GM Stock Sinks As Raised Guidance Looks Shaky Amid 'New Challenges'

General Motors (GM) swung to a Q2 profit and guided higher, but warned its outlook for the second half of 2021 is cautious. GM stock tumbled.


The report came a week after rival Ford (F) raised guidance and noted improvement in the supply of chips.

Vulnerable Outlook

For all of 2021, GM now sees adjusted EBIT of $11.5 billion-$13.5 billion, up from $10 billion-$11 billion previously. The company also raised its 2021 EPS view to $5.40-$6.40 from a prior view of $4.50-$5.25. But the new EPS guidance is still below Wall Street’s expectations for $7.07, according to FactSet.

On an earnings call, management cautioned it sees “new challenges” tied to chip and commodity headwinds in the third quarter and beyond.

“As for semiconductors, the situation does remain fluid, and the supply chain continues to be impacted by events like what is happening right now with the Covid spike in Malaysia,” CEO Mary Barra told analysts on an earnings call.

“There are unknowns with the Delta variant, and that’s why we are being appropriately cautious,” Barra added.

On Tuesday, GM said it would shut down three North American full-size pickup truck plants again next week due to the chip shortage. On Wednesday, GM, Ford  and Stellantis (STLA) reinstated a mask mandate at all U.S. plants due to rising coronavirus cases.

CFO Paul Jacobson sees tight chip inventories lasting into 2022. Amid new, shortage-fueled factory shutdowns, General Motors expects to produce about 100,000 fewer vehicles in North America in the second half of the year vs. the first. GM also sees significantly higher commodity costs, as much as $1.5 billion-$2 billion, weighing on the second half of 2021.

But production rates should skew higher in the fourth quarter as near-term headwinds abate, Jacob said on the call.

The 2021 guidance assumes no year-end inventories of incomplete cars due to the supply shortages, GM said. But if it does hold such vehicles in inventory at year end, “significant cash flows could shift from 2021 to 2022,” GM warned.

GM Earnings

On a per-share basis, the No. 1 U.S. automaker swung to earnings of $1.97 from a net loss of 50 cents a year ago. Revenue jumped 104% year on year to $34.17 billion, with GM lapping the pandemic trough in the year-ago Q2. Wall Street expected EPS of $1.82 on revenue of $29.92 billion, according to FactSet. But Refinitiv estimates had put Q2 EPS at $2.23.

In Q2, GM generated $2.48 billion in free cash flow despite the global chip shortage that hit vehicle production, defying analysts’ expectations for a $184 million cash burn.

Results came in better than expected due to high demand and strong pricing for full-size pickups and SUVs, GM said. And high used vehicle prices drove record results at its financial arm, which provides loans to consumers to buy cars. Those were partially offset by higher material and commodity costs, as well as higher warranty recall costs, including $800 million tied to the Chevrolet Bolt EV. The recall only affects older Bolt models, Barra said on the call.

Recently, GM Financial extended its Cruise unit a $5 billion line of credit as the Origin self-driving car nears commercialization. The Origin launches in early 2023, GM said. On Oct. 6-7, General Motors will share more details about its strategy for electric vehicles and autonomous vehicles.

Last week, Ford reported a surprise profit and lifted its guidance for 2021 adjusted EBIT and cash flow. While the chip-supply crunch eased, management warned the situation “remains fluid.” On Wednesday, Ford reported U.S. sales in July fell 32% to 120,053 vehicles, though the Mustang Mach-E electric crossover saw a 15.8% increase.

That came after Tesla (TSLA) said the chip crisis remains serious and is hard to predict, with chip giant Intel (INTC) warning shortage could stretch into 2023.

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GM Stock

Shares dived 8.9% to close at 52.72 on the stock market today, hitting the lowest level since March. GM stock is working on a 64.40 cup-shaped buy point but it’s well below the entry for now and also under the 50-day line, according to MarketSmith chart analysis. On Wednesday, Ford stock fell 5%. Tesla stock rose 0.2% and Stellantis (STLA) added 1.4%, a day after the former Fiat Chrysler reported $7 billion in profits in the first half of 2021.

Toyota (TM) lost 2% to 182.18, after reporting strong earnings but warning of an extended chip shortage. Toyota stock briefly topped a 185.48 flat-base buy point Tuesday, but is back below the entry now. Honda (HMC) rose 0.9% after beating Q2 views.

In July and August, General Motors and Ford idled factories again due to a lingering chip shortage. Some of those plants had resumed production after downtime in the spring.

Still, GM continues to prioritize its popular, profitable full-size trucks and SUVs during the crisis.

After Hours: 3 Big Earnings Losers; A Big Shift In Meme Investing

On Tuesday, Nikola (NKLA) warned that supply-chain woes “appears to be spreading a bit,” slashing targets for revenue and vehicle deliveries. The electric-truck startup and GM continue to partner on hydrogen fuel cells, after scaling back an earlier and broader EV partnership.

Meanwhile, General Motors and Ford continue to accelerate on EVs and AVs. In June, GM hiked its AV-EV investment to $35 billion, up from $27 billion. It plans to go all-electric by 2035 and has made key deals with battery and lithium suppliers in recent months.

The GMC Hummer electric truck pickup and the Cadillac Lyriq electric SUV are on track to launch in the fall and early 2022, respectively, GM said Wednesday. Those vehicles lead a parade of more than 30 new EVs that GM is launching in the U.S. and China by 2025.

Find Aparna Narayanan on Twitter at @IBD_Aparna.


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