General Motors reported fourth-quarter earnings that beat Wall Street expectations. However, they also warned that a global semiconductor chip shortage could cost it $2 billion this year. The current chip shortage has already forced GM to temporarily close manufacturing plants in the U.S., Canada, and Mexico through mid-March. It also has cut production in South Korea.
Company CEO Mary Barra said GM does not expect to lose any production of its highly profitable full-size pick-up trucks and SUVs due to the chip shortage. Unfortunately, some other models will affected.
“It’s still a bit fluid, but our current outlook is that we’re going to be able meet the production schedules we had for the year,” she said during a post-earnings media call.
Barra added that GM will likely need to partially build some models without the parts and complete assembly later. She declined to estimate how many vehicles would be impacted in total.
The chip shortage will cost GM somewhere between $1.5 billion and $2 billion, according to estimates. .One of GM’s main rivals, Ford, recently admitted the shortage could also lower its earnings by $1-to-$2.5 billion this year. Ford had to cut production of their profitable F-150 pick-up trucks due to the shortage.
In their latest forward guidance, GM forecast that it will earn $10 billion to $11 billion (or $4.50 to $5.25 per share) in adjusted pre-tax profits this year. It projects adjusted free cash flow of $1 billion to $2 billion for its automotive division in 2021. The forecasts factor in the potential impact of the chip shortage.
Earnings and Investments
General Motor’s fourth-quarter earnings easily beat results from a year earlier. It should be noted that the 2019 results were impacted by a U.S. labor strike. On an unadjusted basis, net income in was $2.85 billion for the fourth quarter of 2020. That was compared with a loss of $194 million the year before.
The automaker expects to spend $9 billion to $10 billion in 2021. That includes plans to accelerate its all-electric and autonomous vehicle developments . It also includes deferred spending from last year due to the pandemic.