GM stock retreated Tuesday, though General Motors backed its earnings outlook for 2022 despite delivering a worse-than-feared earnings decline in the second quarter.
Supply challenges felled GM's Q2 vehicle sales around the world by almost a fifth, a GM earnings presentation Tuesday showed. That led Q2 earnings to drop 42%. But in a July 26 letter to shareholders, CEO Mary Barra explained why General Motors continued to maintain its full-year outlook.
"This confidence comes from our expectation that GM global production and wholesale deliveries will be up sharply in the second half" as chip and other disruptions ease, she wrote.
Still, GM will curb hiring and spending due to economic concerns, while powering up on electric vehicles, Barra said.
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General Motors Shares EV News
Amid a radical shift away from gas and diesel cars, General Motors revealed Tuesday that it has secured "all" the battery materials it needs to meet a production target for one million EVs annually. That includes new, multiyear agreements with LG Chem for cathode materials and with Livent for lithium, which GM pointedly noted are "binding" deals.
Rival Ford reports late Wednesday after it announced important battery deals just days ago, but many of those are nonbinding.
In Tuesday's letter to shareholders, CEO Mary Barra said strong GM earnings, historically low pension obligations, and record vehicle pricing will "insulate" the emerging EV business from challenges. The earnings presentation noted three new "high-volume" EVs coming in 2023, including the Equinox starting at roughly $30,000.
GM and Ford are shifting to electric vehicles and away from gas or diesel cars. Both are trying to chase Tesla and aspire to have half their sales be EVs by 2030.
GM Stock: Earnings Fall More Than Feared
For Q2, General Motors earnings slumped 42% to $1.14 per share. Revenue grew 4.6% to $35.759 billion.
Analysts had expected GM earnings of $1.23 a share, down 37.5% year over year, on revenue of $33.122 billion, according to FactSet.
The automaker generated $1.4 billion in Q2 free cash flow, down 43% year over year. But the cash generation came despite swollen vehicle inventory and higher capital spending.
Globally, GM's deliveries fell 19% in Q2 to 1.42 million vehicles, amid the global chip shortage, fresh Covid lockdowns in China, and other challenges. Vehicle sales fell 15% in the U.S. and 36% in China, while deliveries of 95,000 incomplete vehicles to dealers were delayed, the company earlier revealed.
GM Maintains 2022 Outlook
On Tuesday, GM reiterated expectations that delivery volumes will grow 25%-30% for the full year, as vehicles get completed and reach dealers in the second half.
General Motors also maintained guidance for 2022 EPS of $6.50-$7.50 and free cash flow of $7 billion-$9 billion. Analysts expect GM earnings to fall 2.6% to $6.89 per share, FactSet shows.
But on Tuesday, GM signaled it's prepared for things to get worse. "We have also modeled many downturn scenarios and we are prepared to take deliberate action when and if necessary," Barra wrote in the letter to shareholders.
According to CNN, GM CFO Paul Jacobson told reporters that the company is not yet seeing any signs of a recession in the near term, given robust demand for new vehicles.
"But we have to be conscious of the noise that is out there and what other people are seeing," he added. "We're going to be very agile and very nimble and respond to that."
GM Stock Falls Below Key Level
Shares gapped down 3.9% to 33.35 on the stock market today. GM stock undercut the 50-day moving average as it fell for a third straight day. General Motors remains far below the 200-day average.
The relative strength line for GM stock shows significant lag. That is a sign of underperformance vs. the S&P 500.
Livent stock added 0.3 Tuesday. Ford lost 2.3%. Tesla stock shed 3.6% after a 13% rally last week on a Q2 earnings beat.
Automakers Hit By Chip Shortages
In Q2, GM and other auto giants briefly shut down factories due to the chip shortage and other supply disruptions.
Rising interest rates and rapid inflation are newer headwinds.
Meanwhile, the average new vehicle now costs around $45,000, boosting automakers' bottom lines but pushing many buyers out of the car market. The rise in rates could make car loans even more expensive, even as consumers curb spending amid fears of a possible recession.
"We have been operating with lower volumes due to the semiconductor shortage for the past year, and we have delivered strong results despite those pressures," CEO Barra said in Tuesday's earnings release.
