Good morning and welcome to General Motors. Third quarter 2021 earnings conference call. During the opening remarks, all participants will be in a listen-only mode. After the opening remarks, we will conduct the question-and-answer session. We are asking analysts to please limit yourself to 1 question and a brief follow-up. [Operator instructions ].

As a reminder, this conference is being recorded Wednesday October 27, 2021. I would now I'd like to turn the conference over to Rocky Gupta, Treasurer and Vice President of Investor Relations..

Thanks, Jamie. Good morning and thank you for joining us as we review GM's financial results for this third quarter of 2021. Our conference call materials were issued this morning and are available on the GM Investor Relations website. We're also broadcasting this call via webcast.

I'm joined today by Mary Barra, GM's chair and CEO, Paul Jacobson, GM CFO, and Dan Berce, President of GM Financial. 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 Barra..

Thanks, Rocky, and hello everyone. It's great to have an opportunity to talk with you all again today. Before Paul and I discuss our third quarter results, I want to thank all of you who participated in person or remotely in our recent Investor Day.

Our team really appreciated the opportunity to deep dive our growth strategy and to hear your perspective.

After spending time with our leaders and subject matter experts, I hope it's clear to you that we have assembled the right technology to have the right platforms and we have the right talent to achieve our long-term goals, including doubling our annual revenue and expanding our margins.

Our confidence comes from the fact that we are already making significant progress in transforming GM, from a traditional automaker to really a platform innovator.

You can see it in the conversion of the Orient assembly and factory 0 plants as they have gone from building gas-powered cars to EVs, the construction of our Ultium Cell JV plants, the rapid expansion of Super Cruise, the development of level 2 plus autonomy with Ultra Cruise, the lead Cruise has in level 4 autonomous driving and our portfolio of 20 startup businesses.

You can also experience it in the software and services that will enhance our customers lives and drive growth. And you can see it in our talent and expertise.

This includes the new digital business team that we formed to establish digital market leadership for GM and our expanded board of directors who have deep experience in IT, E-commerce, software development, venture capital, cybersecurity, and more.

As one of you observed, the real magic happens in our vehicles at the intersection of the Ultium and Ultifi platforms. Ultium enables us to efficiently deliver the industry's broadest portfolio of EVs, including a diverse portfolio of truck entries.

And the beauty of Ultifi is the way it will allow us to deploy new software and services rapidly and securely across our entire fleet. This includes Super Cruise upgrades and services we'll create in the future. And seeing is believing.

I have to tell you, I will never forget the overwhelmingly positive reaction that people had after they experienced Super Cruise or had an opportunity to ride in the GMC Hummer EV and experienced Watts to Freedom for the very first time. The same can be said for the Cadillac LYRIQ, that we'll begin delivering to customers next spring.

They were spoken for in just about 10 minutes after we opened the reservation site, so I think that starts to show the strong demand that we will see for the Lyriq. Our next EV reveal will be the Chevrolet Silverado EV and I can tell you the truck is amazing.

Our dealers love it and so you won't want to miss it when we take the cover off at CES in early January. It will evoke passionate enthusiasm through great design and engineering and we believe it will drive mass adoption of electric vehicles, specifically trucks.

And I promise you that the capabilities of Ultium and Ultifi will be just as evident in mass market vehicles like the $30,000 Chevrolet EV crossover, which we showed. And as Mark shared, we’re also working on another EV that's even more affordable than that.

But to be clear, we will also continue to improve the successful ICE vehicles that are funding our future. And we'll do that while improving them to reduce emissions and also offer new technologies. Our plan provides resources to maintain leadership in key segments like trucks and SUVs during and after the transition to electric vehicles.

And although it's only been about 3 weeks since Investor Day, the strategies and initiatives we talked about have advanced even further. Let's talk first about our work to build a strong and secure battery supply chain in North America.

We've established and announced 4 major supply chain initiatives recently, and we expect to add more soon to support our growth, our performance, and our cost reduction plans. And our goal is to eliminate supply chain risks that control -- and control our own destiny as we rapidly scale our EV volumes.

A common thread that runs through these and our recent announcement is a clear commitment to U.S. leadership in EVs. For example, we will add 2 more battery plants in the U.S. by mid-decade. We also have plans to build EV motors and another EV truck facility here in the U.S.

We look forward to sharing the details very soon, but keep in mind, this is just the beginning. As Gerald said at Investor Day, we forecast that North American EV assembly capacity will reach 20 % by 2025, and climbed to 50 % by 2030.

We're also bringing Ultium to China starting with the Lyriq, which is launching in early 2022, and GM China also recently announced it's doubling the size of its advanced design center to support EV development. Cruise is the second opportunity that I want to highlight. As you know, we have always gated the progress of Cruise by safety.

As we speak, Cruise is just one state level approval away from full regulatory approval to charge customers for rides in San Francisco. And it is still the only Company with a permit to provide full driverless ride-hailed service in the city.

As Cruise CEO, Dan Ammann, said, complementary skills of GM and Cruise have brought it to the cusp of commercialization. This includes the launch of the Cruise Origin that will be produced at Factory ZERO and we have already built dozens of engineering development vehicles like the ones you saw during Investor Day.

All of this is why joining Cruise is so high among experts in artificial intelligence, machine learning and robotics; and why Cruise is hosting another series of virtual recruiting events called Under the Hood on November 4th. If you'd like to participate, please contact GM Investor Relations. Now, let's turn to earnings.

As we have shared before we are taking advantage of GM's strong cash flow to fund our investments in growth. Our third quarter results, which, while reflecting the near-term challenges of the global semiconductor supply chain issues, clearly shows the strength of our underlying business.

We reported EBIT adjusted of 2.9 billion, which includes another strong performance by GM Financial and our joint ventures in China, as well as a recall cost settlement with LG. LG has been and continues to be a very valued and respected partner and we are working closely with them to deliver replacement battery modules for our customers.

In fact, we began scheduling and completing repairs this month. While the semiconductor situation improves, I believe our full-year performance will be strong from an earnings perspective and far ahead of where we expect it to be at the beginning of the year.

And most importantly, as we manage this dynamic environment, our clear focus is on transforming GM. Now I'm going to turn the call over to Paul, who will share more about the quarter and our outlook..

Thank you, Mary. And good morning, everyone. We appreciate you taking the time to join us. We outlined our long-term strategy earlier this month, including the opportunity to double our revenues and expand margins by 2030.

We believe that the strength of our underlying business today is a crucial element to delivering on that growth, and I'm proud of the execution by our team during the quarter in the face of continued challenges.

So let's get into the results of the quarter in more detail.In Q3, we generated $26.8 billion in net revenue, $2.9 billion in EBIT adjusted, 10.9% EBIT adjusted margin, and $1.52 in EPS diluted adjusted.

Adjusted automotive free cash flow was negative $4.4 billion during the quarter, due to higher work-in-process inventory related to vehicles produced without certain modules and working capital impacts from plant downtime in lower production levels, as a result of the ongoing semiconductor shortage.

We expect the impact on working capital to unwind contributing to positive free cash flow as production increases and vehicles built without the modules are completed and wholesaled. We realized strong price and mix performance in North America again, through our production prioritization actions and our go-to-market strategies.

Additionally, used vehicle prices drove continued excellent results at GM Financial. In the quarter, we also reached an agreement with LG to substantially recover the cost of the recall. The pretax impact to the quarter of this recovery agreement and associated recall was $700 million. So let's take a closer look at North America.

In Q3, North America delivered EBIT adjusted of $2.1 billion with continued strong pricing on our full-size pickups and SUVs, and the recovery agreement with LG. We generated a 10.3% EBIT adjusted margin in the region.

From a pricing standpoint, we're continuing to see high customer demand for our products and limited dealer inventory, which is driving strong transaction prices and lower incentive spend. In the quarter, our incentive spend as a percentage of ATP fell to 4.67%, 7.4 percentage points below Q3 2020.

And even with these ATPs, we're growing or maintaining share in key segments. For example, almost seven out of every ten customers in the full-size SUV segment purchased a Tahoe, Suburban, or Yukon. The Escalade remains the best selling large -- luxury SUV by a significant margin.

That said, our overall volume in inventories remain low, which is impacting total market share in the region. We ended the quarter with approximately 129,000 units in U.S. dealer inventory. We foresee low inventories and strong pricing continuing well into next year, even as production volumes are expected to increase. Let's move to GM international.

GMI EBIT adjusted was $200 million, up 200 million a year over a year, as we experienced positive price and mix benefits across the segment. China equity income was $300 million in the quarter, despite the semiconductor impacts due to continued strong mix, stabilization in pricing, and material cost performance.

GMI excluding China equity income has made substantial progress toward breakeven despite the impact of semiconductors, reinforcing the structural progress on our path to sustainable profitability and cash flow. A few comments on GM Financial, Cruise and corporate segments.

GM Financial has continued its record-setting pace with Q3 EBT adjusted of $1.1 billion as used vehicle prices and favorable consumer credit trends continue. We've received $1.8 billion in dividends from GM Financial year-to-date. And we anticipate additional dividends to be paid in the fourth quarter.

Cruise losses in the quarter were $300 million and Corp EBIT was a loss of $200 million in line with our run rate estimates of general and administrative costs, including investments in growth and our new businesses. Let's turn to the outlook for the rest of the year.

Despite some ongoing volatility in the supply chain which our teams continue to work to mitigate, we expect sequentially higher volumes in Q4. We also expect costs from commodities and logistics to increase along with investments in our growth initiatives.

I want to make sure that we clearly articulate how we're performing relative to the guidance we have in the market. As you recall, we began the year with a guided range of $10 to $11 billion of EBITDA adjusted and provided updated full-year EBITDA adjusted guidance at Q2 earnings of $11.5 to $13.5 billion.

We now expect to achieve EBITDA adjusted approaching the high end of that range. Our EPS diluted adjusted range will increase to $5.70 to $6.70 driven by a revised full-year effective tax rate due to favorable tax determinations in a mix of global earnings. We also expect to achieve EPS diluted adjusted approaching the high end of that range.

Now I want to provide an update on our capital spending, including investments in Ultium JVs. We now expect spend to be in the $8 to $9 billion range this year, slightly below the 9 to $10 billion range we previously provided.

This decrease is a result of both innovative work by our team to reduce required capital investments, while maintaining the schedule on our upcoming product programs, as well as certain timing of invoices that will shift into early '22. Adjusted automotive free cash flow for the year is expected to be approximately $1 billion.

Note that this guidance now includes the impact of remaining work in process inventory related to vehicles produced without certain modules at the end of the year. Through the fourth quarter, we expect to clear the majority of our work-in-process inventory, but anticipate some inventory will remain at year-end.

As we've indicated, these units will provide additional cash flow in the first half of 2022 as we wholesale the vehicles. To close, we're at an inflection point for GM and we're focused on new metrics and KPIs as we progress on this journey.

We plan to begin to provide some interim milestones and KPIs that we will use to benchmark our performance relative to the growth plan that we laid out at our Investor Event. We look forward to sharing that with you in the coming months.

As we execute on our growth plan, we will maintain the strong business we have today and these results demonstrate that. This concludes our opening comments and we'll now move to the Q and A portion of the call. .

A reminder to analyst, we are asking to limit yourself to one question and a brief follow-up so that we may get to everyone on the call. Our first question comes from the line of Dan Levy with Credit Suisse..

Hi. Good morning, everyone. And thank you. First, just a question on the pace of volume recovery.

Can you just tell us do you have any risk from the emerging magnesium shortage? And then, maybe you could just tell us your expectations on what the pace of improvement is in volumes, what the baseline expectations is for when the supply shortages will be fully mitigated? Just the shape of recovery ahead..

Yeah, thanks, Dan. Related to the Chinese magnesium shortages. Well, we do think there is some near-term price escalation risk. We do not see it as a significant supply risk or constraint for our North America operations. The aluminum alloys we purchased have a very small percent of magnesium and nearly all of our aluminum is domestically sourced.

So we are working with our supply base and we continue to monitor the situation. We'll take appropriate mitigation steps if needed but that's our view right now. And Paul, I'll let you talk volumes..

Sure. Good morning, Dan. Thanks for your question. So when we outlined the second half trajectory on volume, we said that we expected it to be down approximately 200,000 units. Second half to first half with the majority of that occurring in Q3. That's certainly what we have seen.

So we expect a pretty sizable step-up in volume sequentially from Q3 into Q4.

That being said, when we look at Q4 volumes, they look more like what we saw volumes in the second quarter, but we have significant additional cost pressures that we've seen, most of which relate to either commodity inflation or more importantly, investments that we're making in the growth side of the business and in our manufacturing facilities as well.

So volume is certainly recovering off of where we were in Q3 ,which is consistent with what we said, and we would hope to see that and expect to see that as we go through 2022..

Okay. So continued improvement through 2022, it sounds like. That was just a sequential -- you have ongoing sequential improvements.. Okay. Thank you. My second question is -- I want to draw -- a question on EV margins.

I want to draw a comparison with a certain EV automaker which just put up a very strong third quarter, and I think you're finally starting to see the EV margins materialize [Indiscernible] have in the past now, I know you put out the target for your BEV margins to be equal to or better than ICE, and I know in battery, you laid out certain battery targets that's going to be a big part.

But I'm wondering if you could just walk us through maybe the other areas where you could see opportunity to boost EV margins, setting aside the software opportunity, just how easily those things could be attained.

Is it just better architecture consolidation, greater vehicles simplicity? Is it more in-sourcing or more digital, or quasi direct-to-retail sales? Just what other opportunities are there to improve the EV margins aside from the battery cost?.

Sure. You rattled off a lot of them, Dan. Obviously, as we get scale -- the battery improvement is not insignificant but as we get the scale part of that and get scale with the vehicles, I think you're going to see margins improve.

We definitely are leveraging the Ultium platform and being able to launch in roughly half the time, there's just savings coming from that from a less engineering because we already are working off the platform as well as the way we've done the control system.

And we're looking across all aspects of the vehicle to ensure that EVs are affordable, really focused on what customers want. We do extensive consumer clinics to understand what's going to be important.

I think you'll see at every aspect of the vehicle we're looking to improve and then the scale that we'll be able to get across platforms, I think, it's going to drive it. The battery cost will be another. And then, you mentioned it, but on top of that will be the services and that revenue that you don't get until you sell a vehicle.

So we are working on that plan quite aggressively..

Great. Thank you very much..

Our next question comes from the line of Rod Lache with Wolfe Research..

Hi everybody.

Can you hear me?.

Yeah. Hi, Rod..

And good morning, Rod..

Hi. Good morning. I was hoping just first, you can help us a little bit more with some thoughts on 2022. I know it's still early. We know some of the big items. You're going to have volume upside on the positive side and it's been, like, a $10 billion headwind volume for you over the course of '19 with the strike, and '20 and '21 with these shortages.

That's going to be offset by some headwind from raw materials you're spending on EVs and some reversion of GM Financial, but can you provide some high-level brackets on how we should be thinking about that? In particular, the volume, the raws and the spending because it sounds like you still believe that a path to 10% margin in North America is plausible?.

Yeah. I'll start with that, Rod and Mary can add in any additional however she wants to give, obviously. I think we certainly do still see that path. I think you outlined the big moving pieces in your question itself. We're certainly going to see it lift in volume.

I think we're going to see a very different mix because the incremental volume that will be coming on, will be coming on at a little bit lower of a contribution than what we've seen given some of the prioritization actions we took this year.

Going forward, we do have that commodity inflation, but we still remain convicted about our ability to be able to offset either that through productivity or through some of the pricing actions that we've seen.

Certainly we've seen the chips impact, trim mixes, and other things that we would otherwise want to be doing but we've had to reduce a little bit. So I think we're certainly looking at next year right now in detail, and we'll have more color to provide as we get into early 2022..

Okay.

But you can't provide any kind of high-level brackets around magnitude of maybe commodity just based on where spot prices are or what is plausible for volume or spending?.

Well, I think we said earlier this year, that we expected the bulk of the commodity inflation to occur in the first half of the year. Everything is moving around, obviously, as we've seen, a lot of volatility in broadly commodities and the supply chain. We've seen a little bit of that retraced from the highs of this summer.

So we're triangulating around that, but we've seen a couple of billion dollars as we look at 2022, right now. But that could go either way, based on the volatility we've seen. So that's why I'm hesitant to anchor on it right now.

We're certainly looking at macro trends and that's part of the process and we'll provide more detail as we go through our budget plans..

Okay. Thanks. And just second, there is a little bit of confusion this morning about the drivers in Q4 versus Q3. So I was hoping maybe you can elaborate a little bit on that.

In the third quarter, ex the reimbursement, it looks like EBIT would've been about 2.2 billion and it looks like your guidance if you hit the high end of the range would be around 2.1 in Q4, but it sounds like you've got a fair amount of WIP inventory now, so volumes should be up quite a bit.

Maybe there's some adjustment you've got in GMF and you said some mix in commodities.

But can you maybe talk a little bit to some of the magnitude of those sequential moving parts?.

Yes. So if you look at the wholesale numbers that we articulated, you'd see a pretty sizable jump from Q3 to Q4 included in that is clearing out some of the build shy going forward. But when you look at -- sequentially in terms of costs, you've got some seasonality in the fixed costs there.

You've got investments in the future, particularly around some of the manufacturing plants, marketing-related to the new campaigns and the new vehicle launches going forward, and just general investment in engineering and growth across the board.

That's putting on some of the cost pressure going forward, but that is the type of long-term decisions that Mary has mentioned where we're staying focused on as we go through this..

Okay. All right. Thank you..

Our next question comes from the line of Joseph Spak with RBC Capital Markets..

Thanks. Good morning. Paul, maybe just to follow-up here, if we look at this third quarter, and we back out the 2 items from the LG reimbursement and also the cost then you had -- it looks like about a $2.2 billion headwind in costs. You just went through commodities, investments.

I think there's also a non repeat to some of the [austerity] (ph) but can you help us bucket some of that a little bit, just so we can better think about how those should trend going forward..

Thanks, Jodi.

Excuse me, to clarify you're talking about Q2 to Q3 sequentially?.

Sorry, no. In the third quarter on a year-over-year.

Your cost?.

Yeah..

Yeah. If you look at your cost and you back out the recall and the reimbursement, it was a good $2.2 billion headwind.

So I'm trying to understand what made that up?.

I would say, as a general rule, I would put about half of that into commodities inflation, and about half of that into growth investments going forward. And then what we've seen in our fixed cost structure..

Okay, that's helpful. And then just on the CAPEX, I know you said you lowered it. Some of that is efficiency, some of that sounds like timing. If we go back to your Investor event, I think you said about nine to 10 billion over the mid-term.

So was that -- should we think about maybe towards the higher end or maybe even a little bit above next year, given some of these timing issues?.

Yeah. I would just stick with that 9 to 10 guidance, because things bounce around from time-to-time, but I think the important thing to take away from this update is that everything is progressing on schedule and on target, and that's -- that's the biggest concern.

So timing between the year will move, sometimes it moves for you, sometimes it moves against you. But what we're really tracking on is the efficiency of the investment which has gotten better, as well as the timing to make sure that we're hitting our longer-term goals, and that remains consistent. So I would just stay with the 9 to 10..

Okay. Thank you..

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

Good morning, GM Team. I want to go back to some of the unanswered questions from C&D. Probably the biggest one we've been getting is, all sounds good, but what about the capital markets? In particular whether you need time in the capital markets where billions are being devoted to pre -revenue companies.

So if you think of Cruise in that light, how do you think about the tension between waiting for some commercial milestones on that, and, for example, particularly another Softbank investment if they're paying triggers that versus taking advantage of capital market conditions now? And then for the rest of the portfolio, what's the metrics you're looking about when it's time, if ever, to take at least part of those out for the public markets?.

From a Cruise perspective, we have Cruise well funded. So we're executing aggressively to commercialization and we have the ability to do that with the steps we've already taken, as well as with GM's involvement.

And I think, what you need to really look at though with Cruise, is the vertical integration with GM is a key differentiator, and I believe it's one of the reasons Cruise is so well positioned as the only person who's got the permit in San Francisco to actually take the driver out of the vehicle.

That seamless integration of the technology along with leveraging Ultium, as well as our manufacturing capability are a huge value. So I think the message on Cruise is we're well funded and we have rapid commercialization plans in front of u s, and that's the play we're executing.

And over the longer term the board will look at what best enhances the overall value creation and shareholder value for the gf shareholder..

Well, and specifically, it seemed like Dan's pay was tied to an eventual public offering.

A, is that a [Indiscernible], B, does that imply to a question of when as opposed to if, at least there's a partial offering in place?.

I would say that the board has flexibility with the way the agreements were written to do the right thing for the GM shareholder over the long term..

Okay.

And some of the other things in Pam's portfolio would the idea be to hit commercialization targets or some of them less tied to the core of light vehicle business, e.g the fuel-cell business, and might be you could consider strategic actions earlier on those?.

Again, we'll evaluate each one for what we think creates the most shareholder value from a fuel cell perspective. Clearly, there's a vehicle application as well as across many different transportation industries and even stationary power. So we remain open to structure those in a way that's going to drive the most value..

Okay, thanks..

Your next question comes from the line of Itay McAuley with Citi..

Great. Thank you. Good morning, everybody. Just two questions from me, one short-term, one longer-term. On the short-term, maybe going back to the second-half bridge, I think Paul, last quarter, you outlined about a 1.5-2 billion increasing commodity costs, H2 versus H1, and 0.5 billion of investments in growth.

Are those still the right number to think about? And do you have a rough split of how that might trend from Q3 to Q4?.

Yeah. Itay, thanks for that question. What I would say, is it's still largely consistent, but it's really trending with volumes. So I would expect that more of that inflation is going to hit in Q4 than it did in Q3, just sequentially, but that's really because of the volume lift that we see quarter-to-quarter..

Got it. That's helpful. But just on a longer-term basis, I think one of the interesting takeaways on the 2030 revenue target is that you have 90 billion of EV revenue and only maybe a loss of 12 or 13 billion of ICE revenue. So that kind of implies a pretty healthy market share gains there for the EV business.

Maybe talk more -- unpack that more for us around what's driving these implied share gains and is a 90 billion potentially include new regions, new markets that you don't really operate in today, or other types of agreements. Just love to get a little more detail on that split..

So the way I would look at it is that the forecast that we put together and the plans that underlie at our -- for our current markets. So I would say if we enter into other markets in a broader fashion, that growth on top of that. That's the way I would look at the EV margins.

And again, I think it relates to the fact that how quickly we're going to have a full portfolio of vehicles across brands serving value customers, luxury customers, performance customers with our 4 brands..

Got it. That's helpful. Thank you..

Your next question comes from the line of Colin Langan with Wells Fargo..

Great. Thanks for taking my questions. Just wanted to follow up on the magnesium and aluminum question. I guess one, how much visibility do you have? Coming from the semi issue, there hasn't been much visibility.

Is aluminum -- because it's such a big, bulky item that you actually have pretty good line of sight to where your suppliers are getting their aluminum and sourcing the magnesium, which makes everything a little more complicated? And then, what about international, is there a risk there after those operations? It seems like magnesium is such a large part of global supply..

Let's say, as it relates specifically to China with our JVs, we're working with our partners in the supply base to closely monitor the situation and we will take mitigation actions as required. Obviously, we're working closely with the suppliers from North America perspective as well.

So our current view again with all of those conversations, is that we aren't going to see a significant supply risk..

Got it. Okay. And then just looking at slide 13 and the GM international profits ex China have been pretty weak.

Is additional restructuring needed in those regions in any color? Now that it's all lumped together, how much is South America, Korea, and I guess there's a bit rest of the world still in there?.

Yes, go ahead..

I'll take that one, Colin. So what I would say is that you're seeing particularly in the third quarter in GMI performance, excluding China, has a lot to do with the way the chips have been allocated. So if you look at the market share, particularly in South America, it's been pretty low and near historic lows, I would say.

But as you look at sequentially through the quarter and certainly what we're seeing in October, as we've been able to turn plants back on, that market share is recovering quickly. So I don't think the results that you're seeing ex-China is indicative of the run-rate capability of the performance.

In fact, I think it's a testament to the restructuring efforts that have been done and we would look for further improvement in those regions as volume returns back to normal levels..

Okay. All right, thanks for taking my questions..

Thank you..

Sure..

Your next question comes from the line of Daniel Ives with Wedbush..

Yeah, thanks.

So my question, it's not focused on next 30 or 45 days, like some, but when you're looking at the EV vision into 2022, can you walk us through the key bogeys? Obviously, it starts off with CES, but what are shorter the -- what we would view as almost the timeline and the key events going into '22, when we think about EV?.

So I think it really starts at the end of fall this year with the Hummer EV followed by the Lyriq in launching in both United States and in China.

Then we'll -- as you said at CES, we're going to be revealing the Silverado EV and this is really a redefinition and taking trucks to I'll say a new level based on what we can do with the Ultium and platform and understanding what truck owners want, but also people who are coming in who aren't our traditional truck buyers.

At CES will also share a little bit more detail about the $30,000 Chevy EV that will then be revealed later in the year. And we'll have more to say with the vehicle that's even going to be more affordable than that. And again, we have a number of EVs as we've talked about, 30 by 25, so there'll be more information.

But those are, what I can share with you now. So some pretty significant milestones of not only having EVs out, we will also, as we take care of our customers with the Bolt EV and EUV, we will have an opportunity to really grow that share because the vehicle was doing quite well before we took the necessary actions to protect our customers.

So I see a very strong EV landscape in '22, but then in '23, it really turns on..

Your next question comes from the line of Adam Jonas with Morgan Stanley..

Thanks everybody. Hi, Mary. So Mary, you've talked about taking driver out of Cruise vehicles in quarters, not years.

How confident does GM feel driver out can be achieved in 2022? Is that too soon?.

I --.

I know you're close..

-- I would say we're pretty confident..

Okay. That's good enough for me. Mary, just a follow-up on car rental and fleet support, with the -- as your cars become more connected and software designed, OEMs are moving into it like yourselves are moving into this recurring revenue network operating model. You see that VW bought Europcar, Tesla does a major deal with a car rental firm.

I'm just wondering what your 2030 targets are heavily based on software and service revenue, which implies some degree of physical fleet management. So what is GM's strategy for fleet support? You thinking.

more in-house and vertically integrated, you work with the franchise dealers, are there other alternatives like working with non-dealer partners like car rental or other logistics partners along the way? Thanks..

Sure. Well, I think if you look at how we're structuring BrightDrop from a commercial vehicle perspective, and some of the close relationships that we have with FedEx Express, etc, we as a part of BrightDrop are going to have a system that holistically helps them manage the whole ecosystem. I think that points in a direction.

Having said that though, with the launch of EVs, I think, and the software services ran on the vehicle, we're not going to seed that to someone.

else because I think that revenue and managing that is very important. And none of it starts to accrue until you actually have the vehicle being driven.

But having said that, I will just say, and there's a lot of conversations going on right now and again, we're going to look at what provides us the biggest growth opportunity, not only in EV sales, but also in the whole software system to manage those fleets or provide different services to our customers.

So I don't have anything specific to announce today, but I can just say there's a lot of conversations underway..

Thanks, Mary..

Sure. Thanks, Adam..

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

Good morning everybody. I wanted to ask about inventory management here in the short run midterm and long term, I think Paul, you had mentioned this about 124,000 units in dealer inventory right now to some units in work in progress. If you can let us know what that number is.

Then also, for both of you, where you think that travel levels should be in the U.S. as things normalize because pre -crisis you've been running right around 800,000 units plus or minus. So it indicates that there can be very significant catch-up.

But I guess the question is, where do you actually land and how much of the price activity that has been really positive to the tight inventory might be maintained? So short-term, what are we actually looking at of effective inventory? And then long-term, where do you think it stays? Hopefully tighter than history, and what does that mean for pricing?.

Good morning, John. What I would say is that the inventory levels that we've seen now around that 125,000 is expected to remain low, probably into and through 2022, to be honest.

I think as production ramps up in terms of what we're seeing in demand, I think the opportunities to build inventory are going to be somewhat limited, which in the short run I think is a good thing for pricing and for what we see in terms of the demand environment.

Mid-term, we would expect to start building inventories off of these levels because it's not healthy where we see our dealers with empty lots, etc, and when consumers want to buy a vehicle, they want to buy a vehicle, they don't want to wait. We're meant to have more inventory.

And longer-term, what I would say is, go back to what we've said from the beginning of this, that there's a lot of lessons learned in inventory management and certainly what the impact has been on pricing this year, and the right answer is certainly a lot more than what we have today, but certainly quite a bit less than what we've carried historically going forward.

So as we come through this over the longer term, we'll continue to manage that dynamically through the market. But I expect it to be less than historical levels..

I'm sorry..

Go ahead..

No Mary, go ahead. I'll just follow-up after that..

I just -- fall spot on, the only thing I would add is we've added a lot of data analytics to better support our dealers to have the right inventory. And so I think, like Paul said, you're going to see something less but I think it's going to be much more efficient from a Company and a dealer perspective.

I'm really pleased with how well that's working out with our dealers as we look at getting the right products, spec the right way to really serve the customer efficiently..

That's incredibly helpful. And then just one question on the Cadillac ULA strategy. It sounds like there was a charge in the quarter as you're transitioning some of the dealerships out, as they don't want to tag into or invest in the new EV strategy.

I'm just curious how big that is in the base of Cadillac dealerships? And if you think about the transition to EV in your entire product portfolio, how big an opportunity is this to maybe streamline and strengthen your dealership base on a stronger core, like you have in other parts of the business?.

Yes. I think what has been accomplished with the Cadillac dealer base is very, very important and it was done the right way.

We were clear with, as we transition Cadillac, it will be our lead brand moving into all EV, and wanted to make sure that the dealers were in partnership with us to make the investments that they needed to make to -- when selling electric vehicles. And for those -- and we have a lot of dealers, some are very high-volume, some are smaller.

So you can imagine if they weigh that decision of what's in the best interest for them, we worked through that.

So what we have now, I think, is a very efficient Cadillac dealer base that's very excited about all EV products that are coming and are making the investments to support the customer extremely well, so I think it's going to be a model as we go forward, but I'm very pleased with how that is turned out.

Again, we did it in with our dealers and I think that's going prove to be the right way to do it and very strong from a customer support perspective..

Okay. Thank you very much..

The next question comes from the line of Emmanuel Rosner with Deutsche Bank..

Thank you. Good morning, everybody..

Morning..

Morning Emmanuel.

So 1 follow-up on the short-term and then 1 longer term question. On the short-term, I'm curious if you could put a finer points around how some of the cost pressure you expect in the fourth quarter, are good read across the run rate for how to think about 2022.

And the reason I'm asking is if I understand you well, Paul, I think you expect Q4 volumes to be about in line with Q2, but then at the same time, the guided EBITDA for Q4 is probably about half of what you did in Q2. So 3 billion versus the 4 billion.

And so when I think over that $2 billion delta seems like there's commodities in there and then there's investments in the future.

So first is my understanding correct,and second of all, how do I think about these costs going into next year? You spoke about commodities, what about investments in the future? Is this the run rate that is required for your plan?.

Yes. So thanks, Emmanuel, for that question. In order to go back to Q2, we also have to understand that there were some one-time or shorter term impact issues that were affecting that. So when you back that out of Q2 and normalize it, you are looking at approximately a billion dollars. So GMF had true-up of some of its liabilities.

Now that all that caught up to the credit terms and the used car prices were in a run rate basis at GMF that was included in Q2. We had some mark-to-market on investments as well. So if you take about a billion out and then you look at roughly a billion to a billion and a half where we were, Q4 to Q2, I would break that down into about half of that.

So call it in the $700 million range being about the cost inflation and where we're seeing investment into the business on, kind of, a run rate? And then, the other half being commodities, which should vary over time. And certainly we've seen some of that pressure coming off of the peaks. Hope that answered your question..

That's super-clear, but the fourth-quarter, how do we think about these investments in the business on a go-forward basis?.

And I think the fourth quarter is indicative of that. You see that fixed cost being roughly flat 3Q to 4Q was how we're thinking about it. But it's going to continue to grow over time as we roll-out these products and going forward. So you've seen some increase in CIB for the launches of the new EVs.

Obviously, we are going to be in a pretty sizable launch cadence going forward for the next few years. And we're going to make sure that we invest in that and then we've got engineering going on for multiple projects going forward. So I think we've got good control of that where we stand and where we go.

And it's stuff that we think is the right investment for the long term..

Great. And then on the longer term you -- I wanted to follow up on the question I asked here on the Capital Markets Day. We're very encouraged -- I was very encouraged to see your bullish long-term targets for margin, as well as the goals to improve margins in the core automotive business by 2030.

My question is, how will you manage profitability in between, so between now and mid - decade, as some of these EVs roll on and ramp up at lower than average margin, as well as like some of these investments in the business as needed? How will you ensure that the profitability is on the upward trajectory before that 2030 target?.

Yes. Emmanuel, here's the way I look at it. Obviously, as we get scale, that's going to continue to help the question that was asked before from an EV profitability perspective, so that -- we get there mid-decade and then just continue to build on that.

But we are also going to be focused on investing in businesses that are going to allow us to create software businesses that have a very different margin potential overall, that's part of that.

So, as we said at Investor Day, we said we -- plus or minus, we're going to maintain margins as we go forward because we think we have the capability to do that. But just to be clear, we're also going to make sure that we're doing the right investment. We're not going to constrain investment in the future growth opportunities.

But the current modeling that we've done and the plan that we're executing and the targets that have been distributed that everybody is being held accountable to, we see roughly a steady and then improving towards the latter part of the decade with margins.

Paul, anything to divest?.

No. And I think, the additional truck capacity that's coming on is going to give us an ability to continue to grow the leading truck franchise, which, as we've said from day 1, is funding the journey.

So we expect a little bit of mix uplift from that, that's going to help to offset some of that shorter-term margin pressure that you might otherwise expect to see.

So this is going to be a focal point of -- as I talked about in my prepared remarks, of making sure that we're bringing transparency on KBIs and how we're thinking about the business heading through '22 and into 2023..

That's great [Indiscernible]. Thank you..

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

Hi. Thanks for taking my question, which is on how you are anticipating commercial negotiations with Autoparts suppliers, [Indiscernible], going forward and the potential impact -to - margin.

I understand they're typically built into contracts, agreements for automakers to compensate suppliers for increases in raw material costs, but generally not for other forms of inflation such as freight, logistics, labor, etc.

On some of the earnings calls so far this quarter, suppliers have discussed attempting to negotiate for reimbursement for some of these, at least non-commodity supply chain costs and even for the magnitude and suddenness of order cancellations due to the semiconductor shortage curtailing production, which again, I don't think we've historically seen automakers compensate suppliers for lower volumes coming from factors outside of their control.

So I just wanted to check in with you to see how you expect these conversations may proceed and whether we should think about suppliers bearing the brunt of these non-commodity costs, or if there may be margin implications for GM?.

Ryan, I'll take a shot at that, and obviously not going to go into any detail on any conversations that we're having across our supply base. But what I would say is, the singular focus is making sure that we have consistency and reduce some of the volatility that we've seen in the supply chain, whether it's due to logistics or semiconductors, etc.

So we're working across-the-board because that's where the real value is, working with our suppliers to drive efficiencies across the business, as ultimately what we all have to do to be able to counter inflationary aspects of the business.

But right now the here and now is navigating through some of the short-term challenges while focusing on operations..

Thanks. That's helpful. And then my last question is a follow-up to Adam's earlier question on fleet sales. I recall that pre -pandemic you had significantly reduced your sales to daily rental card companies in particular.

How are you feeling -- thinking about prioritizing of sales between retail and fleet customers and between the various categories of fleet customers with the supply chain where it is currently? And then longer-term, how do you view the relative attractiveness in profitability of the various different sales channels, such as retail, daily rental, commercial, small and medium-sized businesses, etc.?.

Well, yes. In the past, in the traditional ICE business, daily rental was the least profitable business and we had worked to reduce that substantially and held discipline to that. They are actually though, as fleet businesses, very good as I mentioned before with what we're entering in to BrightDrop.

Not only the business itself with the vehicles, but then the services and the first mile-last mile solutions that we're going to be offering, so we're going to be aggressive from that perspective and then again, I think there's new frameworks opening up from what today or what has been in the past from a rental car perspective.

As I said, there's a lot of conversations going on. We're going to do what we think is in the long-term interest of maximizing our profitability and also reach with EVs, and so more to come..

Great. Thank you..

Your next question comes from the line of Mark Delaney with Goldman Sachs..

Good morning and thanks very much for taking my questions. Software connected services, especially on a subscription basis, is a big focus for the auto industry is something that GM spend a lot of time focusing on at the Analyst Day. I think the Company guided for about 2 billion of subscription-related revenue this year, over 70 % EBITDA margin.

And you talked about that 20 billion to 25 billion target by 2030.

Can you -- can you talk about how you see the ramp from where you are this year to that 2030 target? What sort of increases should we be expecting as investors in the next few years? And is it a pretty linear increase or is it just going to be more of a backend weighted target?.

Hi, good morning Mark. As we talked about, a lot of that revenue growth is really tied to the Ultifi platform and how we're going forward in terms of getting the connected car park out there, which is going to build aggressively over time as we ramp up EVs. So by definition that's going to be a little bit more back-loaded.

We still -- we can see a little bit of growth on the horizon as we look at OnStar and some of the connected services which is really the baseline today going forward, but certainly we'd expect that to tick up as we -- significantly in the growth rate as we get into the second half of the decade..

Understood. And my follow-up question is about end demand. Wholesales were down and, I think, a lot of it is on the supply chain challenges. But when you look at some of the macroeconomic indicators and talk to your channel and dealer network, are you seeing any changes in end demand either in the U.S.

or China that we need to be monitoring? Or is the wholesale decline really just due to supply? Thanks..

Where selling everything we can sell. It is totally due to what we are able to supply. I'm so excited and enthused at the strong reaction to all of our products. So I am confident as we build more, we will have -- we'll see strong reaction and acceptance of those vehicles..

Thank you..

Our next question comes from the line of Matt Portillo with Tudor Pickering Holt..

Good morning. And thank you for taking my questions. I wanted to ask a follow-up question on the BrightDrop business segment. The long-term revenue growth outlook provided at CMD was quite impressive backed by initial custom orders from FedEx and Verizon.

What we're hoping to get a bit more color on is how you're seeing incremental customer demand evolving given benefits highlighted on our TCO basis for buyers, and how we should think about margin progression for the business as vehicle production ramps over the next few years and accelerate revenue streams expand, helping to push margins to the low 20s long-term..

Yes. Matt, I think we shared quite a bit of information on our goals there. As Paul said, as we move forward in the next few months, we'll give you milestones to look at in some of those key businesses like BrightDrop, but I don't have anything more to share today..

Okay. Thank you. And then my follow-up question. I was just hoping to dig a bit around the medium-term outlook for Ultra Cruise, it's an extremely exciting platform. We know Supercruise is currently being rolled out to a wider range of models this year and scaling to 22 vehicles by 2023.

Just curious if you could provide some guide rails and how we should be thinking about the roll-out of Ultra Cruise and at what point we could see that product launched in some of your higher volume vehicle lines?.

With all the lessons learned that we've had with Super Cruise that as we get that technology on retail market, that we will scale it quite or make it available quite rapidly across the portfolio even faster than what we've done with Super Cruise..

Thank you..

Thank you. I would now like to turn the call over to Mary Barra for her closing remarks..

Great. Well, hey, thanks, everybody for all of your questions. I do want to end with saying how proud I am of the entire GM team, including our dealers and our suppliers. In every part of the Company, I see urgency, decisiveness, agility, creativity of just solving issues and finding opportunities and really leveraging them.

So they are key --.our partners are key to our consistent strong performance over the last several years. And it's why I'm very confident not only that we're going to see improvements as we move through fourth quarter and into 2022, and then beyond.

We are very committed to the growth strategy that we outlined as part of our Investor Day and looking forward to sharing more, not only about the exciting products and businesses that we'll be offering, but also the milestones for you to be able to track our performance. So again, I thank you for joining us today and I hope everyone stays safe..

That concludes our conference call for today. Thank you for joining. You may now disconnect..