General Motors Posts Earnings Beat but Warns on Chip Shortage

General Motors reports earnings that are driven by a rebound in demand for cars and trucks, but warns future earnings will be impacted by a global chip shortage.

General Motors  (GM) - Get Report posted stronger-than-expected fourth-quarter earnings amid a strong rebound in demand for its cars and trucks, though warned a global semiconductor chip shortage could cut into 2021 earnings.

GM said Wednesday that adjusted earnings for the final three months of the year were $2.8 billion, or $1.93 a share, vs. $72 million, or 5 cents a share, in the same period a year ago. Analysts polled by FactSet had been expecting earnings of $1.60 a share.

GM said its adjusted per-share earnings included a 12-cent gain from investments in PSA, Lyft  (LYFT) - Get Report and Lordstown Motor  (RIDE) - Get Report, as well as a 59-cent hit from a recall of Takata airbags.

Sales rose 23% to $37.5 billion from $30.8 billion in the same period last year, also beating the $36.2 billion average forecast of analysts polled by FactSet. Fourth-quarter EBIT-adjusted margin came in at 9.9%, the company said.

At the same time, the Detroit-based automaker warned that future earnings may be impacted by a global semiconductor chip shortage that it said could cut its earnings by $1.5 billion and $2 billion this year. Specifically, GM said it now expects 2021 adjusted earnings of between $4.50 and $5.25 a share, well below current analyst estimates of $6.05 a share.

Following the company’s third-quarter results, Chief Financial Officer John Stapleton told investors to expect GM’s second-half adjusted earnings before interest and taxes to fall between $8.5 billion and $9.5 billion, with adjusted automotive free cash flow between $11.5 billion and $12.5 billion.

Stapleton also warned investors that GM's fourth-quarter results were likely to come in below its third-quarter results, as additional costs related to new-product launches would weigh on the company’s bottom line.

GM said Tuesday that it was extending production cuts at three North American plants until at least mid-March due to the worldwide semiconductor shortage. 

Shares of GM turned lower following the release of its earnings. At last check the stock was down 5.81% at $52.81. 

The quarterly results cap a tumultuous year for GM, which ended the final three months of 2019 mired in strike-related plant shutdowns that idled the company’s manufacturing output for 40 days and, like most other companies, began 2020 facing a global pandemic that affected not only production and supply lines but consumer demand.

On top of that, a decisive shift toward electrification started by Tesla  (TSLA) - Get Report and augmented by numerous competitors ramping up production and sales of their own battery-powered cars or unveiling new ones has also pushed GM to rethink its long-term outlook and strategy, particularly after its initial failed deal with Nikola. 

GM in November cut a new "cost plus" deal with embattled electric truckmaker Nikola  (NKLA) - Get Report after scrapping an earlier $2 billion agreement that had GM taking an equity stake in Nikola and helping develop the company's Badger truck. That deal was scrapped following allegations of fraud by short-seller Hindenburg Research.

But the company is only beginning its shift toward leaving the combustion engine behind. GM CEO Mary Barra noted in a statement accompanying Wednesday's earnings that GM increased its EV and AV investments to $27 billion. 

That includes launching 30 EVs globally and achieving EV market leadership in North America, she said. By mid-decade, GM is aiming to sell 1 million EVs per year in its two largest markets – North America and China – with joint venture partners.