipated decision to raise interest rates by another quarter point, making borrowing more expensive and potentially weighing on new car sales.

That being said, GM stock is still 12% up year-to-date. That lags behind the S&P 500, which has risen 19.4% in 2023. The Dow Jones has risen nearly 7% in the same period.

The bottom line

GM had a good earnings report, but investors were left wanting more on the EV delivery side of things. With worker negotiations underway, interest rates poised to rise again and supply chain issues needing more improvement, it’s clear that the big automakers must focus on ensuring production can get up to speed as quickly as possible.

On a positive note, GM is well on its way to delivering the cost-cutting measures it promised, even raising its guidance on this front to $3 billion. The financials are solid and with a 52% net income increase from last year, at least GM has the cash it needs to ensure its EV transition is successful.

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