What investors should know before GM reports first-quarter results on Wednesday

Published Tue, May 4 202111:54 AM EDTUpdated Wed, May 5 20217:07 AM EDT

Key Points

Despite an ongoing global semiconductor chip shortage that has caused factory closures, GM is expected to report a first-quarter profit.
Investors will be watching GM's earnings, but they’ll be more interested in any change to its guidance for 2021 due to the chip shortage.
Shares of GM are up by about 165% during the past 12 months. They’ve risen 32% in 2021.

DETROIT – General Motors' first-quarter results are expected to be the latest proof points that its underlying business is solid. Despite an ongoing global semiconductor chip shortage that has caused factory closures, GM is expected to report a first-quarter adjusted profit of $1.04 a share and $32.67 billion in automotive revenue, a 0.1% decline compared with a year earlier, according to average estimates of analysts compiled by Refinitiv. Such results would eclipse those of GM's largest crosstown rival, Ford Motor . The automaker last week reported adjusted earnings per share of 89 cents versus an expected 21 cents. Solid profits have become par for the course for GM in recent years. It's one of the reasons why Wall Street's attention will likely be more on other aspects of the automaker's business when it reports its earnings Wednesday . Investors will be watching for any updates to its 2021 guidance, the semiconductor chip shortage and its electric and autonomous vehicles. Here are additional details on those topics and more. Chip shortage/outlook At the end of the first quarter, GM chief financial officer Paul Jacobson said he was "increasingly confident" that the automaker would achieve its earnings targets for the year despite the chip shortage. But it's unclear if the situation has worsened more than expected since then. GM's earnings forecast for the year is $10 billion to $11 billion, or $4.50 to $5.25 per share, in adjusted pretax profits and adjusted automotive free cash flow of $1 billion to $2 billion. The forecasts factored in the potential impact of the chip shortage, including a hit of $1.5 billion to $2 billion to earnings and decrease of $1.5 billion to $2.5 billion to its free cash flow. Ford said last week it expected to lose about 50% of its planned second-quarter production. It also said it anticipated the parts problem to decrease its earnings by $2.5 billion in 2021, the high end of its previous guidance for the year. While Ford "may be the worst example of chip supply disruption," Morgan Stanley analyst Adam Jonas in a note last week said it is "still directionally a relevant read-across to the industry." Vehicle inventories Tightening vehicle inventories and steady demand are leading to lower incentives and record transaction prices on new vehicles. The situation has resulted in higher profits for dealers and automakers such as GM, but fewer choices for consumers. GM said it achieved record first-quarter average transaction prices at $40,353, but its inventory was tightening. The automaker ended March with 334,628 units in inventory, down 76,247 units from the end of the fourth quarter of 2020. Strong consumer demand in April may have further depleted the automaker's stock of vehicles. Production and products Any updates on production of the automaker's pickup trucks or electric vehicles, including upcoming electric pickups such as the GMC Hummer EV or an all-electric Chevrolet Silverado , will be closely followed by Wall Street. GM, like most automakers, has had to shutter plants due to the ongoing semiconductor chip shortage. GM has prioritized production of its full-size pickups and SUVs, while shuttering several car and crossover plants. Shutdowns have ranged from a week to several months . But how long GM can keep that going is unknown. It's also unclear whether the company's production of next-generation EVs, starting with the Hummer EV pickup later this year, will be affected by the parts problem. CEO Mary Barra told investors in February that GM remains "fully committed" to investing in EVs, as well as new businesses, despite the coronavirus pandemic and chip problem. "The semiconductor shortage won't slow our growth plans, and with our mitigation strategies, we still expect a very good year for General Motors," she said during the automaker's last earnings call. Cruise GM's majority owned autonomous vehicle unit, Cruise, will commercialize "sooner than many people think," Barra told investors during a JPMorgan conference last month. "I think it's going to be happening sooner than people think," she said. "We have said from the day, we'll be gated by safety, and we will. But I am extremely excited about the progress Cruise is making with their software development." Any update on the launch of a Cruise, which recently announced plans to expand to Dubai , could be positive for investors. GM has been spending about $1 billion a year on Cruise, which it acquired in 2017. It has brought on new investors such as the SoftBank Vision Fund, Honda Motor and Walmart , among others. Commercializing autonomous vehicles has been far more challenging than many predicted even a few years ago. The challenges have led to a consolidation in the autonomous vehicle sector after years of enthusiasm touting the technology as the next multitrillion-dollar market for transportation companies. Cruise initially planned to launch a ride-hailing fleet in 2019. However, the unit indefinitely delayed the plans for further testing. New businesses Barra during the company's last earnings call promised there was "much more to come" from GM's growth and innovation team, which has been tasked with expanding the automaker's operations. Thus far, the team, which was started in 2018, has launched a new military defense unit, EV commercial business called BrightDrop and expanded OnStar's offerings. The Detroit automaker has identified $1.3 trillion in new market opportunities that it believes complement its core business and it has a right to "win in," executives with GM's global innovation unit told CNBC. That does not include Cruise or urban air mobility, both of which could be $1 trillion markets on their own. Any updates on GM's new businesses, specifically BrightDrop, which is in the middle of launching, will be watched by Wall Street. – CNBC's Michael Bloom contributed to this report.