Even with continued chip shortages and rising raw material costs, GM’s earnings fell short of Wall Street expectations. However, the company expects better results in the second half of the year.
GM, the country’s largest automaker, reported a second-quarter adjusted pre-tax profit of $4.1 billion on Wednesday, setting a new high. However, adjusted pre-tax earnings of $1.97 per share fell short of the $2.23 consensus estimate of Refinitiv’s analysts.
Part of the problem is that GM’s warranty and recall costs increased by $1.3 billion in the third quarter. This included $800 million set aside to replace the batteries in 61,000 Chevrolet Bolt electric cars due to a fire hazard.
Commodity price increases didn’t help matters either.
GM (GM) shares fell 7% in early Wednesday trading after rising 39 percent year to date through Tuesday’s close.
On the plus side, GM’s $34.2 billion in sales easily outperformed Wall Street’s predictions.
GM also raised its second-half earnings forecast, saying it now expects adjusted pre-tax earnings of between $11.5 billion and $13.5 billion, up from $10 billion to $11 billion previously. For the same period, GM also raised its earnings per share forecast.
This is despite a computer chip shortage that has hampered car production across the industry and forced some factories to temporarily halt production. The situation “remains fluid,” according to GM, and “overall supply chain challenges persist.”
Higher commodity prices, according to GM, will cost the company between $1.5 billion and $2 billion more in the second half of the year than in the first.
This year, demand for new cars has been particularly strong, particularly in the United States. Despite production limitations caused by the chip shortage, the company sold 1.8 million vehicles worldwide in the second quarter.
That’s a 300,000-vehicle increase over the second quarter of 2020, when the pandemic and stay-at-home orders closed factories and dealerships, resulting in a significant drop in sales.
