DETROIT (Reuters) -General Motors plans to invest less in new products and cut operating costs by an additional $1 billion through the end of next year, as the automaker lifted its full-year profit guidance on Tuesday.
GM said adjusted pre-tax profit and margins in its key North American market fell from the first quarter, despite a jump in revenue and per-vehicle transaction prices.
Shares were down 2% in premarket trade at $38.50.
On a year-to-year basis, GM said net income for the second quarter rose by nearly 52% to $2.6 billion, as revenue grew 25% from the same period in 2022 when production was hobbled by semiconductor shortages.
GM said it now expects full-year net income of $9.3 billion to $10.7 billion, up from a previous forecast of $8.4 billion to $9.9 billion. On a per-share basis, GM is forecasting net income of $7.15 to $8.15 for the year, up from a range of $6.35 to $7.35.
The new outlook does not factor in the potential costs of a strike by the United Auto Workers union should it fail to reach a new contract with GM by the Sept. 14 deadline.
GM’s more bullish outlook comes after six months of stronger demand and richer pricing than expected earlier this year, Chief Financial Officer Paul Jacobson said during a media conference call.
But the decision to cut new product investment and operating costs comes as the automaker’s profit margins are under pressure. GM’s pre-tax profit margin for the first six months of the year fell to 8.3% of revenue, down from 8.9% a year ago.
Profit per vehicle in North America declined from the first quarter. GM earned $3,841 in pre-tax profit per vehicle in North America during the second quarter, down 23% from the first quarter.
GM’s higher profit outlook reflects decisions to ratchet down spending. It now plans to spend $11 billion to $12 billion on capital investments this year, down from an earlier plan to spend $11 billion to $13 billion.
“There’s a lot of focus on winning with simplicity,” Jacobson said.
CEO Mary Barra, on a call with analysts Tuesday, said GM can cut capital spending by simplifying its product line, reducing the number of different combinations of colors and features offered. GM’s goal is to cut the number of feature and color trim combinations by half, Barra said.
The automaker said it will expand a previously announced drive to cut operating costs by $2 billion through the end of 2024, targeting an additional $1 billion.
In contrast to Tesla CEO Elon Musk’s strategy of cutting prices to accelerate demand, GM pushed average transaction prices in North America up by $1,600 to about $52,000 in the latest quarter, Jacobson said.
“We’re focused on profitability. Our recent results demonstrate that we’re not sacrificing margin for volume,” he said.
GM’s second-quarter results included a $792-million charge for “new commercial agreements” with South Korean battery maker LG Energy Solution.
Barra, in a letter to shareholders, said the automaker is aiming to build “roughly 100,000 EVs in the second half of this year and we’ll grow from there.” In the first half, GM built about 50,000 EVs, most of them the older Chevrolet Bolt model, which had been scheduled to end production later this year.
Barra said GM now plans to introduce an updated version of the Bolt, equipped with an Ultium battery pack.
GM’s earnings statement reiterated a previous target of building 400,000 EVs from 2022 through the first half of 2024, and projected EV revenue of $50 billion in 2025, with pre-tax profit in the low to mid single digits.
In a note to investors, CFRA analyst Garrett Nelson said he remains “cautious due to the near-term earnings drag from GM’s EV transition and its ability to execute an aggressive production ramp, as well as ultimate demand for its EV models.”
Pre-tax losses at Cruise, GM’s robo-taxi unit, widened in the latest quarter to $611 million from $543 million a year ago. Cruise’s losses for the first half of the year increased by 35% to nearly $1.2 billion.
(Reporting by Joseph White and Paul Lienert in DetroitAdditional reporting by Ben Klayman in DetroitEditing by Matthew Lewis, Louise Heavens and Nick Zieminski)
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