GM outlook doesn’t impress, sees chip shortage continuing; shares drop

October 27, 2021

By Ben Klayman and Paul Lienert

DETROIT (Reuters) -General Motors Co said on Wednesday its quarterly profit was hit by the global semiconductor shortage that it sees continuing until late 2022, and offered a full-year profit forecast that disappointed Wall Street, sending shares down more than 3% in premarket trading.

The Detroit automaker’s quarterly profit and revenue fell due to a drop in wholesale shipments to dealers amid the continuing chip shortage, as well as higher commodity and logistics costs.

Credit Suisse analyst Dan Levy said in a research note: “Not the beat/guide raise we were looking for.”

GM said the negative impact on earnings was partially offset by strong pricing on full-size pickups and SUVs and an agreement by supplier LG Electronics to cover most of the anticipated $2 billion in costs related to the recall of the Bolt EV and Bolt EUV.

Analysts said some on Wall Street had not included the recovery in recall costs in their third-quarter estimate, skewing the consensus outlook.

“We were able to do very well” with big trucks and SUVs, Chief Executive Mary Barra said on a call with analysts. “We just can’t build enough of those vehicles.”

Barra said pricing gains will ease as availability of vehicles improves later this year and next. She said chip shortages will continue into next year, but should ease toward the end of 2022.

In a letter to shareholders, Barra said the company now expects its full-year results will approach the high end of its guidance for operating earnings in the range of $11.5 billion to $13.5 billion.

However, Barclays analyst Brian Johnson said that implied fourth-quarter earnings would be below Wall Street’s consensus estimates, a view that Credit Suisse’s Levy agreed with.

GM earlier this month told investors it expects to more than double annual revenue to as much as $315 billion by 2030, fueled by growth in software-driven services and new businesses, including its majority-owned Cruise self-driving unit.

GM’s market cap early on Wednesday stood at $83.3 billion, a fraction of Tesla Inc’s $1.0 trillion.

GM said adjusted earnings per share in the third quarter dropped to $1.52, from $2.83 a year earlier, citing the global semiconductor shortage. Analysts had expected 96 cents a share.

Revenue dropped to $26.8 billion, from $35.5 billion in the year-ago quarter, while net margin dipped to 9% from 11.4%.

Adjusted automotive free cash flow was a negative $4.4 billion, compared with a positive $9.9 billion a year earlier.

GM said the drop reflected the impact of work-in-process inventory of vehicles produced but missing some semiconductors.

“We expect to clear the majority of our work-in-process inventory but anticipate some inventory will remain at year end,” the company said.

(Reporting by Paul Lienert and Ben Klayman in Detroit; Editing by Steve Orlofsky and Bernadette Baum)