General Motors Company

Ladies and gentlemen, welcome to the General Motors Company fourth 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 Wednesday, February 10, 2021. I would now like to turn the conference over to Rocky Gupta, Treasurer and Vice President of Investor Relations.

Thanks, Tabitha. Good morning, and thank you for joining us as we review GM's financial results for the fourth quarter and calendar year 2020. Our press results were issued this morning, and the conference call materials are available on GM Investor Relations' website. We're also broadcasting this call via webcast. I'm joined today by Mary Barra, GM's Chairman and CEO. Paul Jacobson, GM's Executive Vice President and CFO, and Dan Burse, President and CEO of GM Financial. It's my pleasure to welcome Paul to his first earnings call with us today and give Paul a chance to talk about his enthusiasm for our shared vision and accelerating our path forward. Before we begin, I would like to direct your attention to the forward-looking statements on the first page of the chart set. The content of our call will be governed by this language. I will now turn the call over to Mary.

Thanks, Rocky, and hello, everyone. Thanks for joining. This morning, we shared the details of our strong 2020 financial performance, including Q4 records for EBIT adjusted, EBIT adjusted margin, EPS diluted adjusted, and a record year for GM Financial. These results were driven by the quick actions we took to recover from the early effects of the pandemic. Looking at the past year, our employees, suppliers, and dealers rallied with speed and agility to support our customers and our communities, as well as protecting the business. The pandemic has been a catalyst for finding new and better ways to work while strengthening our resolve to win. As some of our plants suspended production in the early days, our teams rapidly turned to producing critical care ventilators and personal protective equipment for patients and frontline healthcare workers. After our first conversation with Ventec Life Systems, we began production in just 30 days, and we built 30,000 ventilators in 154 days. And with that same speed, we developed rigorous safety protocols so we could restart our operations around the globe. This collective spirit was inspiring, and it still drives us, and it's contributing to the greatest era of transformation in the history of our company. In spite of the pandemic, we accelerated mission-critical businesses like our EV and AV initiative. We maximized production of full-size trucks, and we launched our new family of full-size SUVs safely and on time. We'll sustain this culture of innovation and leadership in 2021 and beyond, and that is my focus this morning. We are fully committed to a capital allocation strategy that invests in new and existing businesses to drive growth. We're going to generate that growth through our EV portfolio as well as businesses like BrightDrop, OnStar Insurance Services, subscription services like Super Cruise and OnStar Guardian, and much more to come from our growth and innovation team. The semiconductor shortage won't slow our growth plans, and with our mitigation strategies, we still expect a very good year for General Motors, and Paul will share additional details in his remarks. We have strong underlying performance and very strong momentum with customers. Last year, for example, we posted our largest year-over-year U.S. market share gain since 1990, led by full-size trucks and SUVs. In 2020, GM was the full-size pickup sales leader in the United States, thanks to gains by the Chevrolet Silverado, and record GMC Sierra deliveries, and we plan to expand our capacity in early 2022. The new Cadillac Escalade, GMC Yukon, and Chevrolet Tahoe and Suburban are leading the full-size SUV market. And GM China rode the increasing market preference for large MPVs and luxury vehicles to year-over-year sales increases in these segments, including record deliveries for Cadillac. And as we look to the future, we are well positioned from a policy standpoint. I personally and members of our senior leadership team have had discussions with President Biden, Vice President Harris, and several key cabinet appointees. The Biden administration is increasingly aligned around the importance of domestic manufacturing and the need for widespread adoption of EVs. We look forward to working with the administration on policies that support safer transportation with zero emissions. When you look at the strategy we have shared, it should be clear. We will seize every opportunity to drive growth, expand our markets, and enter new ones. Our Altium platform is core to these initiatives. It is the foundation for our upcoming global family of EVs. With our first-generation Altium platform, we will now see a 40% battery cost reduction compared to today's Chevrolet Bolt EVs. and we're already working on the next generation of Altium battery technology, which will deliver a 60% improvement over Bolt EV with double the energy density. To do this work, we've hired almost half of the 3,000 expected new tech employees across engineering, design, and IT, and we expect to finish hiring by the end of the quarter. What is especially exciting to me is that our vision and our commitments and our aspirations are attracting incredibly talented people to GM. They believe in what we are doing, and when they arrive, they are finding like-minded colleagues already hard at work. Since we first introduced our growth strategy and related announcements in November, we have shared even more of the aggressive steps we are taking to accelerate our plan. We have committed to increasing our EV and AV investments to $27 billion, from 2020 through 2025, including more than $7 billion this year alone. With this investment, we will launch 30 EVs globally and achieve EV market leadership in North America. In addition, by mid-decade, we plan to sell at least 1 million EVs per year in our two largest markets in North America and with our joint venture partners in China. During CES in January, we revealed a new GM brand identity that honors our past but signals our future. We also introduced a new safety brand, Periscope. It describes how we will advance toward a world with zero crashes by integrating vehicle technology, research, and advocacy. And we launched a new brand campaign called Everybody In, which is our call to action to get everyone in an EV. Everybody In is a powerful idea because we must all be all in to achieve our goals. We'll offer EVs across all of our brands and at price points and span the global EV market from the Wuling Hanguang Mini to the Cadillac Celestic. As for the GMC Hummer EV, we have prototypes on the road right now, and they are undergoing cold weather testing in Michigan's Upper Peninsula. Then they will head to Yuma, Arizona, and to the toughest off-road trails in Moab, Utah. In the meantime, VIN 001 is already spoken for. As part of GMC's partnership with the Tunnel to Towers Foundation, the first GMC Hummer EV will be auctioned on March 27th. All proceeds will go to assisting the families of fallen and disabled soldiers and first responders. We envision a future where there is an EV offering for everyone. Our future will be inclusive and comprehensive, and it will create new businesses and, in some cases, new brands. BrightDrop is a powerful example. It is a new commercial EV business that targets delivery and logistics providers, particularly those in the parcel and food delivery industries, with innovative zero-emission solutions. From a revenue standpoint, we'll provide vehicles like an EV600 van, which is a substantial opportunity in and of itself because the global market for light commercial vehicles is almost 9 million units today, according to IHS Markit. And we believe demand for electric light commercial vehicles will grow quickly. The market seems to agree. In fact, third-party research estimates that the addressable market for ELCVs could be $30 billion by 2025 and double that in 2030. BrightDrop also allows us to create new sources of value for our customers beyond the vehicle. driving diverse income streams from a full ecosystem of product and services. FedEx Express is slated to receive the first EV600s later this year. The EV600s will help them meet their stated fuel efficiency goals as part of their broader sustainability strategy and electrification efforts. FedEx Express has also conducted a pilot with the BrightDrop EP1 electric pallet product and has another one planned. In this first pilot, the EP1 demonstrated significant productivity increases in the delivery process. Similarly, Merchant's Fleet, which has more than 150,000 vehicles under management, is targeting to have 50% of its mobile fleet electric by 2025 and 50% of its managed client's fleet by 2030. It is moving forward with plans to put 12,600 BrightDrop EV600s into service. Another exciting and potentially lucrative source of growth is our Hydrotech fuel cell technology. Like Brakedrop, Hydrotech is proof that General Motors' vision of a world with zero emissions isn't limited to passenger vehicles. Less than two weeks ago, Navistar, GM, and 1H2 announced a zero-emissions long-haul transportation ecosystem that will launch in 2024. Navistar will begin building Class 8 trucks for its launch customers, GM will supply HydroTech fuel cells, and 1H2 will supply the hydrogen fueling infrastructure. It's an exciting way for us to partner in the Class 8 segment, a nearly $30 billion market in the U.S. alone, and one that we haven't seen before. And we believe this is just the beginning for HydroTech. This is a nascent, multibillion-dollar hydrogen power industry for trucking, for military, aerospace, and stationary power applications that we are targeting directly, as well as through GM Defense. Customers and shareholders will continue to see even more evidence throughout 2021 that we're executing our vision and plans for growth. One great example is right around the corner. On Sunday, GM will unveil the 2022 Bolt EUV, which arrives this summer and will be built in Orient, Michigan. The all-new Bolt EUV and refreshed Bolt EV feature unique exterior designs and new interiors. The Bolt EUV will provide nearly three inches more legroom than the Bolt EV and will have available wireless phone charging and wireless Apple CarPlay and Android Auto, allowing customers to easily access their music and podcasts. Like the original Bolt EV, the new Bolt EUV and refreshed Bolt EV will build on Chevy's commitment to attainable EVs. The Chevrolet Bolt EUV is the first Chevrolet and the first GM EV to offer Super Cruise technology, one of the 22 GM vehicles that will offer Super Cruise by 2023. Based on feedback from Cadillac customers, we're confident that we will build a steady stream of subscription revenue because our customers don't want to drive without it. In addition, GM, Cruise, and Microsoft will increasingly leverage Azure, Microsoft's cloud and edge computing platform to help commercialize self-driving vehicles at scale. And with new investment by GM, Microsoft, Honda, and other institutional investors, the estimated valuation of Cruise now stands at $30 billion. And just yesterday, the California DMV released the 2020 disengagement data for autonomous vehicles, and we are very pleased. with the excellent continuing improvement and leadership shown by crews. This fall, we'll begin building the GMC Hummer EV at our Factory Zero in Detroit and Hamtramck. Work on our flagship EV plant is on track, and we cannot wait to start shipping vehicles to customers. Among its many advanced manufacturing capabilities, Factory Zero will be the first U.S. auto plant equipped with 5G fixed mobile network technology. As we said in November, our $27 billion in EV and AV investments will include additional EV assembly and battery capability beyond what we've announced for Factory Zero, Spring Hill in Tennessee, and our Altium Cells JV plant in Ohio, where hiring is already underway. In fact, employees will build prototypes later this year. Along the way, OnStar Insurance Services is on target to expand to all 50 states by the end of the year. What's happening inside our company and behind the scenes is also important to our success. Delivering this exciting new chapter for GM requires a special team that values diversity and inclusion, a safe workplace, and the commitment to create a better, safer, and more sustainable world. We aspire to be the most inclusive company in the world because it's the right thing to do and because diversity and inclusion are the foundation of a winning culture. I am deeply and personally engaged in this part of our strategy. Our strong values are a compelling tailwind for GM. They will drive creativity, agility, and so much more for our future. This future also inspires us to do even more to help mitigate the efforts of climate change, and we will. Less than two weeks ago, we announced plans to become carbon neutral in our global products and operations by 2040. We will set science-based targets to achieve carbon neutrality, and we aspire to eliminate tailpipe emissions from new light-duty vehicles globally by 2035. We will source 100% renewable energy to power our global sites by 2035, five years earlier than we announced just a year ago. And we have signed the Business Ambition Pledge for a 1.5 degree Celsius, a call to action for from a global coalition of UN agencies, business, and industry leaders. Like everything else we do, we will provide updates on our progress, and we will hold ourselves accountable. And now I'd like to turn the call over to Paul.

Thanks, Mary, and good morning, everyone. Before I get into the results, I want to take a quick minute to thank Mary, the broader executive team, and really the entire organization for the warm welcome that I've received in my time so far here at GM. I'm really excited for the opportunities that we have ahead of us as we build appreciation for the innovation that we are championing right now, whether it's in EV, AV, connected services, or our overarching vision of zero crashes, zero emissions, and zero congestion. We are executing well on our growth strategy and accelerating these opportunities with an emphasis on investing in new businesses while maintaining a strong investment-grade balance sheet. We believe we can take advantage of these once in a generation opportunities to achieve strong, profitable growth with a solid return on investment. Being a part of GM as it writes the next chapters of its history is a huge honor for me. I look forward to continuing the conversations I've had with the investment community thus far and getting to know those of you I have not yet had the chance to meet. Now let's get into the results. While 2020 was adversely impacted by production challenges experienced in the first half of the year, We demonstrated resilience and flexibility as we quickly moved to preserve liquidity and manage inventory, while still launching an all-new lineup of our highly profitable full-size SUVs and prioritizing investments in our all-electric future. Even in the face of the pandemic, we generated results of $122.5 billion in net revenue, $9.7 billion in EBIT adjusted, 7.9% margins, $4.90 in EPS diluted adjusted, and $2.6 billion in adjusted automotive free cash flow in 2020. In the fourth quarter, we continued to see strength in demand as we generated $3.7 billion in EBIT adjusted, including the $1.1 billion charge for Takata. We far exceeded the top end of the scenario shared on our Q3 earnings call absent the impact of Takata due to strong performance in North America and GM Financial in particular. We also drove strong Q4 net revenue of $37.5 billion, approximately 10% EBIT adjusted margins, and $1.93 in EPS diluted adjusted, and $3.4 billion in adjusted automotive free cash flow. The Q4 $1.93 EPS diluted adjusted includes a negative impact of 59 cents from the Takata airbag inflator recall and a 26 cent gain from investments in PSA and Lordstown Motor. In Q4, we fully repaid the remaining balance on our corporate revolver draw and ended the year with strong automotive cash balance of $22.3 billion and total automotive liquidity of more than $40 billion. Let's take a closer look at North America. In the calendar year, North America delivered EBIT adjusted of $9.1 billion, up $900 million year-over-year, and a 9.4% margin. In Q4, North America delivered EBIT adjusted of $2.6 billion, up $2.3 billion year-over-year as we move past the effect of the 2019 strike. Continued performance from the launch of our all-new full-size SUVs and disciplined pricing on our full-size pickup trucks offset the impact of the Takata recall. U.S. retail sales have continued to recover, with Q4 GM results up 12% year-over-year despite limited inventories. closing the year strong with December retail sales up over 19% year-over-year. We've seen this strong performance continue into January with sales up 9% year-over-year. Additionally, U.S. retail market share gains have been solid, up 1.4 percentage points year-over-year in Q4, exceeding 18% market share driven by the newly launched full-size SUVs and high demand for large pickup trucks. And we are looking forward to retail EV growth, where we are seeing encouraging signs for demand. We're really excited about the launch of the GMC Hummer EV this fall. When we revealed that in Q4, it was the most watched auto review in history, with 1.3 billion impressions and 370 million views. And it created the highest website traffic of any GM model ever. We wanted to kick off GM's acceleration towards EVs with something as exciting as the GMC Hummer EV. a vehicle that we are very proud of. And it's just the beginning as we roll out 30 new EVs globally by 2025 with several high-volume entries in North America by 2023. Let's move to GM International. Full-year EBIT adjusted in GMI was a loss of $500 million, down $300 million year-over-year due to the effects of the pandemic on operations, particularly in China, partially offset by performance improvement outside of China. For the fourth quarter, we were encouraged by our progress with EBIT adjusted of $300 million, up $400 million year over year due to positive price mix and benefits from our cost actions, partially offset by weaker FX in South America. We delivered $500 million of equity income in China for the calendar year, including $200 million in Q4 in line with our expectations. As we progressed through the year following Q1 lows, we saw market recovery and benefits from our launches and cost actions, returning to the approximately $200 million quarterly equity income run rate in Q2 through Q4. We received $500 million in dividends from our China Automotive JVs in Q4, bringing total dividends to $1 billion for the year. Just a few comments on GM Financial Cruise and our Corp segment before we turn to 2021. GM Financial posted revenue of $13.8 billion for the year and record EBT adjusted of $2.7 billion. In the fourth quarter, GM Financial generated revenue of $3.4 billion and EBT adjusted of $1 billion, a Q4 record. Up $500 million year over year due to strong used vehicle prices contributing to gains on sale of off-leash vehicles, improved credit performance, and lower interest expense due to declining interest rates. Cruise costs for the year and in the quarter were $900 million and $300 million, respectively. 2020 was a huge year for Cruise. After substantial development and testing, Cruise has now reached the point where it has removed the human driver from behind the wheel and is now fully testing driverless cars on the streets of San Francisco, successfully, as Mary noted earlier. We expect many more good things to come for Cruise in 2021. Cruise segment spend is projected to be about $1 billion in 21. Corp segment costs were $600 million for the year and better in the fourth quarter than the normal run rate of $1 billion due to investment gains. We expect the underlying spend in the corp segment to be about $1.2 billion in 2021, an increase over our normal run rate as we are accounting for certain growth initiatives in the corp segment. In late 2018, we made a strategic decision to accelerate our transformation for the future, to strengthen our core business, capitalize on the future of personal mobility, and drive significant cost efficiencies. Our plan included a path to achieve $4 to $4.5 billion in cost savings through 2020. I'm pleased to report that we have achieved $4.5 billion in savings since 2018, including $200 million in Q4, and inclusive of $200 million of savings related to the wind down of Holden and sale of our Thailand business. Having the right cost structure that aligns with our strategy is a key focus for us. We've made great progress with the actions taken over the past several years, and we will continue to pursue incremental efficiencies. Now let's turn to the 2021 outlook for the calendar year. As we enter 2021, we see ongoing industry recovery and strong demand for our most profitable products. The underlying business has never been more robust. I want to provide some macro context around 2021 to help set the stage. With continued recovery of the U.S. light vehicle industry in 21, we expect SAR to be in the mid-16 million unit range, with a stronger second half as we experience normal seasonality in Q1 and expect to see an inflection point in the spring as vaccination rates increase and warmer weather lifts consumer sentiment and auto demand. In China, we expect the industry to grow year over year as the economy continues to recover. However, we expect a continued competitive pricing environment with increased environmental compliance costs. In South America, we expect continued commercial and portfolio strength to more than offset the macro headwinds. Finally, we expect commodity prices to be a significant headwind as platinum group metals and steel prices have seen major increases in recent weeks and months. Our underlying 2021 performance is expected to be strong, including EBIT adjusted in the $10 billion to $11 billion range as the fundamental business is robust, and we will offset significant commodity headwinds while increasing investments to support our growth strategy. And EPS diluted adjusted in the range of $4.50 to $5.25. As Mary mentioned at the outset of this call, the industry-wide semiconductor supply shortage will also impact us this year, as it does many other industries. Included in the guidance I just provided is an estimated $1.5 to $2 billion in EBIT-adjusted full-year impact driven by lost contribution margin partially offset by mitigation efforts through cost and go-to-market actions. We expect the shortage to be temporary, and we'll look to focus on protecting supply of our highest-demand products, such as full-size trucks and SUVs, as well as EVs. Importantly, we do not believe this short-term headwind will affect our long-term earnings power, and we remain committed to our growth initiatives and the EV acceleration we have previously communicated. From an adjusted automotive free cash flow perspective, we estimate a 2021 impact from the semiconductor shortage in the $1.5 to $2.5 billion range, putting 2021 adjusted automotive free cash flow guidance in the range of $1 to $2 billion. We announced the extension of downtime at Fairfax, CAMI, and San Luis Potosi yesterday, which is included in our numbers above. Our intent is to make up as much production lost at these plants in the second half of the year as possible. We expect 2021 CapEx to be in the $9 to $10 billion range, which includes approximately $2 billion of deferred CapEx from 2020, as well as accelerated investments in our all-electric future. Also included in our guidance is cash outflow from the Takata recall, which we expect to occur over the next two to three years from the expense we took in fourth quarter. Non-operating items included in our guidance worth mentioning include higher year-over-year net interest expense and an expected tax rate of approximately 24%, which is higher primarily from the tax deconsolidation of crews. Regarding earnings results cadence, we expect second half to be stronger than the first half, primarily as a result of some of the production downtime we will take in certain plants to manage the semiconductor supply shortages. Finally, I want to spend a minute on capital allocation. The top priority for us is to invest in both new and existing businesses, including previously announced investments to accelerate EV and AV growth while reducing complexity and leveraging current architectures across the ICE portfolio to drive better productivity and customer response, which will help fund investments in our future. To support this growth strategy in 2021, we will spend more capital on EV and AV product programs than on gasoline and diesel powered development for the first time in our history. Our capital allocation plan includes more than $6 billion spending on EV, and $1 billion on AV in 2021. And we will fund key growth initiatives such as Bright Drop, OnStar Insurance Services, subscription services like Super Cruise and OnStar Guardian aimed at accessing new addressable markets that we have never tapped before, representing a significant top line growth opportunity. We will fund these growth investments with internally generated cash while maintaining our investment grade balance sheet. In summary, we had a strong finish to the year, highlighting the underlying strength of our business. We have again demonstrated our strength, flexibility, laser focus on execution, and ability to manage through a significant disruption while still generating strong results. This focus will continue in 21 as we manage the challenges of the industry-wide semiconductor shortage while continuing to launch new and exciting products and services and position GM to win in the future of mobility, and I'm proud to be a part of this team. This concludes our opening comments, and we'll now move to the Q&A portion of the call.

At this time, if you'd like to ask a question, press star then 1 on your telephone keypad. To withdraw your question, press the pound key. Our first question comes from the line of Rod Lash with Wolf Research.

Good morning, everybody. Congratulations on the performance. I actually had two longer-term questions I wanted to ask you. One is you alluded that some of the growth initiatives could result in new brands like Bright Drop, but notice that Bright Drop is continuing to use the independent dealer model. Obviously, independent dealers make some money. They do cleave off some gross margin and F&I per vehicle, some of the new entrants are suggesting is kind of a disadvantage for existing players. I'm wondering if there are changes to the way that Bright Drop is, the franchise agreements work, that kind of levels the playing field with new entrants.

So, Rod, just in general, we see our dealers as a huge asset to the company. They're responsible for partnering with us to deliver products you know, industry-leading sales and service. And so, of course, as the industry transforms, as the customer expects different things, both retail and fleet, from a BrightDrop perspective, we know and we are working with our dealers, and they're transforming as well. And they're especially, you know, there's a huge percentage of our dealers that are very excited about the EV transformation and the opportunity. And we've been working, and frankly, it accelerated last year during the pandemic to of ways that we can better support the customer, meet them where they want to be, and take costs out of both of our business to improve both. So that's the journey that we're on. For competitive reasons, I'm not sharing all of the specific changes and transformation activities that we're doing, but they're pretty substantial. And like I said, our dealers are very much engaged and excited about that.

Okay, thank you. And just secondly, you mentioned subscription services, and actually one of your slides mentions that – your next generation electronic architecture is going to be available on 29 different models by 2023. It sounds like you think that the vehicles that you sell have the potential to become platforms for deploying services and features that you could charge for. So I was hoping you can maybe give us a little bit more insight into the potential there. It sounds like Super Cruise is one of these things, but what is the sort of projected population of vehicles that you're going to be targeting? What are the kinds of subscriptions that you think you might be able to generate.

So, Rod, we're very excited about the opportunity we have to present services, especially as we now have the vehicle intelligent platform, which is our new electrical architecture underpinning the entire vehicle, and it protects the vehicle from a cyber safety perspective, as well as gives us tremendous over-the-air updates and the ability to provide services on demand. You mentioned Super Cruise. That is one that we'll have the ability to do. There's several other opportunities that we're exploring and, frankly, working on right now. Again, we haven't announced many of them publicly, but I will tell you we have a whole team across our sales and marketing team partnering with our engineering team and software engineers. So you'll hear more about this as we go forward, but we think it's going to be a huge growth opportunity for us.

Okay.

All right.

Thank you. Your next question comes from the line of Etai McCalley with Citi.

Great. Thanks. Good morning, everyone.

Good morning. Good morning.

Just had one financial and one strategic question. On the financial questions, hoping you could quantify for the 2021 bridge just the raw material impact that you're expecting as well as just the volume impact embedded in the estimates for the semiconductor shortage. Okay.

Sure. So for the commodities first, we've seen about 120% increase in steel and PGM prices over the last, really kind of since May of last year. That's a couple of billion dollars. I would say that we're making some strides to offset that, and we're going to continue to target where we can in order to drive savings to help offset that. But that's Rough order of magnitude, what we've included in our numbers. And of course, there's always some lag in terms of being able to respond to those prices. On the volume side, I would say that these numbers are moving around rapidly and between building vehicles that we will go back and retrofit with the components later in the second half and managing through second half makeup volumes. It's premature to talk about the volumes at this point in time. But that's where we've come up with the $1.5 to $2 billion net of the initiatives that we think we can bring together to help offset through this.

Great. That's very helpful, Paul. And then on the strategic question, I wanted to focus on the AV part of the story and really kind of two parts to the question. First, on Cruise, just given the progress we're seeing in the California reports, I was hoping you could update us on the latest thinking from yourselves and the Cruise team around When Cruise deploys, do you compete against rideshare networks, or do you partner with them, or both? I just love some updated thoughts there. And then on the kind of AV investment inside of GM, it sounds like you're accelerating that as well. I was hoping perhaps, Mary, you could talk about the plan around the zero crash vision. How do we think about AV deployment within the GM vehicles, let's say, over the next five years, and kind of what kind of path should we expect there?

Sure, E.J., and thanks for the question. I'm really excited because if you look at the fact that we're going to be putting super crews on multiple vehicles and the strong customer reaction we've gotten from them, and that continues to grow and definitely contributes to a safer world, a zero-crashes world. And, you know, we've talked about the next generation of super crews, and that will have even more capability that we'll be able to provide to vehicles and, in some cases, launch and provide additional functionality over the air. So that's something that will be quite significant by 2025. Then when you look at crews, you know, they continue to hit their milestones. They're on track from a safety perspective because we've always said safety will be our overriding priority. They're also working on you know, making sure the ride is enjoyable from a customer perspective. And, again, they're making progress. I'm very enthused. You know that they're testing right now in San Francisco without drivers in the vehicle in certain situations. I'm not going to put a specific timeframe on when, you know, we'll launch commercially, but the progress we're making puts us in a very good place that that's, you know, not years away like people think or have talked about it. Are we going to partner with existing rideshares? We have the ability to go and launch our own service. We already have our own application that is being leveraged by our employees right now. I think when we are in a position that we can take the driver out of the vehicle and launch the business commercially, we'll have many opportunities and we'll do what's going to drive the biggest value from a shareholder perspective. I think at that point you can think of it like a platform.

Perfect. That's very helpful. Thank you.

Your next question comes from the line of Emmanuel Rossner with Deutsche Bank.

Hi. Good morning, everybody.

Good morning. Good morning.

First a financial question and then a longer-term one as well. So on the financial side, it seems like there was very strong price mix, very strong volume contribution in North America. But then at the same time, I think that it was a bit of a cost headwind, even excluding the airbag recall. And I think your slides talk about some warranty and materials performance. And so I wanted to see if you could give a little bit more detail around, you know, what happened specifically in North American costs in the quarter and how do you think about it in your bridge to 2021?

Hey, Emmanuel. Good morning. It's Paul. You know, you mentioned the biggest one, obviously, was Takata in there. But I would say the other two were primarily really related to content and major materials. So we've taken a conscious effort in the new line of full-size SUVs to improve content. And you're seeing that in the pricing offsets and what we're able to get in the market. These are content improvements that consumers really loved. and they're willing to pay for, and we feel good about that. And then there's a little slug of commodity pressure that we saw in the fourth quarter, probably about 60-40 between materials and commodities of that remaining piece.

And just on this, so thinking about 2021, is it fair to then assume continued pressure, I guess, from the materials cost, excluding commodities, the content cost?

Yeah, I would say that content is a good reflection of where we're heading, especially in terms of the volume of full-size SUVs and trucks.

Okay, great. And I guess on the electrification side, looking a bit longer term, now you have a few very strong milestones that you've put out there, more than a million units of EV by 2025, and then obviously 100%, I guess, by 2025. 2035, and then several high volumes in North America by 2023. Can you give us sort of like a holistic view of how you think things will get deployed? What sort of segments or timeline can we expect? When can we learn more from General Motors around the bridge to get you to these millions by 2025 and to get you to the 100% by 2035? What What models will make this up and on what timeline?

Sure, Emmanuel. Well, I think we're really excited. We're launching the Chevrolet Bolt EUV and next generation Bolt EV this week. And so that starts, I think, a very positive momentum, especially when you look at the affordability of the Bolt EV and the Bolt EUV. Later this year, we'll have the GMC Hummer. Early next year, we'll have the Cadillac Celestic. We've also announced the Cadillac Lyric, and then we've already shared the Cadillac Celestic, which is really a flagship. And you'll just see a steady launch of vehicles because we've said two-thirds of the 30 by 25 will be in the United States. You'll hear more about which vehicles are coming in what order as we start to move through the year. But I would say as you then – so that – and from competitive reasons, we're not going to share too much, but we'll continue to share more as we get closer to these launches as we go through this year and next. When you start to look at 2035, you know, right now we're a full-line manufacturer, and so we will cover the full line and more when you think about products like BrightDrop and then our first mile, last mile. You put on top of that the services that will be available through the vehicle that we've talked about, subscription service, And then you put things like insurance that we think we can do very well with the learnings we have from our connected vehicles. So it will be a full line broader than we have right now, and that's all enabled by the Altium platform. And we intend to take share and grow overall as we do this with the number of vehicles sold as well as the growth opportunities that sit on top from a services and other businesses perspective.

Great. Thank you.

Your next question comes from the line of John Murphy with Bank of America.

Good morning, guys. Mary, I just wanted to ask a question. I mean, you're really accelerating the advancement of your EV and AV technology much faster than people would have thought not too long ago. But there's the risk of creating some obsolescence around your core ICE products. And it seems like we're going to reach this tipping point in the next few years. So just You know, kind of trying to understand, I mean, a pessimist may say, hey, you're going to blow up your residuals and you're going to have a real problem. An optimist might say you're going to create a real super cycle for demand. So just curious how you're thinking about that and how you might manage that.

Well, John, it's an excellent question, and I definitely think it presents a super cycle opportunity for us. You know, when you look at our ICE business and the platforms we invested in over the last five years, we're well positioned, and that's what puts us in a place where we can be investing more in EV and AV companies than we are in ICE. And so we're going to leverage the platforms that we already have, you know, the strong franchises in full-size trucks, full-size SUVs, mid-size crossovers. And, you know, I'm also super excited about products like the Chevrolet Trailblazer and the Encore. So we have a really strong portfolio of products as we make this transition that's going to need limited investment. And then we're demonstrating right now, we also have a very capable manufacturing team, manufacturing workforce, We're transitioning the Detroit Hamtramck plant right now, Factory Zero, to build electric vehicles. We've also announced Spring Hill. So we have a very well thought through plan of how we will transition our manufacturing facilities to electric vehicles. We can do it in a pretty short time frame. And with the shorter vehicle development process we have for EVs, those two go hand in hand. And in some cases, investment that we're making to increase our ICE vehicles, we're doing that with a mind for what it will take to then have a quicker, less expensive conversion to EVs. So it's a very well-integrated plan. We'll be customer-driven, but we're working hard to create a delightful EV ownership experience with the right range, the right charging, the services on top of it. and the connectivity that we think we can grow as we make this transition and not have stranded assets.

Okay. That's incredibly helpful. And then just a second question around the chip shortage. I mean, you know, when we saw production disruptions and supply shortages last year, what it really resulted in was very, you know, obviously tight inventory, but very, very strong mix and a focus on your more highly profitable vehicles. I'm just curious, as you go through, you know, this process of working through the chip shortage, hopefully be done sometime later this year, you know, how you reallocate these chips to vehicles, how much fungibility there is, and could we be in another environment where mix just remains incredibly strong and offsets some of this potential weakness in production volume and just how much of that is kind of encompassed in this billion and a half to $2 billion EBIT hit you're talking about the chip shortage?

Hey, John. Good morning. It's Paul. What I would say is that obviously the situation is very fluid, and you've seen that from various manufacturers across the board. And what I would say is we're adapting to kind of focus production on two things. Number one, those vehicles that have higher margins and provide better contribution for us, but also with the full-size SUVs and the trucks, they're already operating at full capacity and projected to pretty much for the entire year. So the make-up volume in the back half of the year is harder. So where we are taking chips from are vehicles where we either have a little bit more inventory, or more importantly, we've got production gaps in the back half of the year or capacity to be able to make that up. So it's very fluid as we're managing through this, but that's all baked into the numbers that we gave earlier.

And then just one quick housekeeping on the dividend. It sounds like the growth investment, CapEx RD, everything you're doing is going to crowd out the dividend for a little while. Is that a fair statement, or will there be a rethinking around the dividend sometime this year?

Well, you know, we talked at the end of Q3, and we talked about having a dividend that's the right size and at the right time. We continue to be dedicated to that, but we are very much focusing on the first pillar of our capital allocation strategy, which is to invest in growth businesses. So you'll hear more from us later this year as it relates to the dividend. But I think the focus that we have on growth and what we're investing in growth is going to provide a really strong return for our shareholders.

Sounds good. Thank you very much.

Your next question comes from the line of Joseph Speck with RBC Capital Markets.

Good morning, everyone. Good morning. Just the first question on the chip shortage. I was wondering if you could help us think through maybe some of the cash flow and working capital timing impact. I know you gave the impact that's included in the guidance, but it would seem like with some of the strategies you're employing, you know, it might be a little bit more of a working capital drain in the first half relative to the EBIT impact and then maybe a recovery in the back half. Is that correct?

Hey, Joe. It's Paul from Good Morning. You know, I think that's an accurate assessment. I mean, we do expect some choppiness in the near term as we're altering production, managing through this, as well as you mentioned, if we're building vehicles and then coming back to retrofit them. So we do see a bigger working capital and EBIT impact in the first half of the year. And then the expectation is that we'll be able to make up for that in the second half. Also incorporated into our numbers, our cash impact guide, if you noticed, was a little bit wider than our EBIT guide. That's due in part to we were planning going into the year on having a little bit of a build in inventory level benefiting working capital that as we make up production volumes in the second half, depending on how the semiconductor situation works itself out, we could see a year end where inventories are flat and not have that working capital benefit that we might otherwise see, which is why we put a little bit more cash impact into it.

Thanks for that. And then the second question is, and Paul, welcome to GM, but I just want to get your sort of view here as someone that's looking at General Motors with some relatively fresh eyes and I think somewhat of a reputation as being a creative thinker and ability to help realize value. As you look at GM's assets and balance sheets, how do you think about unlocking further value and what do you see as the opportunities that may be underappreciated by the market?

Well, first of all, thanks for that. Welcome, Joe. And I'm not sure who you were talking to, but I appreciate it nonetheless. What I would say is that, you know, there's tremendous opportunity here to, you know, help the market understand that, you know, we're really transitioning from what I would say has been historically kind of an old school industrial type mindset for the market to a real technologically savvy growth oriented company that's really going into a lot of new markets. And as we see those continue to develop and we continue to ratchet success stories like Cruise and what I believe BrightDrop will be, as well as the EV portfolio, you know, I think there's a lot of opportunity here to drive value for our shareholders. And that's ultimately what sold me on coming here to join Mary and the team. Thank you.

You're going to get a question. That's from Adam Jones from North Stanley.

Can you hear me?

Yeah, we can hear you, Adam.

Oh, great. Okay. I was going to ask Mary why she hates Norway so much, but in the interest of time, we'll move on. Look, I'm not worried about the chip shortage, Mary. I'm worried about the battery shortage. What we're seeing is you know, in the next, you know, a few quarters or a couple years, the potential for real serious supply, demand, and balance on EV sales. Now, fortunately, you're pretty close to the bread truck, and you've used your vision to get to kind of secure, you know, on a relative basis, a lot better supply domestically than otherwise. But this seems like a real problem. I'm curious, Mary, at a high level, whether you and the team, you know, based on what you see all the way up to the mines and the surface of the earth – with the metals, do you see a risk of a cell supply constraint that could really impact volume for the broader EV industry over the next couple years at this point? And then I have a follow-up.

Okay. Adam, well, you know, as we look at it, of course our purchasing and supply team knows the projections that we have, the volume that we have by year, and we're working to make sure we have adequate, you know, supply all the way from the mines to You rightly point that it's one of the reasons why we're investing in our own cell manufacturer. And as I kind of alluded to in my opening remarks, there's more coming than what we've announced already. So we want to be in control of our own destiny, not only from making sure we have the ability to have the cells that we need, but also to work on cost improvements and technology improvements. I would also say the work that we have the joint partnership with LG Chem, not just for manufacturing but also development. We also have significant resources in our R&D, and we're also looking as part of our cost-out plan to need less precious metals. So we're working at it from all angles. We know it's strategically critical for our future, and so the right attention is placed on it.

Okay, Mary, thanks. And just a follow-up. It is a question on Bitcoin. It's inevitable. I might as well just rip the Band-Aid off, right, Mary? A growing number of high-profile companies, including a major competitor, are owning Bitcoin and crypto as a way to diversify and maximize their cash holdings and treasury outcomes in a world where fiat currencies like the U.S. dollar are being debased and the purchasing power eroding. and also the potential means of payment. I mean, a $45,000 BTC is optimal for a big-ticket purchase like a car. So how does GM think about this opportunity? And, yes, this is a very serious question, actually. How do you think about this opportunity? Is this something that GM would consider? And what would be the signposts that your team would need to see in Treasury in order to move in that direction?

Thanks. Sure. Adam, well, first of all, we don't have any plans to invest in Bitcoin, so full stop there. This is something we'll monitor and we'll evaluate, and if there's strong customer demand for it in the future, there's nothing that precludes us from doing that. So taking your question very seriously, that's my answer. And I do want to answer your Norway question. You know, I'm 97% Finnish, so I like all the Scandinavian countries. We're actually very – we look at what Norway has accomplished from EVs, and we think it's a message to make everyone aware and drive awareness and adoption of EVs.

That's awesome. Thanks, Mary.

Your next question comes from the line of Ryan Brinkman with JP Morgan.

Great. Thank you.

Thanks for taking my question. You know, at GM's EV Day in March of last year, you introduced the target of selling 1 million, I think, Ultium-powered battery electric vehicles between North America and China by the middle of the decade. I don't recall as much discussion of EVs not powered by Ultium batteries, although I see one example, the Wuling Hongguang Mini EV has in some recent months been selling 33 or 35,000 units, you know, an annualized run rate of 400,000. So can you tell us a little bit more about the demand you're seeing for these other attainable GM EVs in China and what kind of market you think there could be for them? Do you see the potential to export to markets outside of China? And should we think about their volume being incremental to the 1 million units discussed at EV Day?

So we're really proud of what our willing partner, SGMW, has been able to accomplish. And, you know, when we talked about Battery Day, Ultium is our new platform, and we, you know, are going to continue to roll that out, and we see significant volume coming after that, coming from that, I should say. When we look at the greater than a million units by mid-decade, that includes our products in GM China with our joint ventures as well as in the U.S., but that's just a starting point, and then we're going to continue to grow Altium as well as potential products, like you say, with the Hanguao and the EV Mini that have the opportunity to continue to grow. We're always looking at where the right growth is inside and outside of China, but I don't have anything specific to share right now.

Okay, thanks. And then just lastly, I wanted to check in on GM Financial after the strong result there. I think while the business is benefiting from gains in the sale of off-lease vehicles given the step-up in residuals, that also the underlying earnings might be growing also on the harvesting of earlier investments. So when should we expect the off-lease tailwinds to subside? And then when they do, what do you think is the underlying earnings power of GM Financial?

Yeah, this is Dan Burr speaking. So We're guiding to earnings for 2021 of about $2.5 billion, which is comparable to what we made this year, 2.7 EBT. We do expect good gains on residuals again in 2021. We guided to residuals being down low single digits, but we're copying to what was a record year in 2020. We're starting the year – quite well from an auction standpoint, beating last year's numbers. But the tough comps from a residual standpoint will really be the second half of the year. Even if prices are down a couple points in 2021, they will still be comparable to where they were in 2019. So leases we made in 2018, 2019, we expect really good favorability when they come off lease.

Okay, very helpful. Thank you.

Your next question comes from the line of Brian Johnson with Barclays.

Hi. Since most of the housekeeping questions have been addressed, I want to talk about GM Hydro. You know, we knew about the Nikola refocused on fuel cells. Navistar was a bit of a surprise, and in fact, the whole renaissance of your fuel cell business is a bit of a surprise. I do remember the Larry Burns day, so it was the technology of the future that was never quite the future. But now it looks like there's real opportunities there in the commercial vehicle market. So just wondering, in particular, can you talk about where the hydrotech technology is versus competing fuel cell solutions in terms of cost per kilowatt and other key factors?

Well, we're really excited about the potential of hydrotech. And, you know, when you look at commercial trucks, defense, aerospace and stationary backup power, situations where you need large quantities of energy over extended periods of time to move heavy payloads. So that's where hydrogen fuel cells are really most applicable. And so we see hydrogen fuel cells as well as EVs being part of the solution. I was here for when we started working on fuel cells. We've never stopped, and we have a very productive partnership with Honda. So I think we've invested appropriately and shared that investment to be efficient. So I think there's huge opportunity. We're very pleased with our partnership with Navistar. And, you know, they'll have vehicles on the road in 2024. So the time has come.

And just as a follow-on, you know, given that's not core to the passenger or personal use mobility business, you know, unlike EVs where you did roll out a spinoff, but perhaps more like cruise where you The structure of the way it's set up kind of contemplates maybe at some point monetization. How would you think about hydrotech along that spectrum of core could never consider monetizing to if the price is right, it could go its own way?

Well, I think, as I've said repeatedly, we will always do within the long-term best interest of our shareholders to unlock the most value. So we are committed to doing that. You know, we're in the early days of hydrotech and also with our GM defense business and other opportunities. So, you know, right now we're focused on the growth opportunity that's in front of us. And if at some point there's a different structure that would enable that growth to be even faster, we'll definitely consider it.

Okay. Thank you.

Your next question comes from the line of Dan Levy with Credit Suisse.

Hey, good morning, everyone. Thanks for taking the question. And welcome to the team, Paul. First question, I wanted to ask about EV. And I think you mentioned in your opening remarks, you've had discussions with the new administration. And I think we know a big part of EV uptake until now, and likely for the foreseeable future, is likely the role of government in setting policies encouraging uptake. And you're doing commercials on Norway. Norway has been one of the most aggressive in policies encouraging uptake. You have this new 2035 zero emission target. Can you tell us what your baseline assumption is for increased regulation in the coming years is to encourage EV uptake? How aggressive do you expect the government to be, or would you advocate for the government to be? Would you advocate for the government, the U.S. government, to institute a ban on combustion vehicles by 2035, similar to what we've seen from other countries?

I think our focus, Dan, is really on delighting the customer with an incredible ownership experience of allowing them to have the vehicle and the segment that they want at the price point that fits their life. And then having the right range, making sure the whole ecosystem supports them from a charging perspective, whether it's home charging, at work, when they're making long-distance trips, or if they live in an apartment and how do we make sure they have regular available and dependable charging infrastructure. So I think there's a huge amount of opportunity with business partnering with government to make sure the infrastructure is there to support it. We do want to see the EV tax credit. We think there's a period of time where that's still important, and frankly, we'd like to see that not penalize first movers. But generally, we are very much focused on delighting the customer with the overall ownership experience, having the right vehicles, and making sure Every aspect of their ownership is a step above what is today. That's really going to drive the adoption we need.

Okay. Thank you. And then a second question on this 2035 target, which, you know, it is the first time you've put out firm timing on this target. And I think the word that you used in the release is aspire, right? rather than a hard, firm target, which makes sense because it's 15 years out. But maybe you could walk us through the factors that you think could accelerate or challenge your ability to meet this target. What is the largest factor determining the ability to meet this target between cost improvements on EV, addressing the transmission and engine capacity, which I think needs to be downsized, challenges on distribution? or just broadly on U.S. consumer acceptance of the product. So what needs to be done to hit this 2035 target? Because you used the word aspire rather than a hard line in the sand.

Well, clearly, customers will drive this and what customers want. And that's why we're focused on on creating that excellent customer experience that I just talked about. But there's really nothing holding General Motors back. We have the manufacturing capability. We have the Ultium platform, and we already have the second generation of technology that's being worked to further take cost out and allow energy density to increase, which all benefits the consumer. We have the Altify buying, how we will provide the customer experience, and we're partnering with our dealers to make sure it's an order of magnitude better customer experience from an ownership perspective. The services, whether it's subscription or what's offered in the vehicle from a connectivity, is another thing we think where we can completely delight the customer and build on the fact that we have leading technology right now. So to me, there's not... one big factor that's going to hold us up. We have all the assets to achieve this. We've got to solve issues and win customers, but I think we're well-positioned to do that across the portfolio, and that's why we see it as such a tremendous growth opportunity for General Motors.

Great. Thank you very much. Your next question comes from the line of Philippe Houchois with Jefferies.

Yes, good morning, and thanks for having me on the call. Following on to this discussion about this aspiration and your targets or aspiration for 2035, I'm trying to understand thinking 10 years out or so. If we assume that SAR grows relatively slowly in the mature market and GM targets no ice by 2035, what happens if adoption is lagging significantly, let's say 50% or so? Logically, GM must be prepared to either shrink volume will compensate hardware revenue with other sources of revenue. And keeping in mind, for me, shrinking, if you've got more growth and better margin, it's not necessarily negative for the market. It's quite the contrary. Alternatively, if you don't want to shrink or you're not planning to shrink, you need to work on squeezing your competitors, especially basically making their growth in EVs more difficult. I'm just trying to understand strategically over the next 10, 15 years, Is GM ready to shrink or is GM going to be aggressive? That's what I'm trying to understand. Or am I missing something?

I think we're going to be aggressive because I think we've got the technology, we've got the talent, we have the manufacturing capability. We already sell more vehicles in the United States and we're number two in China. So I think we're well positioned. Because of our current brand strength around the world and our position, And then with the technology that we're bringing forward. So we don't plan on shrinking. We plan on growing, especially if you look at in the United States on the coast, we don't get what I would say is our fair share of the market. That's a growth opportunity right there. But we think we're extremely well positioned. And again, I can't underestimate how much opportunity we have with the Altium platform because of the modularity of it that we can take so many vehicles across so many segments, price points, to really delight the customers. So that's our focus.

Thank you. Thank you very much.

Your next question comes from the line of Chris McNally with Evercore.

Good morning, everyone. Mary, I wanted to follow up on the questions on, on cruise. And I know you can't be too specific on, you know, exactly when a launch would happen or, even maybe a more extensive beta testing of a program in San Francisco. But could you at least maybe talk about some of the ambitions to test aggressively in other cities for whenever a commercial launch or beta launch was to happen? Could we expect multiple launches sort of in succession on sort of an annual type basis?

I think you will see. You know, we talked very early on that, you know, once we have launched in one city and the opportunity to go to the next and do the work to make sure the technology is adaptable to the unique things of another city. So I think once we launch successfully and demonstrate that the technology is safer than a human driver and we demonstrate to customers, I think that we can really increase the number of cities that we're offering it quite quickly, and that's what we'll focus on doing.

Finally, the rationale behind the tax deconsolidation of Cruise, it's super interesting. I'm just curious, does it ever make sense that Cruise is its own separately listed asset so that funding options would be obviously much broader than internal or external private investors?

Hey, Chris, it's Paul. So I would say those two issues are pretty separate and distinct from each other. The tax deconsolidation is really just mechanical because our ownership is below the required thresholds to consolidate for tax. And obviously with their spend and their growth, we've benefited from that, which is why we're seeing a tax increase with the deconsolidation. You know, I think what we've proven out with the last round of funding is an ability to partner and raise external capital alongside the strength and the foundation that GM provides. So, you know, I think access to capital is really unconstrained the way we think about it right now. We bore that out in the last fundraising round.

Okay. Thank you. Our last question comes from the one of Jerome Nathan of Daiwa.

Hi, thanks for squeezing me in. I have two questions, one for Mary, one for Paul. For Mary, in the longer term, do you see EVs as an opportunity to re-enter Europe with a clean slate, especially given governments have been have been more conducive to giving incentives to EVs. I believe EVs amounted for like 10% penetration in the fourth quarter of 2020. What's your thoughts on that?

There's nothing that precludes us with the sale of Volvo Vauxhall to do that. We already have our iconic products in Europe right now with Cadillac and the Shepard Lake Corvette, et cetera. So there's nothing that precludes us, and I think it's a natural growth opportunity for us as well.

Okay, thanks. And, Paul, coming from an industry which benefited significantly from consolidation, what are your thoughts for the automotive industry there?

Well, I think that's a bit of a trick question. But, you know, I think they're obviously very different industries across the board. I think there are some similarities in that, you know, the industries are both capitally intensive companies. But what we have here is much more of a platform to create a growth model. And I think we saw some of that in my past life as well. But really here it's about diversifying the business. It's about growing into the increasing tipping point-like demand of EVs and AV technology going forward. And when you combine that with the strength and the brands and the capabilities of GM, I think we've got a lot of opportunity ahead of us.

Okay, thank you. That's all there.

Thank you. I'd now like to turn the call over to Mary Bira for her closing remarks.

Thank you. Well, first of all, I appreciate all of you joining, and thanks for the great questions this morning. I hope you know and see that it's overwhelmingly true that we are at an inflection point on sustainability, on inclusion and diversity, and on growth that will deliver shareholder value not just this quarter but for many years to come. I hope that's coming into even sharper focus for all of you. Every quarter moving forward, you can expect to hear us advance our story. I believe we have the talent, the technology, the profitability, and the balance sheet to lead, and we will continue to innovate, and I look forward to sharing more in the months ahead. So thank you. Please take care and stay safe.

Ladies and gentlemen, that concludes the conference call for today. Thank you for joining.