Companies have been warning about tightness in the chip market for many months, but this is one of the first confirmations that it will have material impacts. GM has already closed or reduced production in many of its facilities in recent months.
Inside the Numbers
Despite this issue, CEO Mary Barra said the company should be able to make up lost production in the latter part of the year. Additionally, its most profitable vehicles such as its full-size pickup and SUV will be unaffected.
Overall, in Q4, GM reported $1.93 in earnings per share which was higher than expectations of $1.64 per share. Revenue was also higher than expected at $37.5 billion vs $36.1 billion expected. Guidance for 2021 also came in slightly above consensus as the company anticipates earnings between $10 billion and $11 billion.
Spending is expected to increase as GM increases investment to accelerate the development of electric vehicles (EV) and autonomous vehicles (AV). Of GM's $10 billion estimated expenditures in 2021, approximately $7 billion will go to EVs and AVs. Spending was lower in 2020 as the company pushed off initiatives to focus on the coronavirus. In total, it will average $7 billion over the next 3 years.
Stock Price Outlook
GM's stock has enjoyed massive gains over the past year. GM's stock had been an underperformer entering 2020 as global auto sales had been weakening since 2018. The consensus was that the situation would only get worse due to the coronavirus.
However, car sales were weak in 2020 but not as bad as expected. Due to stimulus payments, household finances remained resilient. Additionally, spending on goods remained intact while spending on experiences and services dropped. Now, analysts are projecting an extremely strong sales cycle for auto sales in 2021 and 2022.
Affordability is high due to low rates, and household savings are in strong shape. Cars, on the road, are at the oldest they've ever been which suggests that many people may be interested in upgrading their vehicles. Accelerating economic growth in the second half of the year should be supportive as well.
On top of this, GM is benefitting from the same dynamic that is powering stocks like Tesla
So, GM's strong stock performance is not surprising given that its legacy business is enjoying a cyclical upturn, while it's also seeing some multiple expansion due to its position in growth areas like EVs and AVs.