General Motors' Income Tumbles 40% on China Loss, Parts Shortages - WSJ
Category: News & PoliticsVia: vic-eldred • 3 weeks ago • 43 comments
By: Mike Colias (WSJ)
General Motors second-quarter net income fell 40% over the prior year, hurt by a loss in China and supply-chain troubles that left the auto maker with tens of thousands of partially built vehicles it couldn't sell during the period.
The Detroit-based car company on Tuesday said net income for the April-to-June period totaled $1.69 billion, down from $2.84 billion a year earlier.
GM said second-quarter revenue rose about 5%, to $35.76 billion. It posted pretax earnings per share of $1.14, below the average analyst estimate of $1.23, according to FactSet.
GM warned earlier this month that a drop in vehicle output in North America would hit second-quarter results. A shortage of computer chips and other parts prevented the company from shipping 95,000 vehicles to dealers, GM said, though it expects to clear the backlog during the second half of the year.
The auto maker on Tuesday stood by its forecast for the full year of $9.6 billion to $11.2 billion in net profit. GM shares fell about 1% in premarket trading.
Pressure surfaced in other parts of GM’s business too, including in China, the company’s second-largest market, where its joint-venture business posted a rare loss of $87 million. The pretax profit margin in North America, which drives the bulk of GM’s bottom line, fell to 8%, from 10.4% a year earlier.
Chief Executive Mary Barra said the company is cutting discretionary spending and limiting hiring, and is prepared to tighten costs even further if economic conditions worsen.
Ms. Barra said the outlook for the second half of the year is strong, and she expects production to increase sharply from the first half.
Across town, Ford is preparing to cut several thousand salaried jobs in North America to improve its cost structure as it prepares for a long-term transition to electric vehicles.
Separately, GM said it struck agreements with outside suppliers to secure raw materials needed to build electric-vehicle batteries. The pacts will help the company lock up enough battery capacity to hit its goal of one million electric vehicles in North America by 2025, GM said.
South Korea’s LG Chem agreed to supply GM with nearly one million tons of material that go into battery cathodes, a key component in EV batteries, the auto maker said. Cathodes use lithium, nickel and other materials that account for about 40% of the total cost of a battery, GM said.
GM also said it signed a deal with Philadelphia-based Livent Corp. for lithium hydroxide, which is another ingredient used in battery cathodes. The agreement calls for supply of the material to shift from Livent’s operation in South America to U.S.-based production facilities later in the decade.
GM and other auto makers have been taking pains to disclose more to Wall Street about how they plan to put the industrial pieces in place to mass produce electric cars. Investor enthusiasm for EV-related stocks soared last year amid signs that battery-powered vehicles are poised for strong growth. Since then, shares in EV makers have pulled back sharply, in part because of missed production forecasts.
Ford last week outlined several steps it is taking to boost production of batteries and electric models, including an agreement to source iron-based batteries from China’s Contemporary Amperex Technology Co.
Ford reports second-quarter results Wednesday, followed by global auto maker Stellantis NV, which plans to release its latest earnings report early Thursday.
Analysts have raised questions about whether a future battery shortage could curb the auto industry’s EV ambitions. Both GM and Ford have said they aim to overtake Tesla Inc. in U.S. electric-vehicle sales.
Meanwhile, traditional car companies face a host of challenges in their core business of building internal-combustion-engine cars, which still fuel nearly all of their profits.
Rising interest rates could dampen consumer demand, while higher raw-material costs are eroding profits and leading car companies to raise vehicle prices. The computer-chip shortage continues to scramble auto makers’ production schedules, complicating efforts to replenish depleted dealership lots.
With inventory levels near all time lows, the average price paid for a new vehicle in the U.S. hit a record of about $45,800 in June , nearly 15% higher than a year earlier.