General Motors Company

Ladies and gentlemen, welcome to the General Motors Company third quarter 2020 earnings conference call. During the opening remarks, all participants will be in a listen-only mode. After the opening remarks, we will conduct a question-and-answer session. To ask a question, press star, then 1 on your telephone keypad. To withdraw your question, press the pound key. As a reminder, this conference call is being recorded Thursday, November 5, 2020. I would now like to turn the conference over to Rocky Gupta, Treasurer and Vice President of Investor Relations.

Thanks, Navita. Good morning and thank you for joining us as we review GM's financial results for the third quarter of 2020. A press release was issued this morning and the conference call materials are available on the GM Investor Relations website. We're also broadcasting this call via webcast. I'm joined here today at GM's Tech Center by Mary Barra, GM's Chairman and CEO, John Stapleton, GM's Acting CFO, And on the line, we have Dan Burse, President and CEO of GM Financial. Before we begin, I'd like to direct your attention to our usual forward-looking statements on the first page of the chart set. The content of a call will be governed by this language. I now turn the call over to Mary Barra.

Thanks, Rocky, and thanks, everybody, for joining the call today. This morning, I'll cover a few key areas of the business. I'll start with a brief snapshot of our record third quarter earnings, and then I'll follow with a more in-depth look at the rapid progress we're making in electrification. I'll wrap up by touching on our regional businesses, and then John will provide a deeper look at the numbers before we go to your questions. But before I do that, I know everyone on the call is closely watching and waiting for the final vote count in the U.S. presidential election. From our perspective, General Motors is ready to work with whichever candidate is certified as the winner, along with their administration and the new Congress. And we will continue to invest in our U.S. operations and pursue our growth initiatives, especially in the areas of electrification and autonomous vehicles. I also want to take a moment to recognize the tireless efforts of our employees around the world. Whether working remotely or in the workplace, they are keeping our programs fully on track, building every vehicle they can safely and with quality. In addition, our suppliers are moving mountains to keep their operations open so we can keep production going, and our dealers are embracing creative new ways to interact safely with our customers for service parts and sales. It has truly been remarkable and inspiring to see how everyone has come together to safely restart our operations with the health and safety of our teams and our customers as the number one priority. Our multilayered approach to COVID-19 safety has proven effective in preventing the spread of disease around all of our facilities. Where our protocols are followed, they are working. This is an extraordinary effort, and our continued focus on employee health and safety has been important as economies begin to recover around the world. Finally, I'm very pleased to share that GM Canada and Unifor have reached a tentative agreement on our new labor contract, which is very good news for our team, our customers, our dealers, and our investors. As you know, we have been operating our full-size pickup plants around the clock to meet exceptionally robust demand for the Chevrolet Silverado and the GMC Sierra in the United States and Canada. The fact is, we simply can't build enough, and because we expect demand to remain strong, we must increase our capacity. That is why, subject to ratification, GM plans to invest approximately $1 billion Canadian dollars to bring full-size pickup production back to the Oshawa Assembly Plant while making new investments at St. Catherine's Propulsion Plant and the Woodstock Parts Operation. We will move very quickly. We expect construction to begin on the new body shop and flexible assembly module at Oshawa immediately upon ratification. When the plant comes back online in early 2022, we will see a significant increase in our full-size pickup production capacity. We look forward to sharing more details about this plan after ratification, which should occur over the next several days. Now let's turn to our Q3 results, which were driven primarily by the success of our safety protocols around the world, a stronger and faster than expected industry recovery in the U.S. and China, strong U.S. retail sales and market share, especially for pickups, with higher pricing and discipline incentives, and the successful launch of our all-new full-size Chevrolet, GMC, and Cadillac SUVs. We also clearly benefited from austerity measures we implemented in response to the pandemic and the ongoing transformational-related cost reductions. Looking at the numbers, we delivered net revenue of $35.5 billion, EBIT adjusted of $5.3 billion, EBIT adjusted margin of 14.9%, EPS diluted adjusted of $2.83, adjusted automotive free cash flow of $9.1 billion, and a ROIC adjusted of $9.7 on a trailing four-quarter basis. These results are providing capital for our EB and our AB growth initiatives, and they demonstrate the underlying strength and resiliency of our business. This year, and this quarter in particular, you can clearly see how we are rapidly transforming our company to lead in EVs by leveraging our iconic brands, technological innovation, manufacturing capability, and the scale in a way that will change the way customers and our investors view our company. The foundation is our flexible and highly scalable Ultium architecture, battery, and propulsion system, which have empowered our designers and given them free reign to reimagine our approach to interior and exterior design. You can see this in the powerful, distinctive, and beautifully executed vehicles like the GMC Hummer EV and the Cadillac Lyric. The simplicity of Altium and the use of virtual engineering have made us more agile. From inception to production, the Hummer EV represents the fastest vehicle development program in GM's recent history. We took reservations during its reveal, and demand exceeded our expectations. Our manufacturing strategy is also coming into sharper focus. Construction of the LTM Cells LLC manufacturing facility in Lordstown, Ohio, where we will make battery cells with our JV partner, LG Chem, is ahead of schedule. We've begun the hiring process and will add a total of 1,100 jobs to the local economy. We have also announced plans to have three plants producing EVs, Factory Zero in Detroit Hamtramck, Oren Assembly in Michigan, and Spring Hill Assembly in Tennessee. During the quarter, we shared even more detail about our roadmap to deliver EV costs comparable to internal combustion engine vehicles. For example, all of our future EVs will draw from a family of five interchangeable drive units and three motors, known collectively as Altium Drive. And we will be the first automaker to use a wireless battery management system for production electric vehicles. With expanded over-the-air updates provided by GM's all-new vehicle intelligence platform, The system will be upgraded over time with new software-based features via smartphone-like updates. The system also reduces the cost and weight of wiring. Looking ahead, we'll continue investing in advanced battery chemistry to drive even greater range at a lower cost for our customers. We look forward to sharing even more details about our EV portfolio and competitive advantages at the Barclays Global Automotive Conference on November 19th. Among the strategies that will help us move quickly are the partnerships we have forged with companies like Honda and EVgo. In September, we signed a non-binding Memorandum of Understanding with Honda to collaborate on several vehicle segments as well as on purchasing, research and development, and connected services. These efficiencies will help both companies fund future mobility innovations. And to address the entire EV ecosystem for our customers, we will collaborate with EVGO to build more than 2,700 public fast chargers over the next five years. Before we move on, I'd like to provide a comment about Nikola. As you're aware, we've been in ongoing discussions with Nikola about a commercial transaction. The transaction has not yet closed, and we will provide further updates at the appropriate time. We are exploring all opportunities to commercialize our Altium battery system, as well as the Hydrotec hydrogen fuel cells we have developed with Honda. We have invested heavily in developing and manufacturing fuel cells. Commercialization of our Altium battery system and hydrogen fuel cells reflects that commitment and our commitment to a zero-emissions future. Cruise, our majority-owned self-driving subsidiary, continues to make progress with its technology and the launch of the Cruise Origin shared autonomous vehicle, which will be built at factory zero. We've begun testing the Origins Ultium battery system at our Milford Proving Ground with pre-production vehicles coming next year. By the end of the year, Cruise AVs will be tested in San Francisco without backup drivers after receiving the go-ahead from the California Department of Motor Vehicles. This is a significant milestone because Cruise will be the first company to test autonomous vehicles with no backup driver in a dense and complex urban driving environment. In the coming months, GM and Cruise intend to file an exemption petition with NHTSA to deploy Origin vehicles without steering wheels or pedals. We have withdrawn an earlier exemption petition that was limited to earlier generation Cruise AVs derived from the Chevrolet Bolt platform. The Cruise team is working with a Harvard-trained epidemiologist and using research from various health organizations to identify measures that may help maintain a healthy ride environment. Now let's take a look at our regional businesses. In North America, we gained retail market share and drove higher average transaction prices with lower incentives. Our truck and full-size SUV plants are safely operating on three shifts, building every vehicle possible. Our dealers are doing a great job of maximizing sales and share despite tight supply. They are using GM-developed software that helps them order the highest demand, fastest turning vehicle build configurations. Custer's response to our all-new full-size SUVs continues to be enthusiastic. Combined average transaction prices for the Chevrolet Tahoe and Suburban, the GMC Yukon and Yukon XL are 14% higher than outgoing models and the three closest competitors. Media reaction to the 2021 Cadillac Escalade, which is now arriving at dealerships, has been outstanding. with journalists citing its craftsmanship, comfort, and technology, including its 38-inch OLED display. And like all of our full-size SUVs, we're selling every Escalade we can build. This is Cadillac's first Escalade with available Super Cruise technology. For the second time, it decisively led all other active driver assistance systems in recent Consumer Reports testing. Over the next three years, Super Cruise will be available in 20 models across our brands. GM Financial delivered record results in the quarter. Since its inception 10 years ago, GM Financial continues to grow its share of the financing business for both dealers and retail customers with very high levels of customer satisfaction. Moving to our international operations, in China, the industry continues its recovery from the impact of COVID. GM China deliveries in the quarter grew 12% year over year. It is the first sales increase in two years and in line with overall growth we're seeing in the industry's passenger vehicle market. The luxury, midsize, and large SUV and multi-purpose vehicle segments where our launches have been focused experience the strongest growth. Importantly, year-to-date sales of our new energy vehicle portfolio have more than doubled compared to last year. The Wuling Hanguang Mini EV became the best-selling EV in China during the quarter. In the next five years, more than 40% of our new launches in China will be new energy vehicles. And before I turn it over to John, I have two more things to share. First, if our current recovery continues, we anticipate reinstating a dividend at the appropriate level that balances various capital allocation priorities, including our investments to accelerate EVs. We know this is a high priority for our shareholders, and we're looking at timing around mid-2021. And finally, I want to welcome Paul Jacobson, our new CFO, who is joining us from Delta on December 1st. Paul will be a great addition to the GM senior team. At Delta, Paul led a global finance organization that is widely recognized as the best in the airline business. He and his team helped the company build a strong culture of teamwork and inclusion and deliver best-in-class customer experience, operational finance and financial excellence, and disciplined capital allocation. Paul is committed to transforming this company. His experience and insights will help us accelerate our momentum, rapidly build scale for our vehicle electrification and autonomous technologies, and position GM to deliver a world with zero crashes, zero emissions, and zero congestion. And I also just want to personally thank John for all the work he's done as he did double duty for General Motors, being the CFO for North America as well as the corporate CFO. He did an outstanding job and should take full credit for the results in the quarter. I am grateful for his strong leadership, and I know he's anxious to return back to operations and to continue to drive the strong performance in North America. So, John, thank you very much, and now I'll turn it over to you.