General Motors Co

NYSE:GM

Good morning, and welcome to the General Motors Company Fourth Quarter and Calendar Year 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded Tuesday, January 30, 2024. I would now like to turn the conference over to Ashish Kohli, GM's Vice President of Investor Relations.

Thank you, Amanda, and good morning, everyone. We appreciate you joining us as we review GM's financial results for the fourth quarter and calendar year 2023. Our conference call materials were issued this morning and are available on GM's Investor Relations website. We are also broadcasting this call via webcast. Joining us today are Mary Barra, GM's Chair and CEO; and Paul Jacobson, GM's Executive Vice President and CFO. Dan Berce, President and CEO of GM Financial, will also be joining us for the Q&A portion of the call.

On today's call, management will make forward-looking statements about our expectations. These statements are subject to risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties include the factors identified in our filings with the SEC. Please review the safe harbor statements on the first page of our presentation as the content of our call will be governed by this language.

And with that, I'm delighted to turn the call over to Mary.

Thanks, Ashish, and good morning, everyone. As we begin 2024, I believe GM is well positioned for a year of strong financial performance that builds on everything we accomplished and importantly learned in 2023.

Consensus is growing that the U.S. economy, the job market and auto sales will continue to be resilient. At GM, we expect healthy industry sales of about 16 million units. We have an unmatched ICE portfolio in North America, rising EV production on the LTM platform and GM Financial continues to perform well.

We're building on a foundation of products that our customers love. In 2023, GM sold more vehicles in the U.S. than anyone else. All of our U.S. brands grew their sales year-over-year, and we gained U.S. market share with healthy margins, thanks to stable pricing and incentives that were more than 20% below the industry average.

The Chevrolet Bolt EV and EUV had record sales. We led the industry in initial quality for the second year in a row according to J.D. Power. And we now have led the industry in combined pickup, full-size van and full-size SUV sales for 10 consecutive years, making us the leader in the highest ATP quadrant of the market and helping us lead the commercial fleet market.

And we have passed Honda and Toyota in the most affordable quadrant, thanks to attractive and profitable vehicles like the Chevrolet Trax, which is one of Car and Driver's 10 best trucks and SUVs, and the Buick Envista, which is winning with younger buyers. In fact, more than 1 in 4 Envista customers are between the ages of 18 and 35.

The broad-based momentum we have today is important for our future because our customers are the most loyal in the industry. All of this success contributed to full year EBIT adjusted of $12.4 billion and adjusted auto free cash flow of $11.7 billion in 2023, which brings our total to more than $22 billion for '22 and '23.

Almost 2/3 of that cash is being returned to shareholders through dividends and share repurchases, including the impact of the $10 billion accelerated share repurchase program that we announced in November. Through the ASR, we immediately retired 215 million common shares in the fourth quarter. Our current share count is less than 1.2 billion, and we are working to reduce this even further to less than 1 billion common shares outstanding, which would be about 600 million fewer than at our peak.

As we look ahead, our priorities and our commitments are clear. They are to maximize the opportunities [indiscernible] with our winning ICE portfolio, grow our EV business profitably, deliver strong margins and cash flow and refocus and relaunch Cruise. Across the enterprise, we are taking important steps to deliver on each priority. Let's start with our ICE portfolio.

Chevrolet's crossover lineup had record sales last year. And this year, we're enhancing 2 of its most important models, which compete in growing segments. For example, Super Cruise will be available on the Traverse for the first time, and we will introduce a new premium Z71 off-road model.

The 2025 Chevrolet Equinox that we unveiled last week is another great example. It has more standard safety equipment, new truck-inspired styling and a strong focus on technology. And importantly, both the Traverse and Equinox will have higher projected margins than the outgoing model.

Buick and GMC are also launching new crossovers this year to keep our momentum going. In our EV business, we expect our U.S. portfolio to be variable product positive in the second half of the year based on our current expectations for EV demand and production growth. Strong interest in our vehicles, lower commodity prices and other factors will support us.

Our plan is to produce and wholesale 200,000 to 300,000 Ultium-based Chevrolet, GMC, Cadillac and [indiscernible] EVs in North America this year, but we will be guided by customer demand. It's true the pace of EV growth has slowed, which has created some uncertainty. We will build to demand, and we are encouraged that many third-party forecasts have U.S. EV deliveries rising from about 7% of the industry in '23 to at least 10% in 2024, which would mean another year of record EV sales.

We believe our competitive position will improve throughout the year based on higher production of the Cadillac LYRIQ, the GMC HUMMER EV, the Chevrolet Blazer EV and the Silverado EV work truck. We're also excited to have the Chevrolet Equinox and the Silverado EV RST, the GMC Sierra EV Denali and the Cadillac Escalade [indiscernible] arriving in showrooms over the course of the year.

We are confident in the design and performance of these vehicles. For example, the LYRIQ is driving growth at Cadillac. Its sales have increased sequentially every month since September, and January deliveries should be in line with December despite winter storms across the country.

We also have more than 10,000 -- or excuse me, 100,000 reservations and orders for EV pickups that we expect to fulfill in '24 and '25. However, if demand conditions change, we'll take advantage of our manufacturing flexibility in Spring Hill and Ramos to build more ICE models and fewer EVs. We can also mix between different EV products at Factory Zero. Ultimately, we will follow the customer.

The supply chain, manufacturing and software changes we have made will support our growth. On the battery front, our Ultium Cells joint venture is at full production in Ohio. And the new plant in Tennessee will begin shipping cells this quarter.

In addition, our supply chain team has moved very quickly to resource 2 minor cell components after the U.S. Treasury published its updated IRA guidelines in December. This change means that new production going forward of the Chevrolet Blazer EV and the Cadillac LYRIQ will qualify for the full $7,500 [indiscernible] credit.

We work closely with our dealers to ensure consistent pricing for our customers, which we estimate will impact no more than about 25,000 vehicles. Our battery module production is on schedule. The team has improved the automated equipment at our assembly plants used to build modules, and the installation of new high-capacity assembly lines should be complete by midyear.

Our software and services team is on process of resolving the stability issues some customers have experienced with the Chevrolet Blazer EV that impacted their screens and charging experience. And they are working with a huge sense of urgency to lift the stop sales soon.

We disappointed these customers, and we know it. We are determined to get the software right, and we will. We have made several organizational and process improvements that will help us deliver the best possible customer experience going forward.

Among several important organizational realignments, we established a software quality division within the software and services team that has been performing a retrospective on the Blazer EV and has improved the current software development and test processes across the enterprise. Outcomes of this activity are getting applied to all programs going forward. And they include improved standardization of the software development and release process, increased focus on test automation at the vehicle level and additional quality gates and metrics for software at the vehicle level.

From a margin and cash flow perspective, we are making good progress on cost reduction and capital efficiency. Compared with 2022, our fixed costs net of depreciation and amortization will be down $2 billion as we exit 2024, which will offset the impact of higher labor costs.

We are also beginning to see savings from winning with simplicity. And all of our current and future programs have embraced this very important way of designing products. Each team is responsible for creating trim series that make vehicles easy to order with the content customers want and far fewer standalone options.

By making more equipment standard and trim series with logical price walks, we can eliminate literally thousands of unique part numbers and dozens of software releases. For example, we have eliminated over 1,000 selectable options across our current and near-term product programs, which is reducing hardware, software, ordering and manufacturing complexity and importantly, all the costs associated with them.

In 2024, the savings are expected to be about $200 million. To be clear, we're talking about $200 million of savings to execute the same product plan. These savings will grow over time as we apply the discipline to future products like our next-generation full-size pickups.

We're also continuing to balance capital priorities and consistent free cash flow generation. We expect that our 2024 capital spending will be in the $10.5 billion to $11.5 billion, which is roughly flat year-over-year and down considerably from the $13 billion top of our initial 2023 guidance.

Our forward plans include bringing our plug-in hybrid technology to select vehicles in North America. Let me be clear, GM remains committed to eliminating tailpipe emissions from our light-duty vehicles by 2035.

But in the interim, deploying plug-in technology in strategic segments will deliver some of the environmental benefits of EVs as the nation continues to build its charging infrastructure. We are timing the launches to help us comply with more stringent fuel economy and tailpipe emission standards that are being proposed. And we plan to deliver the program in a capital- and cost-efficient way because the technology is already in production in other markets. We'll have more to share about this down the road.

Moving to Cruise. Last week, we released the results of the third-party reviews, and we've already begun to implement significant changes to build a better Cruise. We are committed to earning back the trust with our regulators and the public through our actions.

Our planned 2024 investment in Cruise reflects our more deliberate and cadence go-to-market strategy. And we are developing new financial targets and a new road map.

Spending will be down considerably this year, but we will continue to invest in the people who are advancing the software, specialized hardware and AI capabilities. This reflects our commitment to our vision, which is to deliver the safety benefits of self-driving technology and a scalable, profitable business. I look forward to sharing our timetable for returning Cruise AVs to the road soon.

To summarize, we learned a lot in 2023. And those learnings are helping us build our strengths and addressing our challenges. Everyone on the team is committed to building on our momentum and creating shareholder value.

You'll see in our proxy statement this spring, executive compensation is tied even more closely to delivering our comprehensive ICE, EV, AV and software plans while meeting our financial targets. So our goals are truly aligned with yours.

Before I turn the call over to Paul, I would like to share some thoughts about our next Investor Day. Because of the significant changes that are underway at GM and Cruise, we think it makes sense to wait until later in the year to host an event. This will give our software team the time to focus on software for our upcoming launches. And we will be able to share more tangible proof points on all 4 pillars of our strategy: ICE, EV, AV and software.

When we do get together, we will show you what we've done, not just tell you what we're going to do. In the meantime, we've already provided a road map for EV profitability in 2025. And we'll share updates on Cruise as we finalize the technology and relaunch plans.

With that, I'll turn it over to Paul to go through our 2023 financials and provide more details on our 2024 outlook. Then we'll take your questions.

Thank you, Mary, and good morning, everyone. I appreciate you all joining us this morning. I'd like to begin by recognizing the entire GM team for what they accomplished in 2023. And when you look back over the last couple of years, the results show an impressive trend in revenue growth, EPS consistency and cash generation.

For the full year, our EBIT adjusted of $12.4 billion came in slightly above the midpoint of the range we guided to in November, thanks to the continued strength of the core business. We grew revenue by 10% year-over-year to a record $172 billion and generated $7.68 of EPS diluted adjusted.

A key focus has been profitable growth. And for the full year, we demonstrated this by growing U.S. market share by 30 basis points while keeping incentives well below industry averages.

It's important to mention the 2023 actions we've taken to reduce fixed costs and the progress made on the $2 billion net cost reduction program. For example, automotive engineering was reduced by $400 million driven by portfolio simplification, realizing the benefits from winning with simplicity as well as our drive to virtual engineering.

Marketing spend was reduced by $500 million, and we expect another $400 million this year. And we saw approximately $500 million from lower BrightDrop and other growth business spend along with the impact of the voluntary separation program across the enterprise. These $1.4 billion of fixed cost reductions were partially offset by $400 million of higher depreciation and amortization, meeting our target to achieve half of the $2 billion program in 2023.

We began 2023 with $24 billion of auto cash and marketable securities, generated full year adjusted auto free cash flow of $11.7 billion and returned approximately $12 billion to our shareholders through dividends and share repurchases, including the impact of the $10 billion accelerated share repurchase program initiated in Q4.

Coming into 2024, we are well positioned with roughly $20 billion of auto cash and marketable securities. And we'll appropriately balance our capital allocation priorities with the plan to continue to return capital to our shareholders through repurchases and our new higher dividend rate.

Let's get into Q4 results. Total company revenue was $43 billion, consistent year-over-year despite the impact of the strike. However, we did have a number of cost items that we do not expect to reoccur in 2024 that impacted our margin performance in the quarter.

We achieved $1.8 billion in EBIT adjusted, 4.1% EBIT-adjusted margins and $1.24 in EPS diluted adjusted. These results were also impacted by the strike, which had a $900 million EBIT-adjusted impact in Q4 and a $1.1 billion impact for the full year, primarily from losing an estimated 95,000 units of production.

Additionally, we increased our inventory valuation allowances by $1.1 billion to remeasure battery cell and EV inventory held at year-end. This adjustment was significantly larger in Q4 versus prior quarters driven by a combination of increasing cell production in preparation for our 2024 EV acceleration and holding more EVs in company inventory.

Adjustments for the full year totaled $1.7 billion. We expect this to be substantially lower in 2024 as we continue to make progress toward our EBIT margin targets on EVs.

North America delivered Q4 EBIT adjusted of $2 billion, down $1.6 billion year-over-year driven primarily by the $900 million strike impact and $1 billion of inventory adjustments I just discussed. The performance was also driven by higher pricing and lower fixed costs, which more than offset mix headwinds.

North America margin of 8.7% was within our targeted 8% to 10% range for the full year and included a 1.6 percentage point impact from the strike and the inventory adjustments. Part of this performance is from proactively managing our inventory levels, helping to minimize incentives.

I'm pleased that we ended the year at 50 days of U.S. inventory, which is at the low end of our 50- to 60-day target range and incentives that were more than 20% below the industry average.

GM International had another solid quarter with Q4 EBIT adjusted of $300 million, which was consistent year-over-year. I want to thank the entire international team for another year of good execution and delivering $1.2 billion of EBIT adjusted.

GM Financial also performed well with Q4 EBT adjusted of $700 million, down slightly year-over-year. Full year results were $3 billion, at the top end of the $2.5 billion to $3 billion guidance range. Portfolio credit metrics continue to be strong in part due to a predominantly prime credit mix with net charge-offs up slightly due to moderation in credit performance.

GM Financial has consistently been an integral part of the business, supporting our customers, supporting our dealers and paying dividends of $1.8 billion to GM in 2023. Cruise expenses were $800 million in the quarter, up $300 million year-over-year and similar to the spend level in Q3.

So let's look ahead to 2024. We expect EBIT adjusted in the $12 billion to $14 billion range, EPS diluted adjusted to be in the $8.50 to $9.50 range, including an estimated $1.45 per share benefit from last year's accelerated share repurchase based on the current share price, which will be partially offset by roughly $0.50 headwind from a higher tax rate and lower interest income and lower cash balances. And adjusted automotive free cash flow in the $8 billion to $10 billion range for the year.

I want to summarize a few items in 2023 that we don't expect to repeat and will help to contribute to our higher outlook for this year despite some of the potential macro headwinds. These include the $800 million EBIT-adjusted impact from the LG agreements. And as a reminder, this will save us an additional $1,000 per vehicle going forward on our path to EV profitability. $1.1 billion EBIT-adjusted impact from the strike and a substantial amount of the $1.7 billion of net realizable value adjustments as we work through the cell inventory, improve EV profitability and benefit from lower lithium prices.

In light of the current macro environment, we anticipate a market similar to 2023 with total U.S. industry volumes of around 16 million units. We expect wholesale volume to grow as we rebound from the impact of the strike and continue our track record of market share gains primarily from higher EV volume.

However, we do assume mix headwinds from our ICE production driven by anticipated actions to proactively manage full-size truck inventory levels. We also assume a 2% to 2.5% pricing headwind year-over-year. But overall, we remain confident in our ability to balance production, inventory levels and profitability while growing revenues and sustain our North America margins in the 8% to 10% range.

We are on track to realize the remaining $1 billion of net fixed cost savings with the benefits coming from similar areas to last year, including marketing, engineering and the full year benefit of the actions we took in 2023. We expect $1.3 billion in higher labor costs along with logistics being a slight headwind year-over-year primarily due to -- driven by higher finished vehicle shipping cost.

Cruise expenses are expected to be around $1 billion lower, given the new operational plan Mary mentioned earlier. In November, we gave an update on our path to EV profitability with an estimated EBIT margin improvement of more than 60 percentage points and a lower overall EV loss in '24 compared to '23 even when you exclude the impact of the inventory adjustments. This will largely be driven by higher EV volumes and fixed cost leverage from both EV and battery cell manufacturing along with the benefit of all of our North America volume being on the Ultium platform. We are already seeing an improvement in cell costs today driven by significantly lower raw material prices and better pricing on cells produced at our first battery JV plant from higher capacity utilization.

For GM International, we expect relative stability in our South America and Middle East operations. However, we anticipate ongoing pressure in China, including the plan to reduce production in Q1 to balance dealer inventory levels. These actions will likely result in Q1 China equity income being a slight loss with a return to profitability starting in Q2.

For GM Financial, we expect EBT-adjusted again in the $2.5 billion to $3 billion range with credit performance and used vehicle prices returning to normal throughout the year along with earning asset growth from retail loan originations and the commercial loan portfolio.

We are forecasting another year of robust automotive adjusted free cash flow, but we anticipate modest year-over-year headwinds from '23 working capital benefits that we assume will not repeat and the timing of payments associated with accruals recognized last year, for example, warranty, tax and higher assumed inventory levels.

From a modeling perspective, remember that Q1 is our seasonally weakest cash flow quarter of the year. We expect our capital spend to be similar to 2023, inclusive of $500 million to $1 billion of investments in our battery JVs.

Our 2024 effective tax rate is assumed to be in the range of 18% to 20%, up from last year primarily due to the global mix of earnings and lower R&D credits primarily due to lower Cruise spend. And our full year EPS guidance assumes a weighted average fully diluted share count slightly below 1.15 billion shares. This includes the impact of the remaining shares to be purchased through the ASR, which we expect will reduce our fully diluted share count to below 1.1 billion shares once completed. The actual share count will depend on several factors that impact the final ASR settlement, including the average share price during execution and excludes the impact of any incremental share repurchases beyond the ASR.

In closing, we know the EV market is not going to grow linearly. And we are prepared to flex between ICE and EV production, given our unique manufacturing capabilities to balance inventory levels and to build customer demand. This will help support pricing and our continued incentive discipline.

While we have faced some challenges in our EV transition, we are actively working to address them and remain excited about our future and look forward to a successful 2024.

This concludes our opening comments, and we'll now move to the Q&A portion of the call.

[Operator Instructions] Our first question from the line comes from [ Ethan McKelly ] with Citi.

Congratulations. Just a couple of questions on the outlook. First, maybe can you share what you're assuming for end-of-year U.S. dealer inventory days supply? And on the pricing, Paul, I think you mentioned 2%, 2.5%. Maybe talk a bit of what you're assuming for individual segments there?

Yes, thanks for your comments and your questions. First, on the inventory question, what I would say is we're continuing to pursue our targeted range of 50 to 60 days on hand of inventory. I think the team has done a really good job of balancing that. And I think that's provided some of the ability to be disciplined with incentives and clearly, has, I think, resulted in a competitive advantage for us that we've utilized for the last couple of years.

As we think about that 2% to 2.5%, similar to what we've done for the last couple of years, I would call that a planning assumption rather than an expectation of where we see pricing. We want to make sure that we do that to make sure -- to ensure that we can hit our targets, generate the cash flow that's needed for investment and drive the free cash flow performance.

So as similar to years past, if we don't see that, I would expect that we can get some upside into the numbers that we've talked about. So we haven't gone through and assigned an expectation to any particular categories. That's something top-sided we do in the planning process. I hope that helps.

It does help. A quick follow-up. On the second half target on EV positive VP per unit, can you just talk about what you're assuming for the broader competitive environment, maybe how much cushion you have on the price mix side and still be able to hit those targets?

So without getting into very detailed specifics because obviously, it can get quite complicated, what I would say is we feel confident about hitting that variable profit positive target in probably the low 200,000 units of the range that Mary mentioned. That's based on a pretty consistent demand profile.

So as we've seen the demand for the vehicles that we're producing and the way that customers have received them, we think we can keep that up. So to the extent that we see any pricing softness or demand retreat, we might have to revisit that. But we feel very good about the trajectory that we're on right now.

Our next question comes from Rod Lache with Wolfe Research.

Wanted to just first ask like from the outside at least, it looks like there's a lot more scrutiny being applied to capital allocation. I'm thinking about the posture that you're talking about for Cruise and BrightDrop and the adjustments to EV spending.

So my question is just on the surface, it looks like the pendulum has moved a little bit from growth to cash flow. Are these kind of temporary changes or are you kind of thinking about adjustments to GM strategy?

Rod, thanks for your comments. I wouldn't necessarily it's a change in our strategy. I think as we've continued to progress in the EV transformation, we have found more ways to be much more efficient with capital.

And I do want to correct the statement I made earlier where I said we'd eliminated 1,000 selectable options across our portfolio. It was really 100, although I think I have a new stretch target for the team as we take the initiative global.

But it's initiatives like that of continuing to look for ways to optimize the capital. When you look at our ICE portfolio, the investment that we made in the last part of the last decade really sets up -- sets us up well to have all new products coming off the existing platforms, whether it's full-size trucks, full-size SUVs, midsize SUVs, et cetera.

And so we're looking to continue to be very focused with capital to make sure it's going to generate the right return. And I would also say we are prioritizing continuing to return cash to our shareholders as we go through this transformation because we think the strength of our business, especially our ICE business, allows us to do that.

So it's not a change in strategy. I would say on some of the business you mentioned like BrightDrop and others, as we look at the business, I think it was important as we started them to give them some room, but as we got clarity on where the real opportunity for GM was, we can make those businesses much more efficient.

And we're going to continue to do that to work on our cost structure to make every dollar of capital count. But we still see growth opportunity. I mean we had a revenue growth of 10% last year. So we're still -- we still have many initiatives in which to grow. We're just going to do it in a very optimized way.

Our next question comes from Dan Ives with Wedbush.

So can you just talk about Cruise? What are sort of the targets this year that we should think about that would just give more confidence that we've turned the corner there? I mean from an investor perspective and how you look into that long term. I mean you are committed to Cruise, right? That's the best way to think about that one to get through some of these situations.

Yes. Appreciate the question, Dan. We are committed to Cruise. When we look at the technology, the foundational technology is sound. We had already demonstrated and validated externally that Cruise technology is already safer than a human driver.

One of the things we've learned is humans expect technology computers to be much more safe than their expectations that they have for other people. And with that knowledge, we are already working on what the level of the technology needs to be to meet the consumers' expectations. We think we can do that.

So we are committed, and we are working on the detailed plan right now of how we'll go forward. We're also looking -- the other big learning was as you roll out technology that is as transformative as this and has incredible benefits to safety, you have to do it in a way where you're really working with the regulators at the local, state and federal level as well as first responders.

So as we roll out anywhere, we're going to make sure we build the right relationships, they understand the technology, they understand the benefit of the technology, and that's what we'll do. But we have confidence in the underlying technology, and you'll hear more about our plans for Cruise as we develop the plan in the upcoming weeks.

Our next question comes from Joseph Spak with UBS.

Maybe just back to the EVs, Mary and Paul. I mean you talked about the positive variable profit. It sounds like the LC NRV charge going lower is a big portion of that, but you also mentioned some other factors.

So I was wondering if you could give a little bit more detail there. And then is this something that you will continually give us on a quarter-by-quarter basis to sort of track the progress you're making towards that positive variable profit?

Joe, it's Paul. Thanks for the questions. Probably just to digress for a second on the lower cost or market adjustment on the EV inventory.

So a couple of things. Number one, they're not in -- that's not in any of the metrics that I think are important. Clearly, it is a year-over-year benefit for us on our journey. But when you think about the 2 metrics that we're looking at, there isn't an impact from that.

So first is variable profit positive. This relates a lot more to sort of EBIT and how we think about that going forward. Variable profit is mainly benefiting from scale and lower material costs going forward, so not a contributor to that.

And then when you think about getting to the mid-single-digit margin target in 2025, we would expect that there isn't really going to be inventory that's necessarily carrying that. And if there is, we'll call that out as we go forward.

But it's not in our calculations [indiscernible] what we think our journey is going to be. So I appreciate the question and not surprised by it, but we're continuing to march along. When you think about the -- sorry, the second part of your question was on? Apologies. What's the second part of your question?

Oh, on tracking. Yes, on when we'll disclose. We'll continue to talk about our journey and give confidence as far as specific data points. Not sure that we're going to do it quarterly yet, but we'll continue to update on our progress.

Our next question comes from Adam Jonas with Morgan Stanley.

Just one question, one follow-up. I want to follow up on Rod's question first on strategy. Can you confirm what portion of your forward year CapEx and R&D is dedicated to EV battery, AV projects, the Auto 2.0? Any reason to think that this -- that you may have scope to dial back the vertical integration, given the changing market?

And then my follow-up and again, because I think in the past, you've talked about well over half, I think you said in recent years of your spending was on that, but I just wanted to know if that was changing. And then the follow-up was on Elon Musk recently said that in the absence of trade barriers that China will demolish most of the Western EV players. Curious your reaction to that comment, whether you'd agree.

Yes. Thanks, Adam. So from a capital perspective and to build on what I said with Rod, the majority of our capital spend is toward EV. Remember, from an ICE perspective, we have the foundation, already built the plant. And as I mentioned, all of the architectures for our really strong ICE portfolio, that capital has already been deployed. So this is really an opportunity for us to just continue to do great vehicles with very optimized capital from an ICE portfolio as mentioned with the Traverse, the Equinox and the full-size truck, just to name a few.

To your point on capital deployed from an infrastructure perspective, as the market evolves and as battery technology evolves, we will continue to evaluate our level of vertical integration. I think with the work we've done on LTM and the work we've done on electric motors and the joint ventures with plant 1, 2 and 3, and then 4 -- our fourth plant is with Samsung, that gives us a different form factor with prismatic and cylindrical cells, I think we're well positioned.

But as we move forward, we'll evaluate that. So I think there's options there. And as you can see, with all the initiatives we have, we are really working to take overall capital down but still get the number of programs that we need. So Adam, I hope that helps. Happy if you have additional questions there.

And then on Elon's comments about China, I think, look, I don't discount any competitor. We need to make sure we have beautifully designed vehicles that have the right features, the right safety and the right customer experience. And we have to do it at a competitive cost base, and that's why we're focused so much on our cost base.

Now when you mentioned the Chinese consumers, we do need a level playing field. I mean there comes a point where if it's not a level playing field between tariff and nontariff barriers, any industry is going to struggle to compete. So give us a level playing field, and I'll put our products in our cost structure that we continue to improve up against any.

Our next question comes from John Murphy with Bank of America.

Mary, I just wanted to follow up on the strategy line that Adam and Rod have [indiscernible] here. I mean we're seeing fits and starts in technology, and it will eventually get there. But at the same time, we are seeing this tectonic shift in competition, particularly coming from China, as Adam alluded to.

You made sort of pronouncements and how the business strategy will be set up for a few years not too long ago. But these shifts have been pretty extreme more recently.

So I'm just curious, as you think about strategy and the position of the company, you haven't been shy from making big changes in the past like exiting Europe. Can we think about the potential for real shifts in strategy of focus where the highest margin and highest return is sort of in the business truly 5 to 10 years down the line, which might include things like exiting China, which sounds like heresy but might be the best move to make for 5 years out, maybe rebranding Cruise and really kind of taking a new sort of approach to where the company will land in 5 to 10 years. It's really protect profitability and cash flow from a position of strength instead of maybe a position in 5 to 10 years where it might be a weaker position.

John, thanks for the question. And we continue to evaluate the strategy on a regular basis. We have very robust strategy discussions with our Board and with the leadership team.

And as you mentioned, the world is changing quickly whether it's EV, whether it's software, autonomy, et cetera, and we're going to continue to respond to that. I do agree with you that we're doing that from a position of strength. And we'll evaluate where we have the opportunity to deploy capital and generate an appropriate return.

And like we made the decision for China -- or excuse me, for Europe, when we looked at that, what we said actually has happened. We said it would be a win-win-win, a win for the Opel team, a win for at the time, PSA and a win for General Motors because we participate in the warrants, and we did just that.

So we're not going to shy away from making tough calls or maybe calls that people wouldn't expect if we think it's the right thing to do for the business to ensure we're here. We protect our strengths in the markets that we have, whether it's North America. I mentioned on the earnings call, in the top quartile, we've been leading that for several years, and now we profitably have taken the most affordable segment.

And we have a strong business in South America in many of our international markets. China, as Paul mentioned, there's tremendous changing not only from a technology point of view but a competitive point of view.

And so we're evaluating China. We think there's a place to play. It is a tremendous growth opportunity if we can do that well, and that's our goal. But nothing is off the table in ensuring that GM has a strong future to generate the right profitability and the right return for our investors.

And if I could just sneak one follow-up on the plug-in hybrid comment of potentially bringing those here to the U.S. to fill sort of maybe this interim gap. What kind of capacity or volume could you hit there here in the U.S.? I know the dealers are clamoring for those vehicles.

Yes. We are going to be bringing those in at a time where we need them from a compliance perspective. This year, we're very focused in -- I think as we are able to get the delivery to our dealers are going to see the strength of the EV portfolio. So I'll have more to share on the hybrid capacity.

We'll adjust the capacity because, again, we have the technology. We know the targeted segments that we're going to apply it to. So we'll have the ability to flex and do what we need to from a hybrid perspective. But I think for calendar year '24, EV is our focus. And we think we've got tremendous growth opportunity as we free up getting the availability of the products to customers.

Our next question comes from Ryan Brinkman with JPMorgan.

Obviously, the '24 outlook is far stronger than investors expected. How much of the higher outlook versus consensus do you think stems from different industry-related factors that are a matter of debate such as expectations for volume or pricing in different markets versus how much do you think stems from company-specific factors that you would naturally have a better handle on internal to the company such as lower Cruise spending, a potential for more structural cost reduction, the magnitude of guidance [indiscernible]?

You may be more positive on industry factors, but your pricing comments also seemed pretty in line. So not really sure. How are you thinking about like how much of your meeting this great guide in '24 will come down to factors under your control versus out of your control?

So Ryan, thanks for the question. I'll take a shot at that. When you look at the macro backdrop, I think we're approaching it pretty consistently to what we have for the last few years.

So we've talked about a 16 million SAAR, about 2% to 2.5% of sort of total pricing pressure across the board. A lot of it is, I would say, a testament to what we achieved and overcame in 2023 that we don't expect to repeat.

Of course, there will be some things that pop up as there are every year. And I think the team has done a good job of knocking those things down and overcoming some of those challenges going forward.

So against the macro backdrop, that feels a little bit consistent with some conservatism in there on the pricing side of it. I think a lot of it is on our ability to execute.

And we have had a lot of challenges, as Mary mentioned. I think '23 was a big year of learning for us. But as she talked about with the work that we're doing on the module assembly and where we see EV ramp as well as the customer response to the EVs that we're producing, I think this is a year of our executing. And a lot of it is in our control.

Okay. Great. I just wanted to ask on Cruise too, starting with whether the guided $1 billion of lower spending in '24 versus the '23 full year $2.7 billion figure or maybe the 4Q run rate of $3.2 billion. And then what has the response been so far? I realize there hasn't been a lot of time passed, but from the regulators to the recently released comprehensive review.

Previously, I think you've guided to potentially significantly less than the non-Cruise, maybe on the business update call, but then followed a day or 2 later at Barclays by saying several hundred million, now it's $1 billion. So of course, you were still waiting for the review at that point.

Is there anything to read into the $1 billion being higher than several hundred million? Is that maybe the reception of the review could lead to a more prolonged suspension of commercial operations?

And then just finally, the outlook for the EBIT [indiscernible] in '24 or whatever is 1.7 or it's greater than the $1.3 billion of cash that Cruise had at year-end, right, on, I think, Slide 26 or so. So just capital raise, curious on the thoughts there.

Ryan, there's a lot in there, but let me first by saying the response from regulators has been positive. So -- and we'll continue to have that outreach and build that relationship and be transparent with them.

You shouldn't read too much into what we said shortly thereafter we learned the situation. We went in and did a lot of work. And I got a -- I have to give our co-presidents, Craig [indiscernible] credit for going in and really staying focused on the technology, making sure we keep the very talented software engineers that are doing incredible work and have allowed us to already clock 5 million miles of driverless miles.

So it was really just going to look a lot of where the opportunity to cut costs came from, the change in strategy to really focus on one city to demonstrate it as opposed to -- you remember at one point, they were talking about 20 cities this year. And so there were a lot of people who had been recently added more from an operational standpoint that we were able to exit those employees.

But clearly a focus on the technology. And the way I look at this is we're going to make sure we do it right from a regulatory, a consumer, a customer relationship perspective, get the technology where we think it would be. And then once we're informed by doing it well in the cities, then we'll have the opportunity to go quickly and scale from there. So don't read anything into the $1 billion other than we went and did the work and saw the opportunity.

Our next question comes from Dan Levy with Barclays.

Two questions on cash. One is you're adding to $8 billion to $10 billion of free cash. And that pro forma gets your cash balance on the balance sheet to something like $28 billion to $30 billion the end of 2024. To what extent are you willing to put forward another share buyback plan beyond what you have if the target is to have cash balance of $20 billion?

And the second question is on Cruise on cash. They're at roughly $1.3 billion. I think that gives you a little less than a year of runway on cash. So what's the plan on further funding for Cruise?

So on the further funding at Cruise, I'll take that, and I'll have Paul answer the other question. As we get the detailed plan of how we're going to relaunch Cruise in the road map, then we'll evaluate the overall funding needs. And we'll determine is it internal or externally sourced.

And Dan, on your question on cash, I think the simple math is correct. We would obviously see a sizable increase in our cash balance. Our capital allocation stance remains the same, which is to invest in the business. And we've talked about $10.5 billion to $11.5 billion of CapEx this year.

We have been streamlining that and making that efficient and a priority to drive free cash flow. And as we look at the balance sheet, I think the balance sheet is in really good shape. And there's no change to our stance of, call it, $18 billion or about $20 billion of cash on hand. So clearly, we've demonstrated a renewed commitment and prioritization of returning cash to shareholders. And we'll maintain that flexibility going forward.

Just to clarify, the $18 billion, $20 billion, is that a target or is that a floor?

That's kind of been our floor/targeted range. Obviously, we've carried quite a bit more than that over the last few years as we dealt with some of the uncertainty. But as we imagine -- or as we said in November when we announced the share repurchase with a lot of that uncertainty behind us, lower CapEx spending, we felt comfortable operating at that lower balance. So 18 to 20 feels very comfortable as the targeted range.

Our next question comes from Emmanuel Rosner with Deutsche Bank.

First of all, I was hoping to ask you about the scale required to achieve the profitability goals. So I think when you shared those goals back in November, in particular, the 60-point EBIT margin improvement this year, I think 60% of that came from scale.

I'm curious if the 200,000 to 300,000 units you're planning for this year, is that enough to get you that scale? So are you counting more on like lower battery costs and maybe a bit of a shift in terms of some of the savings?

And then similar question on the mid-single-digit EBIT margin target for next year. I think some of it was going to come from scale. What kind of unit volume you need to get the scale piece of -- to get to these targets?

Thanks for the questions. On the 2024 numbers, I think they're wholly consistent with the 200,000 to 300,000 range that we've articulated here. And as I mentioned earlier in response to a question around EVs, the low 200,000 is kind of what gets us to the point where we feel comfortable about getting the variable profit positive from there.

Obviously, growth is a component, but it's a much smaller component of the walk from '24 to '25 than it is from '23 to '24. But it will require some growth. We're not going to commit to that other than just to say kind of that's where we stand, and we'll see where customer demand is going forward.

And the other point if I didn't make it earlier on the lower battery raw material costs, keep in mind that we don't start to see meaningful benefit from that until we get to the middle part of the year because a lot of the cells that we have in inventory were built with higher raw materials costs.

So while we're producing cells today, we're going first in, first out on the cells. So we have a little bit of a lag before we realize that. That lower battery raw material cost of about $4,000 a vehicle that [indiscernible], we'll also have some annualization benefits in 2025 since we're not getting a full benefit here in '24. I hope that's helpful.

Yes, very helpful. One very quick follow-up on Cruise. The spending, $1 billion lower for this year. Is that -- could that be considered sort of like a new run rate for spending? Or is it sort of like a temporary situation as a result of some of the parts currently in the testing and rollout?

Emmanuel, I would consider it right now it's our best estimate for this year. Obviously, as we develop a much more detailed plan that will inform over the next couple of years what the spending needs to be, so more to come.

Our next question comes from Chris McNally with Evercore.

Great numbers. Mary, I just want to shift gears and talk maybe advanced ADAS and software really quickly. Super Cruise, you introduced in 2018. You don't put out too many usage numbers, but I think in the middle of last year, you talked about almost 100 million miles [indiscernible]. Even if we double that for time passage, it's not many vehicles, tens of thousands.

We also read Ultra Cruise has now been installed. Just high level, isn't this a very slow pace for Level 2+ product? Tesla has been providing for a decade charging anywhere from 6,000 to 12,000 for top versions.

I guess the question is, isn't this becoming a big miss opportunity for GM at this point for additional revenue? Even Slide 7, I think, only shows one of the ICE launches, the Traverse highlighting Super Cruise. So just a broad update when we could start to see what is a technology probably everyone wants at more sort of mass deployment scale across your fleet?

Yes. Chris, appreciate the question. I think back in the '18 time frame, I think we should have, in hindsight, put it across the portfolio much more quickly. It's not a number of models. I don't have it off the top of my head. Ashish, we can provide that. But it's on a number of models across the portfolio right now. As we launch the Traverse this year will be added to the Traverse.

Again, we're seeing extremely strong response from customers where I think it's over 80%, 85% of customers once they experience the technology say they would never -- they would not want a car without it or they would strongly prefer it on their vehicle, which, in my experience, is a pretty high interest rate for a single technology.

So we're committed. We're going to continue to develop. And we have been, along the way, adding more roads and adding more capability, whether it's lane change, whether it's trailering.

So there's a robust plan to continue to improve Super Cruise, and we'll stay on that. And we are seeing the profitability benefits. And the more vehicles to your point, we get it on, the better it will be. And we're committed to do that and frankly, have done quite a bit already. And we can provide that.

No, that's -- and just in terms of the evolution of the speed, is it a technology bottleneck? Or is it more just marketing, meaning like you thought of it as a premium product, you charge sort of a premium rate compared to other GM add-ons? Or is it just like you said, there's a cost to putting it on every vehicle on the RD&E. So that could increase, but it would obviously be an engineering cost to get it on more vehicles.

Yes. No, we are committed to getting it on many vehicles as possible. In some cases, we had planned to make it standard. The semiconductor shortage kind of slowed us down on that because if [indiscernible] building a vehicle at all or waiting to build it with Super Cruise.

So we are very committed to getting across many vehicles. We've dramatically taken the cost down on the technology. So it's a really good value. And in my opinion, we're deploying it as quickly as we can. And it's really just with -- there is engineering required and some sensors required when you add it to a new vehicle, but we're doing that in a very cadenced but as quick as possible fashion.

Our last question comes from the line of Tom Narayan with RBC.

Just wanted to kind of make sure I got all the good points here on the bridge in 2023 to 2024 -- sorry, a born question. You have, I guess, price down 2% to 2.5%, $200 million cost savings, Cruise down $1 billion, higher labor 1.3. Three items not quantified were market share gains you guys called out in the slide, EV margin improvement, and the third is lower mix. Just curious if we could get a sense of order of magnitude for those 3 last buckets?

Tom, I'll suggest that we take that off-line, work through any modeling details. But at the end of the day, clearly, the commercial market, as we talked about, we expect to be relatively stable and pricing down 2 to 2.5.

Not going to get into the specifics about how we're thinking about market share gains other than to say, fairly consistent about what we've been doing for the last few years going forward. And then on EVs, a lot of that, we will continue to talk about as we come to sort of later Investor Day and subsequent calls going forward. I think we've given good detail on the overall walk on vehicle program level.

Okay. Sure. And as a quick follow-up, typically, when -- if an OEM, let's say, changes production levels, so in this case, EV, if you move to plug-in hybrids or what have you, there are monies that get paid to suppliers, right, for that, let's say, they have to cut production of EV components. Just curious if those supplier concessions if you were to, let's say, reduce EV production or shift to plug-in hybrids with -- are those something that you've envisioned in the 2024 guidance?

So Tom, I think our -- we've got great relationships with our suppliers and a team that works very, very closely with them. They have been, I would say, very patient with us over the last few years because we've had a lot of volatility. And in those situations where we need to help, we've been willing to do that going forward. And we always look at both efficiencies and any challenges in our annual budget process, and this year is no different.

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

Thank you very much. And thanks, everybody, for your questions. I'd like to share just a couple of thoughts before we close.

Fundamentally, we believe we are well positioned to have a strong year, thanks to our success in high-margin and growing ICE segments, our expanding EV portfolio, our cost discipline and our continuous improvements to design, engineering, supply chain, manufacturing and marketing process improvements.

In addition, we are prioritizing the return of cash to our shareholders on a consistent basis as we execute the plan. We know we must execute in every part of the business in '24, not just ICE. And I can assure you we will. So thank you for your continued support and for joining today's call, and please stay safe.

That concludes the conference call for today. Thank you for joining.