National Post (National Edition)
GM profit outlook signals note of caution on chip shortage
Production cut at three plants in North America
provided a cautious profit-growth forecast for 2021, reflecting anticipated damage from a semiconductor shortage reverberating throughout the global auto industry.
The Detroit-based company expects continued income growth this year after reporting a strong fourth quarter but warned of headwinds from the semiconductor shortfall that has cut its production at three plants in North America.
Mary Barra, GM's chief executive, vowed the automaker will shield its highest profit margin vehicles from the chip fallout.
“We're doing everything possible right now so we won't lose any production throughout the year for fullsize trucks and SUVs,” she said.
Shares of the carmaker pared a drop of as much as 6.3 per cent, closing 2.12 per cent down to US$54.88 in New York.
“The guidance was below expectations and there are headwinds like the semiconductor shortage and commodities prices,” Jeff Windau, an analyst with Edward Jones who has a hold rating on the stock, said in a phone interview. “The shares have had a nice run, but we're entering a time period where they are spending a tremendous amount on future growth initiatives and we have these headwinds coming.”
Semiconductor makers have allocated more capacity to consumer products, forcing carmakers to scramble to secure adequate supplies. A faster-than-expected recovery in U.S. vehicle demand in recent months has exacerbated that supply pinch. Consultant AlixPartners said the global chip shortage could cost automakers US$61 billion in lost sales this year.
The firm said the shortage will shave US$1.5 billion to US$2 billion off GM's adjusted earnings in 2021. It has been forced to idle three plants until mid-March and build some vehicles without certain modules at other factories, holding them until more chips come in.
GM sought to downplay the damage, saying it views chip scarcity as a temporary setback.
“We do not believe this short-term headwind will affect our long-term earnings power,” Paul Jacobson, the company's chief financial officer, said on a call with analysts. “The underlying business has never been more robust.”
The automaker is diverting chips from less popular vehicles to its best-sellers to mitigate the balance sheet and market impact, he said.
GM forecast adjusted earnings before interest and taxes of US$10 billion to US$11 billion in 2021, which translates to adjusted earn ings per share of US$4.50 to US$5.25. That compares with US$4.90 a share and US$9.7 billion in adjusted earnings last year.
Strong demand for its vehicles and a rapidly unfolding push into EVs will help the automaker power past the temporary chip challenge, Dan Levy, an analyst with Credit Suisse who has an outperform rating on GM's stock, wrote in a research note. “We believe investors should look past the soft guide.”
GM previously indicated it would reinstate its suspended dividend payment by mid-2021, but Barra deferred comment about that when asked on the analyst call. “You'll hear more from us later in the year as it relates to the dividend,” she said.
The company cancelled its dividend and a share-buyback program in April to preserve cash amid the onset of the coronavirus.
GM is benefiting from a recovery in U.S. demand after a pandemic-induced shutdown early last year and also signs of improvement in China, the world's largest car market. GM's market share grew in both countries in the last three months of 2020.