General Motors shares were trading flat in US pre-market price action today after rising sharply yesterday. The company has raised its profit forecast and is ramping up production despite chip shortages.
In its earnings call last month, General Motors predicted that its profit before tax for the first half of the year would be in the order of $ 5.5 billion. Yesterday, America’s largest automaker said it expects first-half results to be “significantly better” than previous forecasts.
General Motors updates its guidelines
“I don’t think we necessarily like to update our forecast a month after it’s released,” General Motors CFO Paul Jacobson said. He added, “But it shows you how fluid and volatile the situation has been.”
Yesterday, General Motors announced that it was increasing deliveries to dealers even as it spoke about the crippling shortage of chips. “The global semiconductor shortage remains complex and very fluid, but the speed, agility and commitment of our team, including our dealers, have helped us find creative ways to keep customers happy,” said said Phil Kienle, General Motors vice president, North America Manufacturing and Labor Relations.
General Motors will increase production
He added, “Customer demand continues to be very strong, and GM’s engineering, supply chain and manufacturing teams have done an outstanding job in maximizing production of high-demand, high-capacity vehicles. limited.
Commenting specifically on the best-selling models, General Motors said it expects production of full-size Chevrolet Silverado HD and GMC Sierra HD pickup trucks to increase by about 1,000 trucks by mid-July. He added: “Shipments of Chevrolet Colorado and GMC Canyon midsize pickup trucks built at Wentzville Assembly, Missouri will increase by about 30,000 units in total from mid-May through the week of July 5.”
Global chip shortage
The global chip shortage has hurt the auto industry, although some auto makers are more affected. Ford, for example, expects to lose half of its second-quarter production due to the chip shortage. He expects things to improve a bit in the second half of the year with a production loss of around 10%. The company lowered its forecast for pre-tax profits by $ 2.5 billion in 2021 due to the chip shortage. Meanwhile, positive comments from General Motors management also led to a rise in Ford shares yesterday.
Chinese automakers are also hit by the chip shortage, and Li Auto and NIO reported fewer deliveries in May than in April. XPeng Motors meanwhile reported higher deliveries in May than in April. You’re here does not provide a monthly delivery report, but the company expects its deliveries to increase by more than 50% year over year in 2020. The company led by Elon Musk has delivered nearly a half -million electric cars in 2020, which was in line with its initial forecast which was issued before the COVID-19 pandemic.
General Motors and Ford facing inventory issues
While outright electric vehicles, companies are limited in capacity and can only sell as many cars as they produce, the scenario has been different for traditional automakers like Ford and General Motors. Historically, these companies have carried out nearly two months of inventories. However, production bottlenecks, first due to the pandemic and then to the shortage of chips, have led to the depletion of these stocks.
Stocks are falling
While automakers have tried to reduce dealer inventories anyway, there has been a forced reduction in inventory. It also negatively impacted sales in some cases and Ford also had to stop production of its best-selling F-150 pickup. The model has been the best-selling pickup in the United States for decades and would rival Tesla’s Cybertruck.
Ford unveiled the all-electric version of the F-150 last month. By the way, President Joe Biden tried his hand at the Ford F-150 Lightning and seemed impressed and said “this sucker is fast”. Biden called himself an “auto guy” and said “the future of the auto industry is electric.” Last year, his predecessor Donald Trump also praised the Endurance model.
However, Biden and Trump have different world views on electric cars and climate change. While the Biden administration plans to spend billions to increase EV infrastructure and see EVs as the future, Trump was a climate change denier and his administration was more sympathetic to the fossil fuel industry.
General Motors takes the lead in electric vehicles
General Motors plans to sell only zero-emission vehicles by 2035 and has become the first automaker in Detroit to commit to a zero-emission future. Tesla’s success and the global pivot to electric cars has led many automakers to rethink their portfolio of ICE (internal combustion engine) cars and they are launching electric cars in a flurry to cover lost ground.
Markets have also approved General Motors’ electric vehicle plans, and they are at their highest since 2010, when they were again made public after bankruptcy. However, General Motors had suspended the dividend in 2020 amid the COVID-19 pandemic. Now, with the earnings outlook looking strong, General Motors may want to revisit the dividend pickup.
However, like Ford, the company is also expected to weigh higher investment needs for electric vehicles.
Should you buy General Motors shares?
General Motors stock was trading flat in US pre-market price action today. It has gained 53% so far in 2021 and far outperforms the S&P 500. Incumbent automakers like Ford, General Motors and Volkswagen are up sharply in 2021 and are outperforming outright electric vehicle makers.
Berkshire Hathaway also owns shares of General Motors. If com can execute the electric vehicle plan well, it could be a winner and a tug-of-war with pure electric vehicle companies.
You can buy General Motors shares through any of the reputable online brokers. Alternatively, if you are interested in trading derivatives, we have also looked at a list of derivatives brokers you can consider.