From Nikola to EVs: 5 things to know about GM to end the year

Published Tue, Nov 10 20207:06 AM ESTUpdated Tue, Nov 10 20208:01 AM EST

Key Points

General Motors has outperformed Wall Street's expectations for 22 consecutive quarters.
While the automaker declined to release guidance for the fourth quarter, there's a lot to watch regarding the company for the remainder of the year.
They include a potential $2 billion deal with Nikola, an update on its EV strategy and impacts from the coronavirus on operations.

General Motors has outperformed Wall Street's expectations for 22 consecutive quarters, including a solid beat in the third quarter with earnings increasing more than 70% from a year earlier. While the automaker declined to release guidance for the fourth quarter, there's a lot investors should be watching during the fourth quarter — from a potential $2 billion deal with embattled electric vehicle start-up Nikola to an update with investors on its electric vehicle strategy. Shares of GM recently climbed their way back into the black. The stock is up 6% in 2020. Here are five things to monitor regarding GM for the remainder of 2020: Nikola GM CEO Mary Barra told CNBC and investors last week that the automaker is still in negotiations with Nikola ahead of a Dec. 3 deadline to finalize a nonbinding memorandum of understanding. If a deal is not reached, either company can terminate the tie-up. The Sept. 8 deal was initially viewed as a no-lose situation for GM. The partnership would give the Detroit automaker an 11% stake in the company for supplying Nikola battery and fuel-cell technologies as well as producing Nikola's Badger pickup. But the talks became convoluted following fraud allegations against Nikola and its founder, Trevor Milton, who resigned as the company's executive chairman on Sept. 21. Since then, two women also have now filed sexual assault claims with Utah authorities against Milton. Barra said discussions are ongoing, but she left the door open for similar partnerships with other companies to assist in increasing production of GM's forthcoming Ultium battery cells and Hydrotec hydrogen fuel cells. "We are exploring all opportunities to commercialize our Ultium battery system as well as the Hydrotech hydrogen fuel cells we have developed with Honda," Barra said. She added: "There are other conversations underway" other than Nikola. EVs GM plans to outline additional details of its electric vehicle strategy at a Barclays automotive conference on Nov. 19. Barra said the company has "continued aggressively" on the development of its battery technology since an in-depth "EV Day" in March. "When you look at all of the assets that we bring to that, and recognize that EV is a propulsion system, there's many other parts of the vehicle, we're focused on speed and what's going to drive the business and growth over the long term," she said. "So we'll talk more about it at the Barclays conference. But our focus is absolutely on unlocking shareholder value and speed to market." Barra said the company "will definitely be bringing EVs to market faster than" its initial plans, which included releasing at least 20 new EVs to market by 2023. Coronavirus Covid-19 remains a concern for all automakers in the fourth quarter and beyond as cases once again climb nationally and abroad. The coronavirus was one of several "moving pieces" Barra citing for the company declining to give new earnings guidance for the year. "Definitely, we need to work as a country and frankly around the globe to get Covid under control," Barra said. "We're very confident in our safety protocols that when followed people are safe at work. In fact, our employees tell us they feel safer at work than at the grocery store. So, we need to keep encouraging everybody to follow those protocols not only when they're at work but also at home." The coronavirus earlier this year caused rolling shutdowns of automotive plants globally. The shutdowns started in China in January, followed by South Korea, Europe and then North America beginning in March. Profit margins Auto sales in the U.S. and China have recovered faster than most anticipated during the depths of the first wave of the coronavirus pandemic earlier this year. The continued demand combined with factories being shuttered for roughly two months in the U.S., have led to significantly higher profits on each vehicle produced by GM and other automakers. GM reported a 15% pretax profit margin for the third quarter. Ford Motor and Fiat Chrysler also reported pretax profit margins of 12.5% and 13.8%, respectively. The companies are not expected to be able to sustain those kinds of margins, especially as automakers such as GM begin offering all-electric vehicles that are expected to have tighter margins than current models. Barra cited GM's increased sales of electric vehicles in China as one of the reasons the company's revenue jumped in the region, but earnings were flat. "We're in transition, but we're pleased with the recovery that we're seeing and also the market share performance," Barra said. She said U.S. margins will be less impacted as the automaker transitions to its next-generation electric vehicle batteries and platform beginning with the GMC Hummer EV pickup next fall. Cash GM repaid $5.2 billion of its revolving credit facilities during the third quarter, and an additional $3.9 billion in October. The company said it expects to repay the balance by year-end "while maintaining a strong cash balance." GM's automotive liquidity was above its target, ending the third quarter at $37.8 billion. Assisting the automaker's earnings this year has been its financial arm, GM Financial. It has paid the automaker $800 million in dividends this year on strong earnings, including $1.2 billion in the third quarter. That was up roughly $500 million from the third quarter in 2019. There will be no dividend from GM Financial to the automaker in the fourth quarter, interim CFO John Stapleton told investors Thursday. GM also achieved its cost-savings target of $4 billion since 2018, including $200 million in the quarter. The automaker said it "expects to continue making progress on the target range of $4 billion to $4.5 billion through the end of the year." "We're dramatically improved in efficiency," Barra told CNBC. "You're going to see as we roll out our EV strategy that we're able to do things much faster using technology, simulation, etc. I couldn't be more pleased with how we've fundamentally improves the business to be faster and more efficient. We're going to continue to do that."