General Motors Q3 2024 Earnings Call Transcript

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Provided by Quartr
October 22, 2024

Key Takeaways

  • General Motors raised its full-year guidance thanks to strong Q3 results, now targeting $14–15 billion in adjusted automotive EBIT and $10–10.50 in adjusted diluted EPS, while increasing its free cash flow forecast.
  • GM is on track to produce and wholesale about 200,000 EVs in North America this year and expects its EV portfolio to be variable profit positive in Q4, with the next focus on achieving EV profitability on an EBIT basis.
  • The refreshed ICE SUV lineup—including the Chevrolet Traverse, GMC Acadia, Buick Enclave, and new Equinox—continues to drive retail market share gains, premium pricing, and lower incentives versus industry averages.
  • GM secured the #2 spot in Q3 EV sales with nearly 10% market share and over 60% conquest rates, bolstered by its vertically integrated battery JV with LG Energy Solutions in Ohio and Tennessee, which is driving down costs and generating manufacturing credits.
  • In China, GM and its joint ventures grew Q3 sales 14% sequentially and saw new energy vehicles outsell ICE models for the first time, but management plans restructuring actions with partners to restore sustainable profitability in a challenging market.
AI Generated. May Contain Errors.
Earnings Conference Call
General Motors Q3 2024
00:00 / 00:00

There are 18 speakers on the call.

Operator

Good morning, and welcome to the General Motors Third Quarter 2024 Earnings Conference Call. During the opening remarks, all participants will be in a listen only mode. After the opening remarks, we will conduct a question and answer session. As a reminder, this conference call is being recorded, Tuesday, October 22, 2024. I would now like to turn the conference over to Ashish Kohli, GM's Vice President of Investor Relations.

Speaker 1

Thanks, Amanda, and good morning, everyone. We appreciate you joining us as we review GM's financial results for the Q3 of 2024. Our conference call materials were issued this morning and are available on GM's Investor Relations website. We're also broadcasting this call via webcast. Joining us today are Mary Barra, GM's Chair and CEO and Paul Jacobson, GM's Executive Vice President and CFO.

Speaker 1

Dan Burst, President and CEO of GM Financial will also be joining us for the Q and A portion of the call. On today's call, management will make forward looking statements about our expectations. These statements are subject to risks and uncertainties that could cause our actual results to differ materially. These risks and uncertainties include the factors identified in our filings with the SEC. Please review the Safe Harbor statement on the first page of our presentation as the content of our call will be governed by this language.

Speaker 1

And with that, I'm delighted to turn the call over to Mary.

Speaker 2

Thank you, Ashish, and good morning, everyone. I want to begin by recognizing the incredible job our team, our suppliers and our dealers have been doing all year long. We have been able to grow our retail market share in the U. S. With above average pricing, well managed inventories and below average incentives.

Speaker 2

Now with our strong Q3 results, we expect our full year EBIT adjusted to be in the range of $14,000,000,000 to 15,000,000,000 dollars and EPS diluted adjusted to be in the range of $10 to $10.50 both at the upper end of our previous guidance. And we are once again raising our adjusted automotive free cash flow. I want to be clear though, we are not mistaking progress for winning. The competition is fierce and the regulatory environment will keep getting tougher. That's why we're focused on optimizing our ICE and EB margins.

Speaker 2

We have a very strong record in ICE and we are on track to produce and wholesale about 200,000 EVs in North America this year and make our portfolio variable profit positive this quarter. This is a first step. We are working with urgency to make our EVs profitable on an EBIT basis as quickly as possible. To get there, we will continue to drive improvements across the business. Apart from our financial performance and the progress we've made growing our ICE business and scaling EVs, one of the things that truly stands out about the quarter is the resiliency and compassion of our suppliers and dealers after the storms that hit the Southeast.

Speaker 2

We are saddened by the destruction and loss of life and grateful for their significant contributions to relief efforts, which GM and our employees have supported through contributions to the Red Cross. 1 GM supplier that stands out is ARIA Solutions in Old Fort, North Carolina, which makes carpets for our full size SUVs. They work tirelessly to support their employees and their community as well as GM. They even drilled a new well to restore water service to the plant and to their neighbors. This is a great example of the steps people in our business are willing to take to support their employees and manage events outside of their control.

Speaker 2

At Investor Day, we focused on the business drivers for 2024 2025 that are within our control. They include a wide range of new and redesigned ICE SUVs that are more profitable than the outgoing models steadily improving EV profitability as we scale production and expand our portfolio fixed cost discipline capital efficiency and improved results in China. We're building momentum in all of these areas. For example, the new Chevrolet Traverse GMC Acadia and Buick Enclave continue to grow their volumes in retail market share with very strong pricing and the new ICE Chevrolet Equinox is arriving in dealerships in greater volume. We've seen month over month gains in retail segment share for the Equinox, ATPs are about $6,000 higher than the outgoing models and we're attracting younger buyers.

Speaker 2

Without a doubt, these vehicles along with our new full size SUVs are some of the best we've ever delivered from a design, safety and technology standpoint. And I can say definitively that one of our other new ICE models, the Chevrolet Corvette ZR1 is the fastest car we've ever built. It's a 1064 horsepower engineering marvel and Mark Royce recently drove it at 233 miles per hour on a high speed oval in Papenburg, Germany, a speed that's unrivaled by any current production car priced under $1,000,000 That wasn't a one off in performance either. Five engineers also exceeded 230 miles per hour on multiple runs. If you haven't seen the video Chevrolet posted to TikTok and YouTube, please check them out.

Speaker 2

Like the breathtaking performance of the Corvette, our strategic portfolio of EVs is separating GM from our competitors. As you know, we earned the number 2 EV sales position for the Q3. Our total share is approaching 10% of the EV market and our EV conquest rates are more than 60%. If you attended Investor Day, I hope you have a deeper appreciation for the role our battery manufacturing capabilities and overall sales strategy are playing in our drive to EV profitability. The scale and vertical integration we have achieved with LGES in Ohio and Tennessee is a major competitive advantage that's driving down sell costs, so are the world class yield rates we're seeing.

Speaker 2

Because we jointly produce ourselves, we reap the benefits of lower commodity prices and we're generating significant manufacturing credits at both the cell and module level. It will be years before some of our competitors approach this level of performance. To drive more EV sales growth, all of our brands have been conducting extensive dealer outreach and training. For example, Chevrolet has been meeting with more than 7,000 dealership sales employees to educate them about EV technology and charging and competitive advantages we have in areas like affordability, range, capability and the total cost of ownership. People are leaving these meetings energized and just as confident in our EV portfolio as they are in our winning ICE products.

Speaker 2

The training should really pay off in 2025 as we continue to expand our truck portfolio with both lower cost and longer range versions of the Silverado EV. Our longest range work trucks will have the ability to go nearly 500 miles on a full charge. Our most affordable work truck will begin at about $57,000 and both the LT with standard content and the LT premium package are priced so eligible customers may qualify for the full $7,500 federal tax credit. We will also have our full range of Equinox EV and Blazer EV models in the market starting in the Q1, including a new more affordable Blazer as well as an expanded portfolio of GMC Sierra EVs. Our Cadillac portfolio is expected to be another driver of volume and share growth, conquest sales and EV profitability improvements as we go forward.

Speaker 2

EV consideration is much stronger among luxury customers than the mainstream market, about 9 points higher, so we expect it to grow faster. These customers want beautiful designs, advanced technology, performance and range, everything Cadillac delivers with the Lyric, Optic, Vistik and the Escalade IQ. No other luxury brand has so much to offer. Let's turn to brand has so much to offer. Let's turn to China where the team is making progress aligning

Speaker 3

production to demand.

Speaker 2

In the Q3, GM and our JVs grew sales 14% from 2nd quarter for our best performance since the Q3 of 2022. Our growing portfolio of EVs and plug in hybrids played a key role. In fact, our new energy vehicles outsold ICE models for the first time. Importantly, our dealer inventory has been reduced by more than 50% since the start of the year, which will allow us to better manage our pricing and costs. We will also continue to drive dealer engagement and discipline on fixed cost, inventory, pricing and incentives.

Speaker 2

However, the operating environment in China continues to be challenging and there is more hard work to do with our partner. There are a series of shareholder and joint venture board meetings planned during the Q4 that will be focused on restructuring actions to make the business sustainable and profitable, and we will share next steps as soon as we can. We will also provide an update on Cruise, so we can share more details about future funding model. In the meantime, the Cruise team continues to improve their technology and cost structure. Another area where you can expect news in the weeks months ahead is in capital efficiency.

Speaker 2

As Kurt Kelty shared, we continue to refine our cell strategy with the incorporation of prismatic cells and new chemistries. We're seeing enterprise wide benefits from winning with simplicity and we'll continue to add EV capacity in a measured cadence by converting existing component and assembly plants. And we're making good progress with Hyenda on specific areas of cooperation. We are nearing the completion of our first definitive agreement and we expect to have something to share soon. I'll close my prepared remarks by reiterating the commitment we made at Investor Day to build on our competitive strengths and deliver the performance that differentiates us from others in the industry.

Speaker 2

We know that's what investors expect and it's the best way for us to demonstrate both leadership and our true long term growth potential. Thank you. And now I'd like to turn the call over to Paul to walk you through the quarter.

Speaker 4

Thank you, Mary, and I appreciate you all joining us this morning. I'm pleased to report that our business continues to perform well, demonstrating ongoing discipline and a focus on delivering consistent financial results. And none of this would have been possible if it weren't for the hard work and dedication of our amazing team. A big thanks to everyone. It all begins with our stellar ICE portfolio, where we've been able to maintain strong pricing compared to the industry and our highly profitable full size pickup and full size SUVs continue to gain market share in their respective segments.

Speaker 4

We've been able to achieve these market share gains with significantly lower incentives than our competitors. For example, in the 3rd quarter, our U. S. Incentives were approximately 2.4 percentage points lower than the industry average, a gap that has widened from last year's Q3 where we were 1 percentage point below the industry. This demonstrates the strength of our products and our disciplined go to market strategy.

Speaker 4

I also want to highlight our ongoing commitment to financial I also want to highlight our ongoing commitment to financial discipline and that

Speaker 5

we are on

Speaker 4

track to meet our $2,000,000,000 net fixed cost program by the end of this year. On capital allocation, we repurchased $1,000,000,000 worth stock in the quarter, retiring another 23,000,000 shares. We ended the quarter with a diluted share count of 1,120,000,000 down 19% compared to the end of the Q3 last year. We anticipate that the ASR will be completed by the end of October. Our current estimate is that we will retire approximately 25,000,000 additional shares associated with the program in the 4th quarter, bringing the total number of retired as part of this program to nearly 250,000,000.

Speaker 4

All told, when you compare our Q3 results to last year, you can see that the company continues to execute well. Revenue was up 10% to $49,000,000,000 with year over year volume growth in both ICE and EVs. This is driven by having a great product portfolio and offering customers attractive choices in key segments. The higher wholesale volumes are also supported by 3 consecutive years of retail market share growth along with conquest rates at 60% or above for our EV sales. We achieved $4,100,000,000 in EBIT adjusted, 8.4 percent EBIT adjusted margins and $2.96 a share in EPS diluted adjusted, up roughly 30% year over year.

Speaker 4

Some of the performance during the quarter was timing, including a pull forward of some full size SUV production to support the ramp of the refresh model during the Q4 and prioritizing full size pickup availability. We estimate these factors had an EBIT impact of around $400,000,000 for the 3rd quarter that would have otherwise occurred in the Q4. We achieved adjusted automotive free cash flow of $5,800,000,000 during the Q3, up $900,000,000 compared to last year due to EBIT improvements, lower capital expenditures and improved working capital driven by higher production volume at the end of Q3. North America delivered 3rd quarter EBIT adjusted margins of 9.7%, which resulted in $4,000,000,000 of EBIT adjusted, up $500,000,000 year over year. This was driven by higher wholesale volumes, strong pricing, ongoing cost containment and the EV valuation allowance benefit.

Speaker 4

Pricing for the quarter was up $900,000,000 year over year and better than what we assumed in our guidance. About half of this pricing benefit was from really strong performance from our midsized SUVs, especially the Chevrolet Traverse. The rest was primarily from pricing adjustments that we made on our full size SUVs and the Corvette in the Q4 of last year, which have now been fully lapped. I also want to adjust another topic of interest, namely how we are addressing warranty costs. The continued inflationary pressures combined with warranty claims on a few of our high volume vehicles led to a $700,000,000 year over year adjustment in the Q3 from both reserve and rate adjustments.

Speaker 4

The primary issue causing the increased warranty accruals has been identified and a fix was put into production earlier in the year. Despite this expense, as you can see, our financial results remain strong. We are committed to the highest standards of quality and customer satisfaction. Lastly, dealer inventory levels ended the quarter at 68 days for ICE vehicles, along with 10 to 12 EVs per dealer to help increase customer awareness. The seasonally strong 4th quarter sales period, launch timing and lower wholesales due to the holiday season, as well as continuing discipline with our production levels puts us on track to end the year with total ICE inventory in our targeted range of 50 to 60 days and an appropriate level of EVs.

Speaker 4

GM International 3rd quarter EBIT adjusted was $50,000,000 down $300,000,000 year over year driven by the continued challenges in the China market. As for our international business, excluding China equity income, we are seeing stability and consistent results compared to the prior year. Our cost actions and disciplined approach to pricing and volume are driving margin growth in South America and the Middle East, which is offsetting competitive and FX headwinds. GM Financial has consistently performed well with 3rd quarter EBT adjusted of $700,000,000 down $50,000,000 year over year due to credit reserves within our expectations and still tracking in the range of $2,750,000,000 to $3,000,000,000 for the full year. They continue to drive portfolio growth and paid a $450,000,000 dividend to GM during the quarter.

Speaker 4

Cruise expenses were $400,000,000 in the quarter, down $350,000,000 from a year ago, reflecting a reduction in operational activities. We are continually looking for opportunities to prioritize further expense reductions even as we continue to make progress. Let's move now to the rest of the year. Given the positive momentum we've seen thus far and our confidence in the rest of the year, we are narrowing full year 2024 guidance to EBIT adjusted it to the $14,000,000,000 to $15,000,000,000 range, EPS diluted adjusted to the $10 to $10.50 a share range, which are both at the high end of our prior guidance and increasing our adjusted automotive free cash flow to the $12,500,000,000 to $13,500,000,000 range. Our cash flow remains strong and the increased guidance is driven by the timing of certain accruals such as warranty.

Speaker 4

For EBIT adjusted, our guidance assumes lower earnings in the 4th quarter in part due to the $400,000,000 I discussed earlier along with lower expected ICE wholesale volume, which can be attributed to 2 factors. First, we experienced a few days of downtime at our facilities that produce full size pickups and SUVs earlier this month due to supply chain disruption caused by the hurricanes. In addition, we are in the process of ramping our refreshed full size SUVs, which will have an impact on production rates. As these are our most profitable vehicles, any production changes have an outsized impact on profitability. 2nd, the 4th quarter is impacted by seasonality as it tends to have about 8 fewer production days due to the holidays.

Speaker 4

We have also incorporated an impact from higher EV volumes and lower pricing in part due to higher seasonal industry incentives. In closing, I want to reiterate a few important points. The anticipated results for the Q4 should not be seen as a reflection of the company's full year earnings potential. In fact, we are expecting full year results for 2025 to be in a similar range to our robust performance in 2024. We are on track to produce and wholesale approximately 200,000 EVs this year and reach variable profit positive in Q4.

Speaker 4

Our EV momentum is growing. We continue to invest in the business and create products our customers love and are willing to pay for as this is fundamental to our success, while at the same time we're finding efficiencies and opportunities to make the business more profitable. Finally, we expect to consistently return excess capital to our shareholders and are making progress towards our goal of reducing the number of outstanding shares to less than 1,000,000,000 in early 2025. And by the way, that is just the next mile marker, not the end goal. This concludes our opening comments, and we'll now move to the Q and A portion of the call.

Operator

Thank you. Our first question comes from the line of Joe Spak with UBS. Your line is open.

Speaker 6

Thank you, everyone. Good morning. I guess just to start, Paul, with the warranty, can you just go over that again? How much was that sort of the one time reserve release? You also talked about a rate adjustment.

Speaker 6

By that, I'm assuming you mean an accrual rate. And is that I guess that continues at least into the first half of twenty twenty five. Is that how we should think about it?

Speaker 7

Yes. Good morning, Joe. Thanks for the question. So you're right, it was both. What I would say is we have been pretty clear over the last several quarters that we've seen a lot of inflation, particularly in parts and labor for the warranty claims, while quality has been improved down events are down about 25% over the last couple of years.

Speaker 7

We are seeing that inflation. We've continued to see that. So we do a review in the 3rd quarter on the warranty accruals and this

Speaker 8

is what it was determined.

Speaker 7

There were also a couple, as I said in the prepared remarks, a couple of quality issues that we had uncovered in prior model years that we've already fixed in the production lines and don't see a problem going forward. So we think that there's some stability there and hopefully as we eclipse the largest part of the inflationary cycle, this can be a tailwind over the next few years on comparison.

Speaker 6

Okay. And then maybe just one housekeeping. I think last quarter you talked about the inventory in line being about $600,000,000 in the back half, maybe $300,000,000 per quarter and it was 600 this quarter. So is that also a timing thing? Or I know I think all of last year was about a $1,700,000,000 headwind.

Speaker 6

So it still seems like there's a little bit more room to run on that. I guess I just want to understand how you expect the remainder of that inventory in line to progress?

Speaker 7

Yes. So I think this is some of the seasonality that we've talked about and what we alluded to in the difference. So we pulled forward some production here in the from the Q4 into the Q3 in anticipation of some of the lost production days. So that it's about $400,000,000 that we see was kind of a pull forward. But we do expect that by the end of the year, as is consistent with our targeted to be back in that 50 to 60 day range.

Speaker 7

So there's some impact here and that's why we're seeing some of the discrepancy between Q3 and Q4 at the midpoint of our raised guide.

Speaker 6

Sorry, to be clear, I was talking about the inventory unwind on the EV side.

Speaker 7

I'm sorry, you're talking about the lower cost or market adjustment?

Speaker 6

Yes, exactly. LCR and NV.

Speaker 7

Sorry, I thought that was an inventory question. So yes, so as you know that adjustment is a function of both the inventory that we have on hand for finished sales as well as finished product, but also a function of our ongoing improvements in profitability. So we think that slows down a little bit as we get to year end, but we're going to continue to watch that. But I think it can be a little bit of a tailwind next year, but probably not as much as we saw in 2024.

Speaker 6

Okay. Thank you.

Speaker 7

Yes. Sorry for missing that. I misunderstood the question. Sorry.

Operator

Thank you. Our next question comes from John Murphy with Bank of America. Your line is open.

Speaker 9

Good morning, everyone. Just wanted to follow-up on the 2025 outlook here. You guys are kind of indicating that there will be a $2,000,000,000 to $4,000,000,000 improvement in the EV losses that will benefit EBIT. Yet you're saying sort of the total EBIT will be about similar year over year, which implies a pretty big deterioration in the ICE business, which seems given the state of where volumes are pricing, your product intros, seems like a pretty big drop. It's probably not going to happen.

Speaker 9

So I think if you look at this from an optimist standpoint, you would say there could be $2,000,000,000 to $4,000,000,000 of upside to your guide. I guess maybe a skeptic would say you're not going to get that benefit from EVs as hard as you may try. And there might be $2,000,000,000 to $4,000,000,000 of downside. But it just seems like the SKU or the bias would probably be to the upside as the ICE business holds in close to flat. So I'm just curious what you think in the sort of core business outside of EVs is actually going to deteriorate by that much?

Speaker 7

Yes. So John, as we said at Investor Day where we gave some high level headwinds and tailwinds with the most prominent really being the progress that we're making on EVs. We'll give official guidance on 2025 as we get into Q4 like we typically do. But there are a lot of things that go into that. We know we're going to see labor cost inflation next year.

Speaker 7

We're also going to go into the year as we consistently do with pricing assumptions, etcetera. But all of that's a little bit preliminary just because we're in the middle of our budget process as we are setting our targets for 2025.

Speaker 9

Okay. And then just maybe one follow-up on the comment on Cruise capitalization that you also made at Investor Day. It sounds like you're looking to raise some kind of capital there, but the reality is you have plenty of capital. So what is the motivation for raising capital there? Is it for a strategic partner or maybe getting very low cost capital or lower cost capital than you may be able to raise in the rest of the business just to fund crews?

Speaker 9

I mean what's really the motivation there?

Speaker 2

Well, I think as we look going forward, we believe in autonomy in general, but I think we want to make sure we're investing in autonomy as efficiently as possible. And there's a number of conversations that we're having with partners that I think just allows us to manage that investment more wisely. So that's what we're looking to do.

Speaker 9

So probably a partner with low cost capital is probably both Mary, right, is the motivation?

Speaker 2

Yes. I don't want to speculate on what partner, but I just want to say that we're looking at ways that we can be more efficient. One of the things people say about the auto industry is we don't we do a lot of all do a lot of different things and don't always leverage where we can partner with other OEMs or with other companies. And so we're really looking to leverage that, especially across the business, as we've mentioned with the MOU that we have with Hyundai, the continuing work that we do with Honda. And as we look at the investment going forward in cruise and autonomy, we think it's important to do that there as well.

Speaker 9

Okay. Thank you very much.

Operator

Thank you. Our next question comes from Dan Levy with Barclays. Your line is open.

Speaker 8

Hi, good morning. Thanks for taking the question. Wanted to start first with a question on the pricing in the bridge, which was up $900,000,000 I think this is maybe a little bit of a surprise to some folks because some of the 3rd party data appeared negative. You're now tracking at over $1,000,000,000 of positive price, and that's in the face of all of this price normalization. So maybe you could just give a little more color on the pricing piece of the bridge.

Speaker 8

Why it has been so resilient for you and really not what we're seeing in the 3rd party gate is not showing up in your bridge. And I know you've talked about normalization activity, but maybe you can give us some flavor for perhaps how your pricing can hold in even if the industry is weaker, perhaps it relates to just where you are with the product refresh cycle. I know you talked about refresh ICE SUVs. Just more color on price and the bridge and its resiliency.

Speaker 7

Yes, sure, Dan. Certainly, this is an aspect of the business that we've been very proud of and it starts with the product portfolio. So not only have we been on a pretty consistent refresh cycle with our vehicles, as I mentioned in the prepared remarks, we're also still lapping price increases that we were able to take last year. So some of that, we think probably stabilizes as we get into the Q4, as we lap those fully lap those price increases from last year. But it's something that we've tried to hold on to.

Speaker 7

I think our incentive behavior in the market has been very disciplined from the perspective of doing what is important for our product and our customers. And in fact that gap to the industry average has been widening even beyond the 100 basis points that we've talked about historically nearly doubling that in the September quarter. And I think a lot of that has to do with our disciplined approach to inventory as well. So we're going to continue to do that. But like I said, really proud of the products and what's out there and we're seeing that in the demand for our vehicles.

Speaker 8

And can you just remind us as far as the SUV refreshes next year that comes typically with a price increase

Speaker 7

or? Yes, it should as we come out with a new full size SUV refreshes hopefully later this year early next year. So more to come on that and we think that momentum is going to continue with these great products.

Speaker 8

Okay. Thank you. Second question is on cash and the free cash flow. Just 2 part question. One is on the free cash.

Speaker 8

Maybe you can explain the midpoint of the free cash guide was raised by $3,000,000,000 even though EBIT was raised by $500,000,000 Maybe color on that? And then also your cash now is $27,000,000,000 on the balance sheet. You talked about a $20,000,000,000 target. Maybe you can just give us a sense of how you're thinking about the cash position on the balance sheet, if $20,000,000,000 is the target? Or is that more of a minimum level that we should think of?

Speaker 7

Yes. So Dan on the free cash flow, what when you look at the earnings trajectory this year and now we're just a touch over 75 percent done with the year. What we've seen is generally go to market pricing has outperformed our initial expectations, while the costs that have come in have really been cash deferred costs. So when you look at warranty expense for example, that's not a cash cost in the current year, but rather an accrual against expectations of future cash outlays. So because of that the performance that we've seen and what we've been able to raise our guide has actually had a disproportionately strong effect on cash flow for that.

Speaker 7

So that really explains that. You're right, we were over $26,000,000,000 at quarter end. We continue to work through our capital allocation process. As we've talked about, our CapEx and our balance sheet are both in strong comfortable places. We have been somewhat limited as we've talked about in terms of share repurchases just because of the banks working through the tail end of the accelerated share buyback last year.

Speaker 7

We expect that to be done this month and we can continue down the path of applying our capital allocation program.

Speaker 8

Okay. Thank you.

Operator

Thank you. Our next question comes from Ryan Brinkman with JPMorgan. Your line is open.

Speaker 10

Great. Thanks for taking my question. And I realize that just a couple of weeks out from the Investor Day where you were only preliminarily looking ahead to next year ahead of the formal guidance introduction next quarter. But I'd be curious if there were anything you could share with regard to your assumption for GM or industry pricing in 20 25? I guess it's been a very hard number to forecast and given the track record over the past few years, I'd be surprised if any of us guessed it correctly.

Speaker 10

So not really looking for accuracy as much as the context with which to judge your outlook for continued very strong profits in 2025?

Speaker 7

Well, thanks, Ronny. And as we said when John asked earlier too and at Investor Day, we're not giving any specifics on 2025 as we go into it. But we'll have more information as we continue to close out 2024 and look at the new refreshes that are coming out. But we'll provide more detail on our Q4 call.

Speaker 10

And then just the thinking around that, is it that you're going to make your numbers regardless to find a way like the $2,000,000,000 to $4,000,000,000 easy profit improvement, there's a lot of swing there, maybe some swing with China. If pricing does track softer, where would you look to offset that so that you can drive for those numbers?

Speaker 7

Well, I think what the team hopefully has demonstrated over the last few years is an ability to be resilient and respond to where the market is. We've done that with cutting fixed costs. We've done that with on the revenue side of the equation as well. So we're going to look all over. But what you've got is a management team that is committed to driving results and driving performance and really demonstrating discipline and resiliency in changing conditions.

Speaker 7

I don't expect that 2025 is going to be any less change than what we've seen over the last few years. But I think that that's something that we're going to be able to manage through.

Speaker 10

Very helpful. Thank you.

Operator

Thank you. Our next question comes from Emmanuel Rosner with Wolfe Research. Your line is open.

Speaker 3

Thank you very much. My first question is another one on free cash flow. It's obviously an incredibly impressive performance and outlook raise for this year. In the context of you saying, hey, next year, we our results could be in the same ballpark. Do you feel that this applies to free cash flow as well?

Speaker 3

Or to the extent that there was some benefit this year from maybe working capital, building up, rebuilding inventory stocks, etcetera, that free cash flow may be somewhat different next year?

Speaker 7

Well, thanks, Emmanuel. I mean, clearly, there were a couple of things that were working in our favor this year. As I mentioned, the warranty accruals, which is really cash deferred, as well as some inventory build, from where we were in 2020. We might not lap. And I think it's more important honestly to be disciplined with our inventory than it is to use it as a tool to drive free cash flow.

Speaker 7

That's just short term thinking if you're doing that. So I think it's too soon to tell, but we're committed to driving free cash flow performance in the business every bit as much as we are in margin.

Speaker 3

Okay. That's great to hear. And then I guess as a follow-up, I think you reiterated your commitment to try and reduce share count to below 1,000,000,000 shares in early 2025. You would probably need to reduce your share count by like 120,000,000 shares over the next 3 months or so. Is that like a $5,000,000,000 buyback?

Speaker 3

Is that the sort of acceleration that you're targeting just over the next few months essentially? Obviously, would be significantly faster than what we've seen recently. Just generally speaking, is this the right math? And then how should we think about future pace of buybacks?

Speaker 7

Yes. So I will agree with your math that it's about 120,000,000 shares to get there. And we said that we believe that we can get there in early 2025. So no specific comments on when that is or what the velocity might be. But I think over the past year or so, I think we've demonstrated our commitment to returning capital to shareholders.

Speaker 3

Certainly. Thank you.

Operator

Thank you. Our next question comes from Adam Jonas with Morgan Stanley. Your line is open.

Speaker 11

Hi, thanks and good morning everyone. I had a question on the GM Financial side for Dan Bairst. We noticed that the net charge offs increased slightly to 1.2%, but they're still pretty low, look very manageable. You mentioned a moderation in credit performance, but just wanted to see if you wanted to flag any other color or potential concerns. And as a follow-up, GM Financial penetration is around 39%.

Speaker 11

Is that the right level to assume going forward? Or could we see this rise if the market got more competitive in 2025? Just wanting to see again, not for short term movements, but is this kind of dry powder for you to provide a better deal for your dealers and your customers in a more competitive environment going forward? Thanks.

Speaker 12

Yes. Thanks for the question. So with respect to credit, our charge offs year to date at GM Financial are almost spot on what we expected going into the year. So things are really going as planned. We did expect a modest moderation in credit year over year and that's exactly what we're seeing.

Speaker 12

Our portfolio is heavily prime and the prime credits have continued to perform very, very strong with good employment levels, good household income and still pretty strong household balance sheet. So all in all, credit is developing very much in line with what we expected. And on the second part of your question with respect to penetration levels, we work with the OEM in terms of targeting penetration. A lot of the penetration results from either leasing or supported or suspended loans. Our long term target is 40% to 45%.

Speaker 12

So yes, we were slightly below that, but the month of October for instance, we're right in that range. So that is the strategy there, Adam.

Speaker 11

Thanks very much. And just lastly on the CapEx, you're targeting stable CapEx, stable in this kind of $11,000,000,000 type range. Mary or Paul, I'm wondering how the mix of that CapEx has been changing. If you did like a look back last 12 months between EV, AV, ICE, new products, new capacities, how that might be shifting with the 12 months forward, at least rate of change or proportion, particularly specifically with respect to some of the AI related infrastructure that might be coming in? Is that a material number to call out yet?

Speaker 11

When could it be? And kind of how that mix of CapEx might be changing? Just any color around that without specificity would be very helpful. Thanks.

Speaker 7

Yes. Thanks, Adam. I'll try that. I think if you look over the last few years, our CapEx has probably pivoted more towards product portfolio and away from infrastructure. As you know, we went through a big wave a few years ago of planned retooling and getting set up for the foundation to grow EVs.

Speaker 7

And we're really glad we made that investment because it's putting us in a position to be able to realize the scale benefits as we highlighted at Investor Day down at Spring Hill. So we're still maintaining a balance between EV and ICE as well. Still about a third of our program capital is going into ICE vehicles

Speaker 3

and you see that in

Speaker 7

the performance of the refreshes that we put out whether it's the midsized trucks or the smaller midsized SUVs and then ultimately the full size SUVs that are coming again. So I think we've struck the right balance going forward. We do have a lot of a growing amount of capital for what I would call broad efficiency gains that are going to help lower our cost of production, but also deploy technology and everything that we do from building vehicles to the administrative side of the business as well. So that is playing a part. And we think that the $11,000,000,000 area of capital spending against what we're earning is very manageable and represents a disciplined approach.

Speaker 2

Yes. The only thing I'd add to that Adam is when we stay at that level approach, it definitely leads to, I think, higher quality execution because we're not driving product engineering up and down or across manufacturing. So that definitely has been helpful. And then as we look at the mix between ICE and EV, there's been cases where we wait until what's the last moment where we have to make a decision on, are we going to do a next generation of an ICE version? Are we or what are we how are

Speaker 5

we going to look

Speaker 2

at it from an EV perspective? And so we're really being led by the customer and we have that flexibility now that we have that infrastructure that Paul talked about. So we're really trying to respond to the market and be very efficient with our capital.

Speaker 11

Thanks, Mary. Thanks, Paul.

Operator

Thank you. Our next question comes from Tom Narayan with RBC. Your line is open.

Speaker 13

Yes. Thanks for taking the questions. Paul, so price mix was a +300000000 in Q3 North America and the EBIT bridge. Price specifically $900,000,000 as you guys talked about. Mix was a negative $600,000,000 EV sales coming at lower mix.

Speaker 13

That increases in Q4 to get to the $200,000 target. And I think you called out some price headwinds in Q4 versus Q3. So should we expect price mix net in North America to be a net negative in Q4? Is that am I kind of understanding that right?

Speaker 7

Yes. I think Tom thanks for the question. I think as you look at some of that lapping, it certainly could be. It's not going to be a benefit like we saw in the Q3 and that's some of the walk between Q3 and Q4. But I think a lot of that is timing of things that we did a year ago and so on and which is why we haven't said that and don't believe that Q4 is really an indicator of the run rate going forward in 2025.

Speaker 7

So that was augmented a little bit by some of the timing of wholesales, in the quarter that we talked about with the pull forward. But I think you're directionally correct.

Speaker 14

Okay.

Speaker 13

And then and Mary on China, the color we're hearing from the German OEMs in China, to put bluntly, is quite concerning even premium brands losing share to domestic. I know things can improve with a higher bev mix and restructuring, but you're so strong arguably in the best market in the world right now in the U. S. I guess how committed are you to China longer term, especially if these losses persist? Thanks.

Speaker 2

Well, we believe that we can turn around the losses and that's why we have a series of meetings with our partner to make the hard decisions to get the business to be sustainable and profitable. Right now in the business, one of the things that's driving the improvement is the fact that the GLA, which is really our kind of we like to think of it as our full size truck, franchise in China, as we launch that new vehicle, it's doing very, very well. We did just cross over that now for more weighted to new energy vehicles than ICE. I think that's an important transformation that frankly I would have liked to see happen a little bit earlier. So and then when you look at what we have from the premium import channel, that's a very capital light way to participate in the market with unique products like the Chevrolet Tahoe that we're just starting to take orders for.

Speaker 2

And again, that gives us more scale. So we're going to be very measured as we go through. But when you look at the size of the China market and the growth opportunity that's in the mid- to long term, we think we can participate clearly in a different way than we did just a handful of years ago. With the rise of hundreds of competitors from China domestic companies that frankly don't seem to prioritize profitability. They're definitely prioritizing production.

Speaker 2

It provides for a very challenging environment and that's where I think we have to play in areas that are our strength and where we have franchises like the GLA and then some of the other premium products. But we do believe there's a place we can participate in a very different manner, but do that profitably and that's what we're 100% focused on getting to as quickly as possible.

Speaker 13

Got it. Thank you.

Operator

Thank you. Our next question comes from Edison Yu with Deutsche Bank. Your line is open.

Speaker 15

Hey, good morning. Thank you for taking our questions. First just on Cruise, we noticed that you indicated that the autonomous miles have gone up about 3x. I'm just curious, have you given any sort of rough framework on when you might return to actually unsupervised testing like you were before?

Speaker 2

Yes. We hope to well, one will be gated by safety, but we hope and we're working hard to get there by the end of the year, meeting the higher standard of role model driver as opposed to, I'll say, average human driver. So that is the goal that the team is working hard to every single day.

Speaker 15

Got it. And just a follow-up on China, just in terms of the mechanics, given the losses, do we anticipate at some point having to actually fund the JV in a more material way? Or is the idea that I guess the restructuring under discussion would improve that so we wouldn't have to do that?

Speaker 2

I think we're looking to create a sustainable business within country. We have a series as I mentioned in my prepared remarks, we have a series of meetings with the partners. So I don't want to get ahead of that of how that's going to how we're going to go forward. I want to make sure we do that with our partners. So more to follow as we make those decisions.

Speaker 13

Great. Thank you.

Operator

Thank you. Our next question comes from James Picariello with BNP Paribas. Your line is open.

Speaker 14

Hi, everybody.

Speaker 16

I know a sequential bridge is not the easiest exercise, but at the midpoint of the full year guide, right, we're looking at a $1,500,000,000 step down in adjusted EBIT for the Q4. Just at a high level, can you help bucket the major factors that inform that quarterly decline, right? We'll see less ice volume, more EVs. How can we think about pricing in that quarterly bridge? And to what extent are you seeing intensified competitor actions to address their prolonged dealer inventory problem in the U.

Speaker 16

S? Is this dynamic in any way influencing CHANCE assumptions for the Q4? Thanks.

Speaker 7

Yes. Thanks, James. The You're right. I don't want to get into all the details here. But directionally, as we talked about, there's about $400,000,000 of timing that we talked about.

Speaker 7

There are about 8 fewer production days in the Q4 than there are the 3rd due to holidays around Thanksgiving, around Christmas as well as Election Day, Veterans Day, things like that. So, when you combine that with the cutover for the model year on the full size SUVs, it starts to add up a little bit. So, as well as lapping last year. And that's kind of where we are, but we think some of that is isolated to the Q4 obviously as we have given broad kind of perspective on 2025 going forward. So on the pricing side, I think the team's done a really good job of making sure that we're pricing our products to value for the customer.

Speaker 7

And we've done that somewhat independent. We've been through periods where one competitor or another has significantly taken up incentive levels, we've stayed pretty consistent in that and as we've said widen the gap against the industry. So we're going to do what's best for our customers and our products going forward. And that's been a strategy that's continued to work for us.

Speaker 16

Got it. Just my follow on would be just on the intensified competitor actions. Are you seeing anything there? And then my housekeeping question for the share count, can you just confirm what the final ASR that's getting completed officially completed this month? What that ASR impact is on the share count?

Speaker 16

Thank you.

Speaker 7

Sure. So just as I said, we see a lot of behavior from customers we've seen or from our competitors. We have seen that manifest itself in terms of higher incentive levels. We've managed through that. This isn't the first time that that's happened over our recent performance.

Speaker 7

And we're going to continue to manage our product portfolio to our demand. And I think that's a strategy that worked well for us. We in the prepared remarks, we talked about 250,000,000 shares. Remember, we got most of the credit in our diluted share count last year when we closed the deal. But this is about another 20 5,000,000 shares that will be delivered when it's done.

Speaker 7

And that will be new shares that reduce the denominator on EPS.

Speaker 13

Thank you.

Operator

Thank you. Our next question comes from Daniel Roscoe with Bernstein Research. Your line is open.

Speaker 14

Hey, thanks for taking my question. Good morning. I'll ask the companion question to Adam's CapEx question. Paul, could you shed some light on your thinking about the R and D budget and whether kind of the $10,000,000,000 run rate from last year is the right level going forward? And maybe has any of that shifted in terms of allocation between EV and ICE and product launches given that the EVs are launched now and maybe also the broader slowdown of EVs in the market?

Speaker 7

Yes. So I think when you look at the total sort of product development budget combined with what we're doing with autonomy and so on. I think we've struck the right balance in terms of our ability to fund and as Mary mentioned, our ability to drive returns out of our investment. So while we have successfully launched a number of our electric vehicle products, there's still work that can be done in terms of engineering, more efficient solutions. And the work that Mark talked about at Investor Day around winning with simplicity and removing part numbers and going in and trying to take out complexity from the business is a pretty strong engineering effort that goes into our product development budget.

Speaker 7

So we're focused on creating a portfolio that's going to win and win for the long term. And that requires us to constantly be looking at that portfolio both on the EV and the ICE side. So if we find ourselves in a situation where we're not generating as much cash flow, I think there's a lot of things in there that we can take a look at and we can adjust. But where we've been performing fairly consistently, we think that the total budget for product development and CapEx is very affordable and something that we can implement effectively.

Speaker 14

Thanks. And maybe following up for Mary on that, you recently affirmed your 2,035 ICE phase out target. Kind of between now and then and I get that this is a little bit more strategic, but is there the need for a fully new BEV platform kind of before the end of the decade? Or are you confident that with what Paul just said, you can kind of keep on improving on the BV3 and BT1, to kind of keep up with competition?

Speaker 2

Yes. We definitely believe when you look at the core of the dedicated EV platform, there's clearly things that we're doing to drive more efficiency and that work is going to continue. We'll continue to look at different production different design and production things that are going to help us take cost out of the business, but it's not a complete melt and report by any stretch of the imagination. I would think it's more evolutionary. So that's how you should think about it.

Speaker 14

Great. That's helpful. Thanks.

Operator

Thank you. Our next question comes from Chris McNally with Evercore. Your line is open.

Speaker 5

Thanks so much team. Paul, I'm not trying to beat the dead horse after Murphy and Brinkman's question, but I know it's an important one for investors. Would you be able to even just for 2025, maybe prioritize or bucket the 2 main tailwinds, one being cost wage and the other one being price, just which is sort of a larger headwind for 2025, so we can start to sort of make our own assumptions?

Speaker 7

Well, thanks for that, Chris. And I think that is beating the dead horse. But as we talked about, there's a number of costs that we continue to look at in the business. What we're committed to is making sure that we keep our fixed cost discipline around that. We've talked about rather than flat, keeping it flat excluding depreciation.

Speaker 7

So we'll see some depreciation headwinds next year that we expect going into. And we'll go into the year on the pricing assumptions that have served us well, which is to make sure that we set up a budget that is affordable for us and one that if the commercial environment stays consistent one that we think we could outperform. But it would be irresponsible for us to think about and set a budget that has pricing continuing to grow and continuing to expand off of these levels and then have to adjust the business backwards. So, we think that this is a strategy that's worked well for us and we'll get into specifics when we give our Q4 results in our 2025 guidance.

Speaker 5

Absolutely. Much appreciated. And then the follow on question is around this sort of walk of $2,000,000,000 to $4,000,000,000 in lower EV losses next year. And this is a question I've been sort of surprised that I've been getting from investors, so going to pass it along, which is if EV sales were flat or down year over year in 2025, could you still achieve that $2,000,000,000 to $4,000,000,000 in lower EV losses? It's sort of my way of asking the election question without asking the election question.

Speaker 7

Well, I'm not sure that's an election question as much as it is what our consumer is looking to do. But we've seen the recent uptick in September month, both in terms of demand, but also us getting share gains. And so I think that there is an element of growth next year for us in EVs as we continue to bring our products to market because the customers are responding to those. So when you look at what we were able to do to give our customers access to the Tesla Supercharger network, we're out there proactively addressing things like range anxiety with vehicles that have over 300 miles of range as well as supplementing that charging infrastructure with a really efficient solution for them. So we think that there's an opportunity to continue to expand that.

Speaker 7

Clearly, as we've articulated for the last year or so, scale is an important piece of it. But what's more important is making sure that we scale to demand and we're there with a flexible portfolio for consumers and meeting them where they are. So obviously if we don't grow as much those scale benefits aren't going to be as fully realized. But our best estimate today based on the momentum we see and where we see EV adoption going next year is that we can realize meaningful savings in our EV profitability.

Speaker 5

Perfect. And so Paul, to summarize that volume is a component of that, but it's not the only component. I mean, obviously, you're only just getting positive contribution margins now. So I imagine there's also some of the annualization effect and you also talked about ZEB sales and things like that. And so volume is one component of that $2,000,000,000 to $4,000,000,000 but there's obviously a lot more on the year over year compare.

Speaker 7

For sure. We're constantly making improvements in terms of the efficiency of production as well as the part number reductions that Mark has talked about as well as we should see some mix benefits coming in with the Cadillac Escalade IQ and some of the other vehicles that are coming to market. So there's a lot going on, a lot of moving parts, but that's just our best look where we are today on our journey. But again, the most important thing that we can do as a company is get to that positive contribution margin. And I think we've got a good roadmap.

Speaker 7

And I think we've proven our resiliency in that, even though we're at the lower end of what we projected our production to be at the beginning of the year. So continuing with that kind of scrappiness is I think what sets this team apart.

Speaker 5

Really appreciate the detail Paul.

Speaker 2

Thanks Chris.

Operator

Thank you. Our last question comes from the line of Mark Delaney with Goldman Sachs. You may

Speaker 17

proceed. Yes. Good morning. Thanks very much for taking the question. But GM is now selling the entry level version of the Equinox EV that's priced starting at $35,000 prior to any IRA credits.

Speaker 17

I'm hoping to better understand if there are strong sales of that particular SKU, can GM still hit its EV profit improvement outlook for 4Q and 2025?

Speaker 2

We're going to look across the entire EV portfolio that we're selling. And we talk about some of the different models are really going to be from a Blazer EV and an Equinox EV are going to be coming in, in 2025. But we are going to look and make sure we're responding to what the customer likes. We're seeing strong interest in the Equinox with EV with what we have in the market right now. So I think it's doing well as we go forward and we look to continue to grow as Paul talked about.

Speaker 2

That's where additional options I think are going to be important.

Speaker 17

Thanks for that, Mary. My other question was just on your manufacturing flexibility. And to the extent there's a material increase in tariffs on vehicles imported into the U. S, can you talk about how much flexibility GM has to shift more of its production domestically and or potentially offset tariffs with either pricing or cost reductions? Thanks.

Speaker 2

Well, I think we're always working on cost reductions. I think it depends on specifically what the tariffs would be. I would tell you, we are paying careful attention to the approach both candidates might take. And I'm not going to speculate on what either might do, but what I will tell you, we have and will continue to engage constructively with the policy making process, regardless of the election outcome. When you look at the number of jobs created in the U.

Speaker 2

S, even with some vehicles that are manufactured outside, a lot of them are in our partners from an ally perspective. So I think it's a very complex situation. When USMCA was formed, there was a lot of input being provided. And I think looking at jobs, looking at the jobs that have been created, especially when we look at battery plants and some of the other facilities that we've leveraged for drive motors or drive units, etcetera, you've got that's going to all be factored in. So we're going to work constructively.

Speaker 2

And so it's too hard to speculate not knowing exactly what's going to happen. But to just reiterate what Paul has said, we're going to be disciplined and we'll be resilient and we'll make adjustments to the extent that we can to continue to drive growth and profitability.

Speaker 13

Thank you.

Operator

Thank you. I'd now like to turn the call over to Mary Barra for her closing comments.

Speaker 2

Again, I want to thank everybody for your questions. Appreciate your participation. I hope you look and you see our performance this year demonstrates that our focus is on building great vehicles because great vehicles matter, vehicles that have beautiful designs, the right technologies, the right range of their EVs that customer want to buy really want to buy. We're going to continue to improve our ICE and EV profitability. We're going to maintain cost discipline and we're going to continue to drive and look for ways to improve our capital efficiency.

Speaker 2

So in the weeks months ahead, you'll see more clearly than ever how we intend to leverage the tailwinds that are within our control to deliver strong results in 2025 that are in a similar range to 2024. As we've said, we'll share more information about Cruise, China and our other new collaborations as soon as we can. And as Paul said, we'll wrap all of this into formal 2025 guidance that we'll share in January. So until then, please stay safe and I'm sure we'll talk to you soon.

Operator

That concludes the conference call for today. Thank you for joining.

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