Despite reporting record-high operating profits in the second quarter of 2021, General Motors (NYSE: GM) saw share prices fall nearly 10% last week due to disappointing earnings per share and the company's prediction that its supply chain could falter in the coming months.
Based on surveying by Refinitiv, Wall Street expected GM to report $2.23 in earnings per share, but it instead saw $1.97 adjusted EPS. According to the company, earnings were brought down by recall costs: GM has spent $1.3 billion in warranty recall costs so far this year. In its announcement, the company also underlined the potential negative impact of high commodity prices, the delta variant, and the global chip shortage.
Despite these concerns, GM raised its outlook for the second half of the year, boosting its net income prediction for the full year to between $7.7 billion and $9.2 billion, because of its impressive first two quarters. So far, GM has been able to weather the chip shortage fairly well by prioritizing factories that make higher-profit vehicles.
"The company successfully prioritized production of its highest demand vehicles, gained significant retail market share... and benefited from strong pricing and mix," the company wrote in a press release. "Additionally, high used vehicle prices due to low new vehicle inventories drove continued record results at GM Financial."
In the second half of 2021, however, GM's Chief Financial Officer Paul Jacobson predicts that the company's production numbers will likely fall by 100,000 compared to the first half. The company also estimates that production costs are likely to rise by between $3.5 billion and $4.5 billion in the second half.
According to Edward Jones Industrials analyst Jeff Windau, these concerns have worried investors who were impressed by the company's performance this year to date.
"Obviously there's some shutdowns, and there's just concerns with how things are evolving," Windau told the Associated Press. "Expectations have been rising over the last couple of months. This just kind of comes back and potentially resets the bar a little bit."
Like many manufacturers, GM had to shut down factories due to the pandemic. Now that plants in Mexico and Tennessee that were shut down due to COVID-19 are finally set to reopen, GM is facing more shutdowns due to the chip shortage
The company recently announced that pickup plants located in Fort Wayne, Indiana; Silao, Mexico; and Flint, Michigan, would be closed until Aug. 16 because of the shortage.
Meanwhile, the especially contagious delta variant is another potential threat to operations. In Detroit, the United Auto Workers announced that masks would be required in the city's factories due to this new coronavirus strain.
The company hopes to combat the potential future shortages these supply chain issues can cause by working directly with semiconductor manufacturers.
"There is still more variability than I'd like to see," CEO Mary Barra said. "This is something we will work our way out of, and it won't be an issue as we move forward over a little bit longer period of time."
The average price of a GM vehicle rose by nearly $3,000 in July, up to roughly $47,000. According to Barra, that price is likely to recede as the inventory is refreshed, though the new electric cars on offer are expected to keep that average relatively high. Currently, GM reportedly has 200,000 vehicles in its inventory, less than half as many as are typically kept in stock.
While GM's production in the first half of this year was up by 200,000 vehicles compared to 2020, production from April to June was still 38% lower than the number seen during that period in 2019.