General Motors (GM) reported better than expected fourth quarter earnings results on Tuesday, beating Wall Street estimates on both revenue and profit. The company earned an adjusted $1.24 per share on revenue of $43 billion for the quarter, surpassing analyst predictions.
GM faced substantial headwinds in 2023, including a lengthy strike by the United Auto Workers union, slowing electric vehicle sales, and effects from the Cruise self-driving car unit. However, the automaker showed resilience with strong overall financials to round out the year. The company is forecasting improved profitability in 2024 as it works to ramp up EV production.
Q4 Earnings Top Views on Pricing Power, Cost Cutting
While total fourth quarter revenue dipped slightly year-over-year, GM managed to grow net income attributable to common shareholders from $1.7 billion to $2 billion. Several factors allowed GM to exceed expectations:
- Strong vehicle pricing in late 2022 boosted profit per unit sold
- Lower warranty repair costs
- Reductions in general operating costs
- Income tax benefits
The 40-day UAW strike was estimated to have cost GM around $3.6 billion in earnings before interest and taxes (EBIT) during 2019. But the Detroit-based automaker actively cut expenses and optimized manufacturing in response, preventing severe margin erosion.
Key GM Q4 2023 Financial Metrics
| Metric | Q4 2023 | Q4 2022 | Change |
|---|---|---|---|
| Revenue | $43 billion | $43.1 billion | -0.3% |
| Adjusted EPS | $1.24 | $1.43 | -13% |
| Net income to common shareholders | $2 billion | $1.7 billion | +18% |
| Operating cash flow | $4.5 billion | $4.8 billion | -6% |
Shares of GM climbed over 6% the morning after reporting earnings, indicating renewed confidence from investors.
EV Sales Lag But Future Looks Brighter
One disappointment in GM’s report was softer electric vehicle sales. The company’s transition towards zero-emission cars is seen as vital for future success, but consumer EV adoption has not kept pace with internal targets.
GM originally guided for 400,000 global EV sales for 2023 but had to walk back that forecast last fall. Actual deliveries are expected to land between 235,000 – 255,000 when final tallies are reported.
On the earnings call, CEO Mary Barra reaffirmed her commitment to ramping up EV production capacity:
“We plan to aggressively accelerate our EV plan and now target 1 million units of EV capacity in North America by the end of 2025. That’s 2 years ahead of our prior target.”
To help fund faster expansion, GM’s self-driving subsidiary Cruise raised another $1.35 billion from institutional investors in January. This will allow the company to keep investing in both autonomous and electric segments.
GM President Mark Reuss also confirmed that at least three new EV models across different brands will launch in early 2024. Consumer options are seen as vital to supporting mainstream adoption. Management expects profitability from EV lineups by mid-decade, assuming no recession.
Macroeconomic Wild Card for 2024
The auto sector is facing growing fears of an economic slowdown, which would hamper sales. New vehicle prices remain high after shortages during the pandemic, and rising interest rates make financing more expensive.
However, GM believes overall pricing power will offset impacts to demand or profit per unit. Management reaffirmed guidance for improved consolidated EBIT in 2024 versus 2023.
CFO Paul Jacobson commented on macro conditions:
“We try to focus on what we can control…launching our EV portfolio…and continuing to build capabilities around software and AI. We see those things powering us forward through different economic cycles.”
GM ended the fourth quarter with near record low dealer inventory in the U.S., partly attributed to gradual rebuilding post-strike. This means lower cash tied up in unsold vehicles. The company also maintains a fortress balance sheet to endure any downturn, ending 2023 with over $29 billion in liquidity including $19 billion in cash.
So while analysts see risks from high inflation and rising rates ahead, GM looks to be in solid shape following better than expected Q4 earnings. Execution on EV manufacturing and technology roadmaps will determine if the auto giant can press its advantage through softer consumer demand. But GM is signaling confidence with its 2024 profit forecast.
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