GM posts higher profits, signals note of caution on chip shortage

General Motors Co. beat analysts’ estimates for fourth-quarter profit but signaled a note of profit-growth caution this year as a semiconductor shortage reverberates throughout the global auto industry.

The robust results GM reported Wednesday capped a tumultuous year after it weathered shutdowns from the Covid-19 pandemic and outlined a bold move to exit gasoline-powered cars. The company expects continued income growth in 2021 despite hurdles such as the semiconductor shortfall that has cut its production at three plants in North America.

Mary Barra, GM’s chief executive officer, addressed the chip issues in a call with reporters, vowing the company will shield its highest profit margin vehicles.

“We’re doing everything possible right now so we won’t lose any production throughout the year for full-size trucks and SUVs," she said.

Shares of the carmaker pared a drop of as much as 5.2% in early trading, falling 4.7% to $53.42 as of 10:01 a.m.

Chip Scarcity

The semiconductor shortage will shave $1.5 billion to $2 billion off adjusted earnings this year, the company estimated. It already has idled three plants until mid-March and been forced to build vehicles without certain modules at other factories, holding them until more chips come in. But it said that would be a temporary setback.

For 2021, GM forecast adjusted earnings before interest and taxes of $10 billion to $11 billion, which translates to adjusted earnings per share of $4.50 to $5.25. That compares with $4.90 a share in 2020 and $8.4 billion in adjusted earnings before interest and taxes.

Taiwan Semiconductor Manufacturing Co Ltd will prioritise production of auto chips if it is able to further increase capacity. (Bloomberg)

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Taiwan Semiconductor Manufacturing Co Ltd will prioritise production of auto chips if it is able to further increase capacity. (Bloomberg)

Strong demand for its vehicles and a rapidly unfolding push into EVs will help the automaker power past the temporary difficulty of securing chip supplies, Dan Levy, an analyst with Credit Suisse who has an outperform rating on GM’s stock, wrote in a research note. “We believe investors should look past the soft guide," he said.

The company is benefiting from a recovery in US demand after a pandemic-induced shutdown early last year and also signs of improvement in China, the world’s largest car market. GM’s market share grew in both countries in the last three months of 2020.

Overall, the automaker’s adjusted profit came to $1.93 per share for the quarter, surpassing analysts’ consensus estimate of $1.56, thanks to strong demand for its pickup trucks and large sport-utility vehicles.

In North America, GM reported a quarterly adjusted income before interest and taxes of $2.6 billion and a margin of 8.7% after running its truck and SUV plants full out.

EV Transition

Profits in the Chinese market came to $248 million on a 37% jump in revenue to $14.1 billion. That still lags behind just a couple of years ago, when GM used to make $2 billion a year, but Barra told reporters she expects better days are ahead for its brands.

“As the industry recovers and we roll out SUVs, we can get to levels that we’ve had in the past," she said.

GM plans capital expenditures this year of $9 billion to $10 billion -- with $7 billion of that earmarked for programs such as electric and autonomous vehicle development. That tops rival Ford Motor Co.’s $6.5 billion capital-spending budget for 2021.

Shares of both companies have rallied in recent weeks on heady investor expectations for the auto industry’s shift to EVs. The challenge for established carmakers is to wean themselves from dependence on profits from gas-guzzling SUVs and trucks.

The industry is working to reduce battery and other costs, but margins on EVs won’t likely reach parity with gasoline-powered cars until the “mid- or later part of the decade," Barra said in an interview with Bloomberg Television.