GM Is Doing Good, But Not as Good as Ford

Last Wednesday, General Motors GM topped Wall Street estimates. Besides delivering better than expected top and bottom lines, the automaker announced it is expecting full-year results at the "high end" of its previous guidance.

On the same day, its rival Ford Motor F nearly doubled Wall Street earnings expectations and slightly exceeded revenue projections, increasing its annual guidance for the second time this year. Despite solid results, GM's shares were down 5% upon the results during midmorning trading, whereas Ford's shares rose by more than 9% during after-hours trading, but the stock closed down by 2.7%.

Third Quarter Results

During the quarter that ended on September 30^th, revenue plummeted by about 25% compared to $35.5 billion a year earlier, due to being dented by semiconductor chip shortage.

Fortunately, strong vehicle pricing and income of approximately $1.1 billion from its financial arm came to the rescue. Throughout the first three quarters, GM financial's earnings added up to $3.9 billion, which is a 132% increase compared to last year's result.

Yet, profitability dropped 40% as on an unadjusted basis, net income amounted to $2.4 billion compared to the $4 billion from last year's comparable quarter, when dealerships and plants largely reopened after being shut due to the pandemic. Pretax adjusted earnings amounted to $2.9 billion compared to last year's $5.3 billion. Adjusted earnings amounted to $1.52 a share, exceeding the 96 cents a share Refinitiv estimated.

Third-quarter earnings also benefited from the reimbursement by the South Korean battery supplier LG Electronics that would offset $1.9 billion of $2.0 billion in estimated costs of a recall of Chevrolet Bolt. GM's flagship mainstream EV has been recalled due to fire risks caused by faulty batteries. Meanwhile, Toyota Motor TM announced its first mass-produced EV, an SUV with optional rooftop solar panels. Meanwhile, the world's first electric pickup has been brought to the roads with Rivian, with Atlis XT and luxurious Hercules Alpha coming next year, both of which will be equipped by Worksport Inc WKSP TerraVis system, a portable power generation and energy storage system that can be powered by nothing more than the Sun's rays or your standard wall outlet. Catching up to Tesla Inc TSLA is everything but a breeze and GM has no time to lose as everyone is going full speed ahead into the all-electric future.

Guidance

Barra said that automaker's supply of semiconductor chips is improving but it continues to be volatile. The shortage is expected to continue into the first half of next year, but the automaker is seeing some improvement in fourth quarter; with additional improvement expected in the first quarter of 2022.

Earnings are expected in the range between $11.5 billion and $13.5 billion on an adjusted basis, or $5.70 to $6.70 a share, up from its prior guidance that was in the range between $5.40 to $6.40 a share. On an unadjusted basis, earnings are expected in the range between $8.1 billion and $9.6 billion.

However, adjusted automotive free cash flow for the full year is now expected to amount to $1 billion due to needing to complete vehicles that were previously built without chips. It is quite a drop from the prior guidance that expected it to be between $1 billion and $2 billion.

On a brighter note, November 1st is the first time since February that none of GM's assembly plants in North America were idled due to the chip shortage. However, two plants remain down for retooling with a few operating on fewer shifts.

Takeaway

The third quarter was expected to be a rougher one compared to the first half of the year. But automakers did ok considering the global shortage of semiconductor chips that have depleted vehicle inventories and kept plants idle. For Ford, increased availability of semiconductor chips and higher vehicle shipments enabled the automaker to even post higher-than-expected results. What disappointed investors are that GM lowered its expected annual automotive free cash flow and didn't meet investor earnings expectations for the remainder of the year, which is probably the culprit behind the stock drop.

Nonetheless, third-quarter 2021 results clearly illustrate the strength of the underlying business that is funding GM's future, and GM CEO and Chair Mary Barra focused more on the full-year results ahead. The automaker also expects strong vehicle pricing to continue "well into" next year.

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