GM scales back electric vehicle and self-driving car plans as new labour deals will cost it $10B

General Motors said it is pumping the brakes a little on its plans for electric vehicles and self-driving cars as new labour deals signed with unions in the U.S. and Canada will cost it almost $9.3 billion US.

Despite those costs, the automaker says it plans to buy back up to $10 billion US of its own shares, while also boosting its dividend by 33 per cent.

The buyback is the equivalent at Tuesday’s closing price to nearly a quarter of GM’s common stock. Its shares were down about 14 per cent this year before rising 10 per cent to $31.92 on Wednesday.

The Detroit automaker also lowered 2023 profit expectations after the U.S. strike by the United Auto Workers (UAW).

GM has struggled to boost its stock price as it dealt this year with the UAW strike, and with problems at its Cruise self-driving vehicle unit and rollout of its new electric vehicles.

The $9.3 billion US in additional costs through 2028 is for agreements with the UAW as well as Canadian union Unifor, and translates to about $575 per vehicle over the life of the deals.

“Finally, some good news for GM, and this was a strong outlook and comments from Barra & Co post the UAW debacle,” Wedbush Securities analyst Daniel Ives said in an email. “Now it’s about getting the train back on the tracks and this is a great start.”

GM’s new guidance reduced expected net income attributable to stockholders for 2023 to a range of $9.1 billion to $9.7 billion, compared to the previous outlook of $9.3 billion to $10.7 billion.

That includes an estimated $1.1 billion EBIT-adjusted impact from the UAW strike, which lasted just over six weeks, primarily from lost production. The total impact in 2023 is $1.3 billion including the higher wages and benefits in the deal.

“Now that we have a ratified contract and a clear path forward that includes greater operating investment efficiencies, we can resume returning capital to shareholders per our plan,” GM CEO Mary Barra said on an investor conference call, during which officials set out the largest U.S. automaker’s updated targets.

However, she also acknowledged how GM’s stock price was “disappointing to everyone,” pointing to how shares at about $28 were 15 per cent below the level they traded at when the company had its IPO in 2010.

GM shares currently trade 4.4 times forward profit estimates, compared with 6.3 for Ford, 8.8 for Toyota and 66.1 for EV market leader Tesla. However, Volkswagen and Stellantis’ share price multiples are an even lower at 3.5 each.

GM said earlier this year it would cut fixed costs by $2 billion by the end of 2024 and then followed up in July with plans for another $1 billion in cost reductions. In April, GM said about 5,000 salaried workers had taken buyouts.

Cost cutting

GM said it would cut costs at its self-driving unit Cruise, which has suspended all U.S. testing after a crash in California last month prompted that state’s regulators to bar the company from testing driverless vehicles. Cruise, which is cutting jobs, lost more than $700 million in the third quarter and more than $8 billion since 2016.

“We expect the pace of Cruise’s expansion to be more deliberate when operations resume, resulting in substantially lower spending in 2024 than in 2023,” Barra said.

GM Chief Financial Officer Paul Jacobson said spending on Cruise in 2024 will be down “hundreds of millions of dollars.”

Barra added that GM needed to “rebuild trust” with state and federal regulators, and others Cruise works with.

Barra said she was “disappointed” with EV production this year due to difficulties with battery module assembly, but GM expects “significantly higher” production and “significantly improved” profit margins in that business in 2024. Jacobson said GM was aiming for single-digit pre-tax margins on EVs by 2025, including Inflation Reduction Act benefits.

However, GM also said the new labour deals will add $3 per kilowatt-hour to battery cell costs.

GM now faces higher costs under a new contract with the UAW. The company said it was finalizing its budget for next year “that will fully offset the incremental costs of our new labour agreements and the long-term plan we are executing.”

University of Michigan professor Erik Gordon said GM’s actions flew in the face of company arguments during the strike that it couldn’t afford a lucrative deal for its U.S. workers.

GM expects to increase its quarterly common stock dividend by 3 cents to 12 cents a share beginning in 2024.

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