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GM earnings fall short of estimates amid supply chain challenges

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Yahoo Finance Live anchors discuss second-quarter earnings for GM.

Video Transcript

- Let's keep an eye, as well, on shares this morning of General Motors stock. This after the company had reported a steep drop in profit for the last quarter as rising costs and the ongoing chip shortage weigh on its business. Taking a look at shares right now, premarket down by about 1 and 1/4% here. But for what the company had put out in this most recent earnings, they did reaffirm their guidance.

However, one thing that caught my attention was on the hiring front. Within the earnings results for this quarter, they announces that-- they announced that they were going to limit hiring to critical needs as part of cost management and concerns around economic conditions, similar from what we've heard from Rivian, we've heard this from Tesla, and then, additionally, even Ford and some of the cuts that have already come forward within the broader automotive landscape.

BRIAN SOZZI: Hurt, also, a little bit-- moments ago, I was just on the Whirlpool earnings call-- we'll talk with them later-- but they're also talking about slowing down hiring well, so manufacturers coming under pressure. And despite all this, Julie, General Motors out here saying they are confident in their outlook for the second half of the year, looking for a strong recovery for deliveries and production. Seems completely detached from what we have heard from the likes of Walmart and many other companies.

JULIE HYMAN: Well, they couch it. There's a lot of couching that's happening here. So first of all, in the shareholder letter, Barra did say that they were taking proactive steps to manage costs and cash flows because she said there are concerns about economic conditions. They're reducing discretionary spending, she says, and limiting hiring to critical needs and positions that support growth. She also says, "we've modeled many downturn scenarios, and we are prepared to take deliberate action when and if necessary."

So they're staying optimistic but sort of leaving in their back pocket the possibility that they're going to need to do more. At the same time, the CFO, Paul Jacobson, talked to the media on a call, and he said that "the consumer is remaining very strong for us." And he says, "we are not running any scenarios right now where we contemplate layoffs. So slowing hiring but no layoffs, which is quite interesting that even if you were modeling a lot of different scenarios, one would think that one of those scenarios would include layoffs, but it doesn't sound that way.

- It's also a business, though, that's made a ton of investment in future initiatives. I think, naturally-- and I went down to the line item and looking at Cruise Automation even right now, which is going to continue to burn through cash if these companies, and especially in the automotive industry and for GM specifically, if they see continued parts of the business that have this massive cash burn where investors are going to hold them to the fire and say, well, what do you plan to do about that, Cruise Automation had already been talked about as a company that needs to be spun off from GM to alleviate some of those cost pressures.

So in a pullback environment where you're seeing lower deliveries, where you're seeing a higher price that you've got to pass through to consumers, where else in the business do you start to say, OK, we might have to lay people off, but do we start to trim some of the excess around what we're doing right now?

BRIAN SOZZI: And if they do that, you have to wonder if there's a complete reset on some of the guidance they've put forward, which I would say is very aggressive on EV production. Some of the targets they've put in their earnings slide deck-- I encourage everyone to check it out-- are very, very aggressive.

But here's another automaker, guys, with their profits are being driven by large trucks. Now, we've seen housing starts cool. We've seen the housing market cool. That has historically been a key driver of pickup trucks, SUVs, you name it. At what point does that start to slow down or start to be impacting results by this company?

JULIE HYMAN: Well, right now, the company is still making investments in some of its electric vehicle and autonomous vehicle technology. And they announced today a couple of new things, that they have binding agreements securing battery raw material to support their plan for a million units of annual EV capacity in North America by 2025. So obviously, that means they are spending money to do so to get things like lithium, and cobalt, and nickel. They've got two new partnerships they're announcing today. And they still have this target $90 billion of annual EV revenue by 2030, which seems very far off in the distance, so we'll see.

BRIAN SOZZI: Lastly, for me, you know what bothers me here? Walmart, General Motors, some of the early analyst commentary, no one's stepping up and saying this is the worst it's going to get, come in here and buy these stocks. I'm not seeing that anywhere yet, which I think is just a red flag overall.

- Yeah. And I mean, we're just going to learn, to your point, Julie, a lot more about batteries in this next wave of EV development and the research that all of these companies are doing. But it comes back to the strategic partnerships. And with what we've seen in the deliveries thus far and in the year-over-year decline in deliveries and reprioritization around the electric vehicles, securing partnerships as they are, it's going to come back to that supply chain management and getting critical partners online, as they just announced today.

JULIE HYMAN: Well, one common thread that's running through, obviously, so many of these reports is inflation.