GM warns chip shortage could cut 2021 earnings by up to $2 billion

FAN Editor

General Motors on Wednesday reported fourth-quarter earnings that easily beat Wall Street expectations, but the company warned a global semiconductor chip shortage could cut its earnings by up to $2 billion this year.

Automakers and parts suppliers began warning of a semiconductor shortage late last year after demand for vehicles rebounded stronger than expected following a two-month shutdown of production plants due to the coronavirus pandemic. GM has already temporarily closed car and crossover plants in Kansas, Canada, Mexico through mid-March due to the shortage. It also has cut production in South Korea.

GM’s crosstown rival, Ford Motor, last week said the shortage could lower its earnings by $1 billion to $2.5 billion this year. GM said the shortage would cost it between $1.5 billion and $2 billion.

GM’s shares fell by almost 2% in premarket trading.

Here’s what GM reported versus what Wall Street expected, based on average analysts estimates compiled by Refinitiv.

  • Adjusted EPS: $1.93, vs. $1.64 expected, based on average analysts’ estimates compiled by Refinitiv.
  • Revenue: $37.5 billion, vs. $36.12 billion expected.

The company said it expects to earn between $10 billion and $11 billion, or $4.50 and $5.25 per share, in adjusted pretax profits this year. It projects adjusted free cash flow of between $1 billion to $2 billion for its automotive division in 2021. The forecasts factor in the potential impact of the semiconductor shortage, including a hit of between $1.5 billion and $2.5 billion to its free cash flow.

GM’s fourth-quarter earnings easily beat results from a year earlier, which were negatively impacted by a U.S. labor strike that shut down vehicle production during the fourth quarter of 2020.

On an unadjusted basis, net income was $2.85 billion for the fourth quarter compared with a loss of $194 million. The automaker reported pretax adjusted earnings of $3.7 billion for the fourth quarter, up from $105 million a year earlier.

The automaker reported pretax adjusted earnings of $5.3 billion, or $2.83 earnings per share, for the third quarter, while saying the fourth quarter would be weaker due to seasonality.

The company expects to spend between $9 billion and $10 billion in 2021. That includes plans to accelerate its all-electric and autonomous vehicle development and rollouts as well as deferred spending from last year due to the coronavirus pandemic. GM previously said its annual capital expenditure costs would exceed $7 billion through at least 2023.

This story is developing. Please check back for updates.

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