Investing / Stocks

GM Reports Strong Earnings but Falls Short of Wall Street Estimates

Detroit, MI, USA – July 31, 2014: People exit the General Motors World Headquarters building located in Detroit, Michigan.

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General Motors reported strong second-quarter earnings on Wednesday with a net income of $2.8 billion and raised its full-year profit forecasts. However, the company fell short of Wall Street earnings-per-share and revenue estimates, dragging the stock down 8% in midmorning trading, CNBC reported.

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GM’s second-quarter earnings were reduced by $1.3 billion in warranty recall costs, including $800 million related to the Chevrolet Bolt EV. The electric vehicle has been recalled twice in the past year due to fire risks, CNBC noted, most recently last month.

GM noted potential challenges going into the second half of the year due to the computer-chip shortage and rising commodity costs, The Wall Street Journal reported.

The company expects commodity costs to rise by $1.5 billion to $2 billion during the second half of the year and anticipates lower earnings from its financial arm, WSJ added. Inflation has led to the highest raw material cost per U.S. vehicle since 2011, reported Octane, citing data from a Bank of America Global Research report. The cost of raw materials has risen sharply since mid-2020.

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Chief executive Mary Barra said she expects GM will continue to deal with the semiconductor shortage into 2022. The WSJ, referring to estimates from AutoForecast Solutions, noted that GM had reduced production by 325,000 vehicles in North America so far this year because of the chip shortage. GM said in a Tuesday presentation that it would make about 100,000 fewer vehicles in North America in the second half of the year. The company has resorted to less popular chip models to keep production going.

“The chips really represent a little bit more of a lost opportunity of what could have been even better, but the year is actually progressing quite well and I think we’ve overcome all of those initial expectations to exceed what we what we thought we could do at the beginning of the year,” GM CFO Paul Jacobson told reporters on a call, as reported by CNBC.

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Josephine Nesbit is a freelance writer specializing in real estate and personal finance. She grew up in New England but is now based out of Ohio where she attended The Ohio State University and lives with her two toddlers and fiancé. Her work has appeared in print and online publications such as Fox Business and Scotsman Guide.

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