General Motors (GM.US) Q3 conference call: Fuel business stabilizes chassis, electric vehicle cost reduction and autonomous driving monetization opens up room for growth

The Zhitong Finance App learned that the US automobile manufacturing giant General Motors (GM.US) showed a business pattern of increasing the fuel vehicle business to support profits, using cash flow to support repurchases, and expand revenue sources with software services in the third quarter of 2026. The company's quarterly revenue reached a record $50 billion, up 3% year over year; adjusted profit before interest and tax of $4.1 billion, up 22% year over year; adjusted diluted earnings per share of $3.70, up more than 30% year over year; and adjusted free cash flow of auto business of $5.9 billion. North America's profit rate rebounded to 8.7%. Improved full-size pickup product structure, reduced warranty costs, and reduced losses on electric vehicles offset some of the cost pressure.

The company's management raised the annual adjusted free cash flow guide for the auto business to US$11.5 billion, narrowed the adjusted profit range before interest and tax to US$14.5 billion, adjusted the adjusted diluted earnings per share range to US$12.75-13.75, and added US$20 billion in multi-year share repurchase authorizations, which is equivalent to more than 25% of the current market value. Management believes that the company is undervalued, but has not promised a specific repurchase schedule; electric vehicle supplier settlements were significantly reduced in 2027, which is expected to further release cash that can actually be used for investment and shareholder returns.

GM management said future growth revolves around the expansion of production of next-generation Silverado and Sierra pickups, SUVs and crossovers, OnStar and Super Cruise digital services, and defense business. The digital business has confirmed revenue of more than 800 million US dollars in the third quarter, up 15% year on year, and is expected to exceed 3 billion US dollars for the whole year, and deferred revenue is expected to be close to 7.5 billion US dollars at the end of the year; the company expects the penetration rate of the Super Cruise configuration for full-size pickups next year to reach 4-5 times this year, and the overall number of vehicles equipped with vehicles will increase by nearly 50%.

The electric vehicle business is expected to lose $1 billion to $1.5 billion this year, and next-generation batteries are expected to further improve profitability from 2028 to 2029; hybrid models have been included in the plan, and artificial intelligence is also being used in design, manufacturing, and fixed cost optimization. The Chinese business has been profitable for eight consecutive quarters, and the auto finance business has remained steady. The new contract for the defense business supports annual revenue growth of more than 30% and double-digit profit margins.

GM management said that looking ahead to next year's growth prospects, the key prerequisite for continued profit growth in 2027 is that demand remains steady and cost pressure has receded recently: the company expects the total cost of commodities, logistics and dynamic random access memory to be dragged down by about US$2 billion this year; if prices remain high recently, it may still face a year-on-year cost headwind of about US$2 billion in 2027. The official annual guidelines are expected to be published in January 2027.

The following is the full text of GM's performance conference call (artificial intelligence tool assisted translation):

Operator:

Good morning everyone, and welcome to GM's Q3 2026 results conference call. [Operator Instructions] I would like to remind everyone that this conference call will be held on Tuesday, October 20, 2026 and will be recorded. I will now leave the meeting to General Motors Vice President of Investor Relations Ashish Kohli.

Vice President of Investor Relations Ashish Kohli:

Thank you, Amanda. Good morning everyone. Thank you all for attending the conference to review GM's financial results for the third quarter of 2026 with us. Our conference call materials were posted this morning and are available on GM's Investor Relations website. The conference call will also be webcast. Today's participants include GM Chairman and CEO Mary Borah, and GM's Executive Vice President and Chief Financial Officer Paul Jacobson. GM Finance President and CEO Susan Sheffield will also participate in the Q&A session.

In today's conference call, management will make forward-looking statements on our expectations. These statements are subject to risk and uncertainty, and may cause material differences in our actual results. These risks and uncertainties include factors set out in our filings with the U.S. Securities and Exchange Commission. Please read the Safe Harbor Statement on page 1 of the presentation materials, which will govern the content of this conference call. Next, I'm happy to entrust the meeting to Marie.

Chairman and CEO Marie Bora:

Thank you, Ashish. Good morning everyone. First, I'd like to thank our employees, distributors, and suppliers. In this industry, delivering steady results quarter after quarter, year after year requires investment, focus, and resilience. Everyone showed excellent agility, teamwork, and professionalism, and I am very grateful for that. As of the third quarter of this year, we achieved adjusted profit before interest and taxes of $12.2 billion, adjusted free cash flow from the automotive business of $12.2 billion, and adjusted diluted earnings per share of $10.97, which increased by more than 35% year over year.

In the third quarter, our profit ratio for North America was 8.7%, an increase of 2.5 percentage points over the previous year. The attractive products, technology and services we provide to our global customers give us confidence in our ability to continue to grow in profitability and cash generation over the long term, and to return capital to shareholders.

Our journey to improve our ability to generate cash flow began five years ago, and as a result, we have increased our investment in the business and continued to strengthen our balance sheet. Subsequently, in 2023, given our low valuation, we began using surplus cash to buy back shares. Since then, our fully diluted shares have been reduced by 37%. An additional $20 billion multi-year repurchase authorization announced today further reflects the Board's commitment.

As shown in this quarter's results and revised guidance, our business is performing well even as we advance the launch of an important new product and face inflationary pressure in areas such as logistics, commodities, and storage. This is because over the years, we have improved business resilience by strengthening our vehicle portfolio, developing new high-margin revenue streams, and maintaining strict discipline in production, pricing, and sales incentives. Looking ahead, external adverse factors are clearly visible, and some of them are intensifying.

Although the road ahead is more challenging, assuming customer demand remains strong and commodity, logistics, and other recent cost pressures ease, we still believe 2027 will once again be a strong year and will be better than 2026. In terms of favorable factors, we expect that improved warranty costs, reduced electric vehicle losses, increased software and service revenue, and the launch of the new generation Chevrolet Silverado and GMC Sierra light pickup trucks will bring incremental benefits. With design, performance, technology, and innovative features, the current Silverado and Sierra have always performed well.

We have now maintained our leading sales position in the US market for 19 consecutive quarters, and since the current model was launched in 2018, the market share has increased by a full 10 percentage points. Today, even after entering our last year of production, our sales volume, market share, and financial performance are still strong. This is a direct testament to the value we provide to our customers. Our new pickup will continue to improve on this foundation, and its interior and exterior design have reached new heights in terms of refinement and precision in detail.

Our configuration version strategy allows us to meet the needs of customers at different price points while providing a clearer path for customers to upgrade to higher value configurations. For example, Chevrolet's high-end brand High Country has become more upscale, modern, and sporty, and its materials, functionality, and technology are closer to the experience of a luxury SUV. The Sierra Denali remains the core pickup truck with both high-end positioning and powerful performance, while the Denali Ultimate is moving further towards the brand's flagship position. We also use power system selection as an important part of the product value ladder and a means to optimize sales structures.

We will be offering class-leading TurboMax four-cylinder engines with standard torque, Duramax in-line six-cylinder turbocharged diesel engines unique to the market segment, and new 5.7-liter and 6.6-liter V8 engines. Each engine is adjusted for different performance requirements and lifestyles, and we will focus on the aspects most valued by pickup truck customers: practical torque performance, smooth and predictable power output, fuel economy under real conditions of use, reliable towing capacity, durability under load, and exquisite driving performance.

To ensure quality and durability, we performed over 100,000 hours of dynamometer testing on the new V8 engine and completed over 1.6 million miles of actual road testing before the vehicle was delivered to the customer. Production has already begun at the Silao plant, and customers should see the first batch of new cars arrive at dealerships later this year. The Fort Wayne plant will follow suit in the first quarter, and the Orion plant will start production of these pickups in the second quarter. We expect pickup truck production in 2027 to be roughly the same as 2026. By 2028, we will have additional production capacity to support market segment growth and market share growth.

Pickups will also be an important driving force for the popularity of the Super Cruise supercruise system and the growth of digital business revenue, as we will use this technology as standard in premium versions of the Silverado and Sierra lightweight pickups, and will be available as an option on most other versions. We expect the Super Cruise configuration penetration rate for full-size pickups next year to be 4-5 times that of this year, reflecting strong customer demand and our ability to promote this technology on a large scale among key customer groups. The existing foundation is already very solid and is rapidly expanding. Deferred revenue from software and services increased 40% year over year.

Driven by the addition of 1 million OnStar OnStar subscriptions and the number of vehicles equipped with Super Cruise reaching 1 million, we expect annual deferred revenue to be close to $7.5 billion. Super Cruise's excellent driving experience, and the frequent use of this technology by customers, explains why it is so popular with customers. Vehicles equipped with Super Cruise can drive far more than 1 million miles a day with both hands off the steering wheel. Nearly 70% of customers use this feature at least once a month, and I believe the number of cars with Super Cruise can grow by nearly 50% next year.

Finally, I would like to acknowledge the significant progress GM defense business has made since our last conference call, including receiving several new multi-year contracts that will help us grow our annual revenue by more than 30% and maintain double-digit profit margins. This quarter, the US Department of Defense announced an increase in the production volume of ISVs for infantry squad vehicles, including contracts for the ISV-Utility multi-purpose version. According to the US Army's procurement goals, these contracts are part of an ISV procurement project potentially totaling more than 1 billion US dollars, which still require congressional funding. The US Army has signed a contract with us to supply a tactical vehicle prototype developed based on Silverado HD for its heavy ISV bid project. Since June, we have signed contracts with four customers for the original armored Suburban Shield VIP transport vehicle.

Our EPIQ mobile energy system is now certified and can be sold to customers; we also delivered the first components for the Patriots PAC-3 to Lockheed Martin less than a month after we officially signed the contract. As Lockheed said at the time, these components usually take months or even years to produce, and our ability to deliver them quickly highlights the effectiveness of defense and commercial cooperation, as well as our capabilities. These developments are positive for our country, our partners, our taxpayers, and our business. Thank you all, and now I'll leave the meeting to Paul.

Executive Vice President and Chief Financial Officer Paul Jacobson:

Thank you, Marie. Good morning everyone, and thank you all for attending the conference. First, I'd like to thank the entire GM team. Everyone's hard work and continuous execution is reflected in our business performance and continues to be reflected in our financial results. This quarter's revenue reached a record $50 billion, up 3% year over year. Adjusted earnings before interest and taxes were $4.1 billion, up 22% year over year; adjusted diluted earnings per share increased more than 30% year over year to $3.70.

The overall environment of the industry remains healthy. In the third quarter, the industry's seasonally adjusted annualized sales volume was high in the 16 million to 17 million vehicle range, and customer demand for pickups, SUVs, and fleets all remained resilient. We sold over 670,000 vehicles in the US this quarter. Despite being affected by the discontinuation of production of some models, fuel vehicle sales reached 645,000 units, a slight increase over the previous year. Our lightweight full-size pickups continued to perform well in the last year of the product cycle, with sales up 9% year over year. This puts us on track to remain the industry leader in full-size pickup sales for the seventh consecutive year in 2026. With deliveries of new light pickups expected to begin at the end of the fourth quarter, we plan to continue this momentum into 2027.

Regarding the model replacement, we have stopped production for four weeks at the Silao Assembly Plant and began production of new pickups last week. To ensure high-quality commissioning, initial production will be carried out at a prudent pace and gradually raised to a more normal level over the next few months and quarters. At the Fort Wayne plant, we plan to stop production for four weeks starting in mid-December and resume production in January. In preparation for the discontinuation of production, inventory digestion of current pickup trucks is progressing according to plan. Inventory is at a predetermined level, and sales incentives account for the ratio of the manufacturer's recommended retail price, which is hundreds of basis points lower than during the previous pickup replacement period.

This is part of the overall operating discipline that GM has maintained for the past five years. Based on this, we expect the overall year-end inventory to be in the 50-60 day target range. On the cash side, the combination of continuing strong cash generation capacity and supporting our growth-oriented investments and continuous share buybacks effectively drives continued growth in earnings per share. In the third quarter, we repurchased shares worth 2.5 billion US dollars, reducing the number of diluted shares by about 27 million shares to about 866 million shares, which is 9% lower than in the third quarter of 2025.

Since entering October, we have repurchased another 1 billion US dollars of shares, bringing the total number of repurchases since this year to 6.3 billion US dollars, and completed the repurchase authorization previously approved by the board of directors. This morning, we announced an additional $20 billion in multi-year share repurchase authorizations, equivalent to over 25% of the current market value. The size and duration of this mandate strongly indicates the Board's belief that our ability to generate cash is sufficient to support the company's continued investment in the future while returning capital to shareholders.

Now let's take a closer look at our third quarter results. The company's total revenue was 50 billion US dollars, an increase of 1.4 billion US dollars over the previous year. Fuel vehicle sales increased 8% year over year, while electric vehicle sales declined. The reason is that we are experiencing a year-on-year comparison period after consumer car purchase incentives expire in the third quarter of 2025, and are adjusting electric vehicle production according to demand. The adjusted profit before interest and tax was US$4.1 billion, an increase of US$700 million over the previous year. Improvements came from core business performance, including an increase in the share of full-size pickups and a decrease in warranty costs, but some of the benefits were offset by rising commodity costs and the cost of moving production back to the US.

The adjusted free cash flow of the automobile business was 5.9 billion US dollars, an increase of 1.7 billion US dollars over the previous year. The improvements are mainly due to increased profits and the timing of tariff-related cash payments. Regarding expenses related to electric vehicles, as I mentioned last quarter, we acted quickly with our suppliers and partners. In the process of adjusting electric vehicle production capacity and manufacturing layout in accordance with changes in regulatory policies, the main cash expenses that are expected to be confirmed have basically been confirmed. In the third quarter, we added $200 million in confirmed cash expenses, bringing the cumulative confirmed cash expenses since the end of the first half of 2025 to $7.4 billion.

Up to now, $4.6 billion has been paid out, including $4.2 billion paid in 2026 up to now. We expect to also pay around $1 billion in the fourth quarter, with the remainder due in the 2027 calendar year. Therefore, free cash flow that can be used to return to shareholders next year should benefit from a sharp decrease in electric vehicle supplier settlements over the same period last year.

Now let's take a look at the third quarter results by region. The North American business continued to perform strongly, achieving adjusted profit before interest and tax of US$3.6 billion, an increase of US$1.1 billion over the previous year, or 43%. The profit margin was 8.7%, up 2.5 percentage points from when tariffs first started to be implemented a year ago. After relieving quite a bit of pressure, our profit margin has steadily returned to the target range of 8% to 10%, which clearly shows the team's progress. The improvements involved many aspects, including an increase in the share of full-size pickups, a reduction in electric vehicle losses due to capacity adjustments, and a continued decline in warranty costs.

These gains were partially offset by commodity inflation, rising logistics and dynamic random access memory costs, and increased manufacturing costs due to production moving back to the US. OnStar Digital Services and Super Cruise have confirmed revenue of over $800 million in the third quarter, up 15% year over year. We are expected to achieve more than $3 billion in confirmed revenue in the 2026 calendar year, and expect deferred revenue of close to $7.5 billion at the end of the year. Looking ahead to 2027, we expect confirmed revenue to grow again in double digits.

Excluding equity earnings from the Chinese business, GM's adjusted profit before interest and tax in the third quarter reached break-even, with a year-on-year decrease of US$200 million. It was mainly affected by the negative adjustment of US$100 million generated by Momenta's investment in market capitalization, as well as rising manufacturing and logistics costs. Sales growth in South America and exchange rate factors offset some of the pressure. The Chinese business had equity earnings of $32 million and was profitable for the eighth consecutive quarter. We expect this trend to continue in the fourth quarter.

New energy vehicles accounted for more than 60% of GM's sales in China in the third quarter, and the team continued to focus on execution, cost efficiency, and product structure optimization to achieve continuous profits. GM Finance achieved adjusted pre-tax profit of 700 million US dollars and paid a dividend of 250 million US dollars to GM during the quarter. Consumer credit performance remained resilient and in line with our expectations. The business is still expected to achieve an adjusted pre-tax profit guideline of 2.5 billion to 3 billion US dollars for the whole year and pay a full-year dividend similar to last year to GM, further reflecting its strategic value within the group.

Now let's introduce the 2026 natural year guidelines. After another strong quarter, we updated our full-year outlook as follows: We now expect adjusted profit before interest and tax of $14.5 billion to $15.5 billion, compared to the previous range of $14 billion to $16 billion. The adjusted diluted earnings per share range narrowed from $12-14 to $12.75-13.75, reflecting earnings from share repurchases up to now. Capital expenditure is expected to be in the lower half of the $10 billion to $12 billion range; the adjusted free cash flow for the automobile business is estimated at US$11.5 billion to US$11.5 billion, up from US$9.5 billion to US$11.5 billion previously. This improvement was due to excellent operating performance, lower-than-anticipated capital expenditure, and the timing of tariff-related cash payments.

Below, I'll update some of the key assumptions underpinning the revised guidance. The first is the industry environment. The US market remains resilient. We expect seasonally adjusted annualized sales of the entire industry to be in the middle of the 16 million to 17 million vehicle range throughout the year, which means that the rest of the year will be around 16 million units, in line with what we observed in October. In North America, we expect fuel vehicle sales to be lower than normal in the fourth quarter, mainly due to the launch of a new full-size pickup truck. We expect full-size pickup truck sales to drop by about 35,000 units year over year.

The negative impact of the decline in pickup truck sales in the fourth quarter is expected to be largely offset by favorable factors in pricing in North America, including revenue from the launch of new pickup trucks. Since this year, North American pricing factors have brought in $400 million in revenue. We continue to expect the full year pricing in North America to have a positive impact of 0.5%, and the remaining earnings are expected to be realized in the fourth quarter.

Next is the electric vehicle business. Driven by adjustments to the scale of electric vehicle production capacity and a significant decline in sales, we are still expected to achieve the goal of reducing losses of 1 billion to 1.5 billion US dollars for the whole year. As we enter the year-on-year comparison period after consumer car purchase incentives expired last year, losses are expected to decrease slightly further in the fourth quarter.

In terms of quality assurance, after a year-on-year improvement of 600 million US dollars in the third quarter, the cumulative year-on-year improvement since this year is about 1.1 billion US dollars. For the full year, we now expect the improvement in warranty costs to be closer to the upper limit of the $1 billion to $1.5 billion range. Since this year, the cost savings associated with emissions regulation have been around $500 million; since related savings have already been achieved in the fourth quarter of last year, the incremental benefits for the fourth quarter of this year are expected to be minimal.

In terms of tariffs, after deducting the benefits brought about by the abolition of tariffs related to the International Emergency Economic Powers Law, we have already borne about 1.8 billion US dollars in tariff costs since this year. We now expect gross tariff costs for the whole year to be near the lower end of the $2.5 billion to $3.5 billion range. Finally, on the tax side, we continue to expect an effective tax rate of 20% — 21% for the whole year. Among them, the tax rate for the fourth quarter is expected to be high, in the 25% to 27% range, mainly driven by multiple one-time individual taxes at the time of confirmation of the impact.

Now let's look at the downsides. As the conflict in the Middle East continues, commodity and logistics cost pressures have further intensified since we released our second quarter results update. The price of copper is at a record level, while the price of hot rolled coil steel has reached a four-year high. Since July, spot prices for hot-rolled coil steel and copper have both risen by 10% to 15%, which is about 50% higher than last year's average. Overall, inflation will add about $400 million in costs this year, and most of the impact will be reflected in the fourth quarter.

As a result, we now anticipate that commodity inflation, logistics, and rising dynamic random access memory costs will have an adverse impact of around $2 billion throughout the year. In the third quarter, we incurred incremental costs of about 700 million US dollars year-on-year, mainly related to commodities, bringing the cost headwind up to about 1.3 billion US dollars in this natural year up to now.

Additionally, we will invest approximately $1-1.5 billion this year to move production back to the US, strengthen supply chains, and expand software capabilities. We expect these costs to continue to rise in the fourth quarter until additional US production capacity is put into operation in 2027. Finally, in terms of international business, we expect GM's international business to continue to weaken, reflecting the negative impact of changes in the Middle East situation.

Next, let's talk about 2027. Assuming that the market conditions and tariff environment are generally similar to 2026, and that pressure on commodity costs has eased recently, we still believe that revenue, profit margins, and adjusted profit before interest and tax will increase next year. It's still too early to predict where commodity prices will end up in 2027. However, if the impact of commodity inflation added since July is simply annualized, it will put an additional pressure of 1 billion to 1.5 billion US dollars on adjusted profit before interest and tax in 2027, thus bringing the total cost headwind to about 2 billion US dollars in 2027.

Our growth plans are supported by the product cycle and GM's ongoing management discipline that investors have become accustomed to seeing. Growth opportunities revolve around four key drivers unique to GM. First, the new pickup truck was successfully put into production and launched, and a high proportion of high-spec models was achieved in the first year. Second, release new production capacity for full-size SUVs and high-volume crossovers. Third, expand OnStar, Super Cruise, and defense-related businesses. Fourth, the cost of managing warranty, electric vehicles, fixed costs, and production moving back to the US.

At the end of the day, we've proven time and time again that we can get down to business and implement our plans. We have set high standards for ourselves, and the team is working to achieve another year of growth for our shareholders. We have an excellent portfolio of models, and these products will only get stronger in 2027 and beyond. Thank you all, and now on to the Q&A session of the conference call.

The following is the performance conference Q&A session (AI-assisted summary and translation):

Operator:

[Operator Instructions] The first question came from Goldman Sachs's Mark Delaney.

Goldman Sachs Group Research Division Mark Delaney:

I understand the changing cost environment GM is facing as it moves towards 2027. I hope you can talk further about what measures GM can use to deal with this situation. Especially considering that you expect full-size pickups to increase production at a prudent pace, to what extent can GM use net pricing to help offset the impact of the rising cost environment?

Chairman and CEO Marie Bora:

Mark, as Paul mentioned, these cost increases have occurred over the past few months, so our team really hasn't had enough time to find offsetting measures. Looking ahead to next year, the continued improvement in warranty fees will bring clear advantages. We've seen this improvement this year, and we believe it will continue next year. As we said, while production of new pickups will be roughly flat, we do think there are still some opportunities in terms of pricing and product structure.

We're also seeing growth opportunities for OnStar and Super Cruise. Electric vehicle profitability will continue to improve. Additionally, we will continue to work to reduce fixed costs. We believe there are many opportunities in this area, particularly as we continue to implement and utilize artificial intelligence to improve our business and increase efficiency. So, as has always been the case with this team, we're going to start taking action, but these changes are just too close. We'll provide more information by the end of the fourth quarter and when the 2027 full-year guidance is released. But clearly we still have work to do, and we plan to get it done.

MARK DELANEY:

Understood. My follow-up question is to clarify the assumptions GM is currently using. You said that the assumption that 2027 is better than 2026 does presuppose easing the cost pressure associated with commodities, logistics, and storage. What you mean by mitigation, does the spot price only need to stabilize at the current level, or do we actually need to see the spot price drop?

Executive Vice President and Chief Financial Officer Paul Jacobson:

Yes, Mark, it's still a little early to judge 2027 commodity prices. What we really want to make clear is that, as we said in July when we emphasized the favorable factors, we presuppose that the environment remains stable. As I pointed out in my prepared statement, in fact in the past 8-10 weeks or so, we have seen quite significant inflation. If prices remain at this level, the challenge will be even greater as we enter next year. Therefore, we are hopeful that the recent round of gains can be reduced somewhat. But as Marie said, we're still moving ahead with budgeting.

Therefore, we are not going to give definitive guidance on next year's situation and final results right now. But apparently, the increase in inflation since the last disclosure has made matters more challenging. So I don't think the fundamental situation has changed. The favorable factors still exist. The first year of production of the new pickup truck will bring us many benefits in terms of product structure, but we will continue to observe and hope to continue to show the execution capabilities that everyone is familiar with. However, like every year, our goal is still to achieve growth next year.

Operator:

The next question comes from TD Cowen's Itay Mikkeli.

Itai Mikkeli, TD Cowan Research Department:

The first question concerns free cash flow guidance for the whole year after the increase. Paul, can you talk more about the drivers? I think you mentioned that capital expenditure is likely to be at the lower end of the outlook range. Also, how much of the strong performance seen this year will last until next year?

Paul Jacobson:

Itai, thank you for your question. There are a few factors here. First, our capital expenditure is likely to fall at the lower end of the range. As various projects are put into operation one after another, we have indeed seen a reduction in capital expenditure within the range of 10 billion to 12 billion US dollars. As a result, this will release a portion of free cash flow. Also, if you remember, when we talked about tariff refunds related to the International Emergency Economic Powers Act earlier this year, we raised our profit before interest and tax guidelines, but due to uncertainty, we did not raise our cash flow guidelines. We have made some progress in obtaining refunds for related tariffs, both the refunds we receive directly and the indirect benefits that suppliers transfer to us after receiving the refund, which has contributed to improved cash flow.

Looking ahead to 2027, if we are able to achieve profitable growth, we expect free cash flow to remain generally stable or even increase slightly. But keep in mind that as the impact of most of the cash restructuring expenses of the electric vehicle business passes, our cash flow calculated according to US GAAP, that is, cash that can actually be used to invest, should increase significantly. As a result, despite recent commodity inflation, we are still optimistic about overall cash generation performance in 2027.

Itay Mikkeli:

This helps a lot. Just a quick question. As the impact of the electric vehicle restructuring gradually passes, and you will launch a series of updates in 2028, can you share, for example, how should we understand the sales volume required for GM's electric vehicle business to achieve break-even by around 2029? It would be helpful if you could share the latest views on how electric vehicles can become profitable.

Paul Jacobson:

OK. I think it's still a little early to judge. As we said, the profitability of electric vehicles improved well this year, mainly due to lower sales after we adjusted our business and the reduction in fixed costs during the restructuring process. As a result, this is clearly beneficial for 2026. We have said that the improvement may be small in 2027, but it is likely that it will continue to improve compared to 2026. Subsequently, in 2028 and 2029, as lithium-rich manganese-based batteries and next-generation batteries and battery packs are put into use, we should see another step increase in profitability.

We'll keep watching sales. We believe that at the current level of fuel prices and fuel prices, the penetration rate of electric vehicles is likely to continue to rise, and we need to make sure we are prepared for this. We are the second-largest producer of electric vehicles in the US, have a strong model portfolio and are committed to improving the profitability of these products.

Operator:

The next question comes from Barclays Dan Levy.

Dan Levy:

When you talk about 2027, one premise you mentioned is that customer demand remains strong. I know this has always been the focus of debate in the industry. I think everyone was amazed by the resilience the automotive industry has shown. But as interest rates rise, we hear another round of questions about consumers' financial health. So, in the light of the latest environment, can you talk about the market's ability to continue to absorb these high-spec products and the potential increase in pickup truck sales as production capacity expands? Please also help us differentiate between the overall consumer situation and the typical buyer of your company's products.

Paul Jacobson:

OK, Dan, I'll answer first; if there are any omissions, Marie can add. I think, as we have said over the years, many consumer confidence surveys have been disconnected from actual consumption behavior. This is reflected in our average transaction price, in the sales structure of the configured version, and even in the GM finance situation: there have been no significant changes in indicators such as overdue or default.

As a result, I think consumer performance has been very steady. Nevertheless, we are also concerned about these confidence surveys, and judging from historical experience, we should continue to observe them. This does not necessarily mean pessimism, but is mainly due to sufficient caution to ensure that our expectations match this context and that forward-looking predictions are based on stable consumer conditions. We believe this stability will continue as we are currently not seeing any signs of weak demand.

Dan Levy:

OK, great. The second question concerns the situation in China. Obviously, we are seeing a huge increase in China's exports. Can you talk about the extent to which you have participated in this round of rapid export growth? Does this provide you with cost benefits? Also, I know you mentioned that GM's international business, excluding China, is slowing down. How much of this comes from competitive pressure from Chinese automakers in other regions? How capable are you to counteract these effects?

MARY BORA:

I think if you look at some of the markets where Chinese car companies are doing business, especially in South America, we are still maintaining our market share. We also export some of our products from China. Once Chinese competitors are allowed to enter a certain market, we are in an advantageous position to compete with products that are in line with the Chevrolet brand positioning and are competitive at corresponding prices. As a result, we have remained competitive in South America. In fact, with our model mix, we are still going strong. Also, in South America, Chevrolet is regarded as a high-end brand.

So I think this provides us with opportunities in some other markets as well. Going back to China, I would say that within China, we actually haven't seen much benefit from this. As far as the Chinese business is concerned, we are very proud that the restructuring was initiated earlier, and our business is still profitable even though the overall local automobile industry is in a sluggish economic environment. As a result, export opportunities may bring small returns. Overall, however, due to these challenges, we think this market is more difficult; at the same time, we do participate in the export market and maintain market share with the strength of our model portfolio.

Operator:

The next question comes from UBS's Joe Spark.

Joseph Spark:

Paul, I want to go back to the one you just answered, probably in response to Italy's question. I think when talking about 2027, you said — I know it's still early, and there's still a lot to be decided — but you seem to have mentioned that if profits grow next year, you expect free cash flow to remain stable or even higher. I'm a little bit puzzled. I know that free cash that can be distributed should increase due to reduced payments related to electric vehicles, but are there any other factors affecting free cash flow that we haven't taken into account? For example, if profits grow, why doesn't free cash flow increase?

Paul Jacobson:

Yes, Joe. Sorry if my answer confused you. Here are a few reasons. First, if the 2027 capital expenditure guidance range is still 10 billion to 12 billion US dollars, but it ends up falling at the high end of the range rather than the low end, then clearly, due to differences in the timing of expenditure, there may be a certain degree of disconnect between the growth in profit before interest and tax and free cash flow. Second, this year we also received additional benefits from tariff refunds related to the International Emergency Economic Powers Law, which are not expected to be repeated next year.

Therefore, according to the same tariff cash payment caliber, some of the benefits we received in 2026 will not be reproduced in 2027. Generally, there will also be some slight differences in working capital from year to year. However, in addition to this, the two should show a relatively linear relationship, because the situation where cash flow is generated from profit, that is, the link between cash flow and profit, is quite stable.

Joseph Spark:

OK. The second question is, Marie, I remember you said in the past that you would look at hybrid and plug-in hybrid models. I think earlier this month, Mike Anderson said that you'll listen to customers and that these models are part of the plan. I know that for competitive reasons, you won't announce products in advance on this kind of conference call. But can you tell us if some of these investments and expenses are already happening? Are additional investments required? I know you already have a lot of relevant technology in the international market, so maybe talk about how you are considering using these technologies and scaling up in the US.

MARY BORA:

Of course. From a hybrid perspective, we will launch hybrid models in multiple segments of our product portfolio, the key segments we participate in. Looking at the current situation, many hybrid products focus on compact cars, mid-size cars, and small vans, and we are not currently participating in these three market segments. So it needs to be taken into account, and I think that's why our sales volume continues to be so strong. In many cases, we have made the most of our production capacity. For example, the Explorer is a compact SUV, production capacity is at full capacity even without a hybrid version.

So I think we're still using our strengths. As Paul said earlier, as this trend continues, we are well positioned for electric vehicles, but we will also launch hybrid models. They have been included in the plan, and there will be no additional capital expenditure or engineering development investment. We'll share more information as we get closer to market.

Operator:

The next question comes from James Picariello of BNP Paribas.

James Picariello from BNP Paribas Research:

Regarding pickup truck production in the first quarter, you expect production to be roughly the same for the whole of next year. Is the impact of the planned shutdown of production in the first quarter similar to the reduction of 35,000 vehicles in the fourth quarter? Also, can you explain the approximate scale of the 2027 full-size SUV plan to increase production capacity?

MARY BORA:

As we said, for full-size pickups, we have three assembly plants and three engine plants are in the process of being put into operation. Our focus is to ensure smooth commissioning. Everything is currently going according to plan. As we said, at the end of this year, the first batch of pickups produced at the first factory will go offline. Afterwards, we will indeed have some production discontinuation arrangements. We haven't specified the corresponding number of vehicles, but production will indeed be stopped as production starts at the other two plants. Therefore, we only said that pickup truck production in 2027 will be roughly the same as 2026, as we are proceeding with the commissioning of these six plants.

Opportunities for further growth will not appear until 2028. At that time, production will no longer be replaced, and we will also benefit from the Orion plant. Therefore, 2028 will be an opportunity to increase the share of the pickup truck market, not only in the US, but also in the global market.

JAMES PICARIELLO:

Understood. Next, I would like to ask about GM's international business without China. Regarding the Middle East challenges, what assumptions are included in your expectations for the fourth quarter? Should we expect profit before interest and tax to lose quarterly again? I know it's still early, but considering all the pros and cons, how should we view this business next year?

Paul Jacobson:

OK, James. Regarding the Middle East, I'd like to say that at the company level, these effects can largely be offset by the fact that we would have sold a lot of vehicles there, and with proper information and preparation ahead of time, we could actually switch many of these vehicles to the US for sale, and we have already done that. The team managed this very well, so at the group level, we didn't lose sales. So, as long as the tension in the Middle East continues, I expect you to see a further bias in the distribution of business towards North America rather than the international market, particularly the Middle East.

Additionally, I think we are continuing to work with the team to minimise the impact of international competition and create value in segments where we are capable and are indeed competitive. I think the team has done this very well in other parts of the world. Keep in mind that this quarter's international business results were also affected by Momenta's investment of approximately $100 million in negative market capitalization adjustments. Therefore, if you look at the underlying business, its actual performance is slightly better than what the financial results show.

MARY BORA:

James, just to be clear, we're already manufacturing these pickups at our first factory, and they'll be in the showroom before the end of the year.

Operator:

The next question comes from Morgan Stanley's Andrew Pelcoco.

ANDREW PERCOCO:

I would like to go back to the factors that changed the 2027 performance. Obviously, the product structure and pricing of the new pickup are beneficial to you. But as we enter 2027, can we also consider company-level or fixed cost savings? I think this is clearly an area you have been very concerned about. I would like to know if you can further explain what the situation might look like next year in this regard. Paul, I remember you talked about integrating artificial intelligence within an organization, and I was wondering if some of those investments might start to pay off in terms of costs.

MARY BORA:

Andrew, of course. As I said, we're even redoubling our efforts, given the cost increases we've seen over the past 8-10 weeks. However, all departments of the company are already actively working, not only to ensure that everyone uses artificial intelligence efficiently, but also to make their work more efficient, design processes more efficient, and manufacturing more efficient. In fact, every functional department is using artificial intelligence. The key is how to implement these savings at the fixed cost level.

I'm not going to give quantified numbers right now. We can provide this information until the end of the fourth quarter and the 2027 guidance is officially announced. But trust us that we'll be doing a lot of work next in the field of fixed costs, which is already underway today.

ANDREW PERCOCO:

Ok, this info is very helpful. Regarding the buyback announcement, can you provide some information to help us understand the future pace of execution? Obviously, you mentioned that next year there will be fewer related payments to suppliers. Can we reasonably infer from this that the pace of repurchases in 2027 is likely to be faster than 2026?

Paul Jacobson:

OK, Andrew, I'm Paul. First, you're going to let me lose a gamble because I'm sure you're asking about digital business revenue. I'll answer that question. Regarding repurchases, for obvious reasons, we won't comment in advance on how they will be executed in the future. However, as we have discussed, we expect actual cash flow, that is, cash flow calculated according to US GAAP, to increase significantly year over year. I want you, and the entire market, to see what we've done this year, because I know that considering the electric vehicle restructuring, the outside world had many doubts about our ability to return capital to shareholders, but the speed with which we completed the last round of repurchase authorization exceeded all expectations.

As a result, the Board has indicated that it will continue to drive shareholder value growth in this way. We still believe that in the case of a double-digit free cash flow return, we are amplifying the company's earnings per share growth effect. As you've seen over the past few years, our commitment in this regard has not weakened at all; it is expected that we will continue to do so as long as valuations remain sluggish.

ANDREW PERCOCO:

Ok, very clear. I'll ask questions about digital services offline.

Operator:

The next question comes from Emmanuel Rosner of Wolf Research.

Emanuel Rosner of Wolf Research:

Thanks for detailing commodities and some related assumptions. I understand you're saying that if prices stay at current levels, there may be an additional cost pressure of about $2 billion in 2027. To meet the expected increase in profit before interest and taxes in 2027, have you already assumed the impact of this $2 billion? Or does the actual pressure need to be below this level? Also, I understand that it is too early to determine offsetting measures you can control to deal with rising costs of some commodities. But in the past, you have established a very strong execution record in dealing with the downturn cycle, such as cutting spending that can be decided independently, taking manageable measures, and promoting restructuring. Can you remind us what methods you have historically been able to use? How effective can these techniques be in the current environment?

Paul Jacobson:

OK, Emmanuel, thank you for the question. On the commodities side, as we said clearly, in the current situation, we need prices to fall somewhat from these levels to be confident of growth. However, we are in the process of preparing a budget, and we will continue to advance related work. Therefore, we will not specifically quantify the adverse or favorable factors at this time, because in the process of continuing to improve the plan, we do not want to determine expectations and market conditions in advance. As we have stated publicly, the Board will approve the budget in December, we will issue guidelines in January, and so will the 2027 schedule.

Looking back over the past few years, I think we've proven ourselves good at cutting costs. These things take time. Some measures can be adjusted quickly, but other larger projects take longer. For example, a few years ago, we implemented a $2 billion fixed cost reduction program, which was very successful at the time. Therefore, we are continuing to act and are evaluating these plans. As we have emphasized time and again, we are committed to achieving profitable growth every year and will do our best to advance towards this goal.

Emmanuel Rosner:

Ok, this helps a lot. Let's take a quick look at the improvements in this year's free cash flow guidelines. I understand what those factors are involved. Can you quantify the tariff refund portion of the International Emergency Economic Powers Law that currently includes the annual free cash flow assumption?

Paul Jacobson:

We previously announced that we have confirmed revenue of $500 million in profits. Up to now, around 60% of these have been recovered in the form of refunds. Also, we expect to receive roughly similar amounts from suppliers before the end of the year. As a result, it is about 600 million to 800 million US dollars this year, and related payments will continue to arrive for the rest of the year.

Operator:

The next question comes from Citigroup's Michael Ward.

MICHAEL WARD:

I'd like to ask about the $20 billion share buyback. Looks like the amount you've spent on share buybacks over the past three years is about $20 billion. Is this figure more based on some kind of schedule, or is it to allow you to seize opportunities, maintain flexibility, and be more active in implementing repurchases at current transaction prices, etc.?

MARY BORA:

Mike, we'll be following the capital allocation framework: reinvesting capital into the business to achieve a 20% return on invested capital while maintaining an investment-grade balance sheet. The remaining funds are then returned to the company's owners, or shareholders, as has been done for the past few years. So the message we're really trying to convey is that we think the company is undervalued. Because of this, we believe this is the best way to create value for shareholders. As Paul already pointed out, we won't set a specific schedule. As we did in the past few years, we will take the opportunity to execute. But I think the signal you should read from the size of the buyback is that when we think the share price is undervalued, the board promises to return cash to shareholders.

MICHAEL WARD:

OK. Regarding the financing business, you have reduced your car rental business over the past few years. Is this a method you plan to re-use? Or will interest-rate financing be used? If the market requires it, what measures can you take through GM Finance to make vehicles more affordable for consumers? Will you strengthen your leasing business again? Or what are your long-term goals for GM Finance and how it can play a role?

Paul Jacobson:

Ok, Mike, Susan is online too. I can answer first and then leave it to her. Obviously, in the past few years, we have seen a large number of electric vehicle leasing businesses, and have invested a lot of resources in this area to help consumers accept this approach and drive demand, and in many cases, in combination with consumer tax credit policies, leasing methods are structurally more advantageous.

So I think the team is adjusting. We still take GM finance very seriously. Whether it's increasing customer loyalty or providing customers with accessible financing options, it's a great service channel. We are also continuing to find ways to drive GM's financial growth through GM insurance, and can form an attractive link with GM incentive programs. Obviously, this is an important tool that enables us to create value for consumers in ways other than making cars. Susan, welcome to add.

President and CEO Susan Sheffield:

Ok, I think you've answered that question. Our role is to support GM in selling vehicles, and the key is to maintain discipline in sales incentive spending. Other than that, I don't really have anything else to add.

MICHAEL WARD:

OK. Is reducing the leasing business a deliberate overall measure? Or is leasing still a tool that can be used in the future?

Paul Jacobson:

Mike, I would say, this requires a trade-off. Leasing is of course a tool, and I hope we might start more leasing businesses, but it also needs to be considered in the context of the current sales incentive environment and how to use sales incentive funds. I think our marketing strategy has continued to evolve over the past few years and has clearly become a competitive advantage. We must use these funds where they can make a difference. Sometimes, as consumer needs change, the exact method also changes, and we will respond according to customer needs.

Operator:

The next question comes from Alex Perry at Bank of America.

ALEXANDER PERRY:

I'd like to keep asking about pricing. How should we view next year's potential pricing benefits compared to the last major full-size pickup facelift? I remember you had a very strong price increase in 2019. If you use that time as an example to think about next year's pricing benefits, what are the applications, and what differences need to be considered?

Paul Jacobson:

OK, Alex, thanks for the question. We have always been careful to ensure that historical empirical models are not directly applied to predict the pricing of this generation of pickups. The main difference is that the current 2026 model performed better in the last year of production than any previous pickup truck, and in fact, any model project. As a result, the kind of stepwise improvements seen in the past will not be as obvious this time around. Nevertheless, we should still benefit from improved product structures, because when we start increasing production, we usually take the lead in producing more high-spec models. Over time, this structure will eventually gradually become normal. But I'd like to remind you not to directly use some data from 2018 and 2019, because the current pricing environment is very different from that time.

ALEXANDER PERRY:

This helps a lot. My follow-up question is about input costs. When considering the impact of rising fuel prices, combined with some of the fuel surcharges we've heard, what specific impact did the rise in diesel prices have on the supply chain? Also, what impact does it have on end customer demand for some heavy-duty vehicle platforms?

MARY BORA:

I would say that diesel prices have just experienced this round of sharp rise, and it is still too early to judge; we will watch the subsequent trend. However, since this year, our diesel models have been highly efficient. Even if fuel prices were high before this latest increase, they still have better fuel efficiency, so the cost of ownership is lower than buying a hybrid pickup truck.

So we've always seen the demand and are closely monitoring it. I think a lot will depend on how long consumers think high oil prices will last. I'm excited about the new engines coming out, as they will not only improve overall performance, but also increase efficiency. Therefore, if diesel prices continue to be at such high levels, it is still too early to determine the impact. But until a month or two ago, we didn't actually see any significant impact, and demand is still strong.

Paul Jacobson:

Alex, in terms of logistics, the impact is spreading fast. As you can see, there may only be a lag of two to four weeks, but we'll feel it soon. This is also an important part of the $400 million cost pressure we mentioned in our prepared statement.

Operator:

The next question comes from Tom Narayan from Royal Bank of Canada Capital Markets.

Gautam Narayan:

The first question is about competitive pressure in 2027 and the possible impact on sales volume and pricing. One of Detroit's top three automakers has high dealership inventories, especially pickups, and we are seeing an increase in sales incentives. Japanese automakers are also increasing their market share, particularly when it comes to hybrids. I know, as you said earlier, that's not your main area of involvement. At the same time, however, European car manufacturers are being squeezed by competition from Chinese car companies, putting pressure on the European and Chinese markets, and they mentioned during the investor event that they should actively enter the US market. Are these just the norm in the industry or are they worrying you guys?

MARY BORA:

Recall that a few years ago, when there was a shortage of semiconductors, every company's automobile production was constrained by semiconductor quota restrictions. We have seen that everyone is investing their limited supply in the US because this market is so profitable. So I don't think this is a new situation. We are in an advantageous position because the overall model mix is strong, and the new pickup truck that is about to be launched will raise performance to a new level in every way.

Currently, most of the products we produce are limited by production capacity. Whether it's a pickup truck or an SUV, we're producing as many as we can. I mentioned the explorers earlier; our production is not enough to meet demand. This situation will ease as we begin production of this model in the US. But I think this competition will last for a long time. When it comes to Pickup, we see that one of its competitors has had high sales incentives for a long time. Despite ups and downs, this situation has continued for many years. Even so, our pickup truck has increased its market share, and we believe there is still a great opportunity to continue to increase its share with the strength of the product after completing the launch and climbing the slope.

While doing this, we also have the opportunity to continue to expand OnStar and Super Cruise revenue. Therefore, I think your observation of the market situation is accurate. With the strength of our model mix, we are in an advantageous position, and we have experienced similar situations before, and actual performance has proven that we can continue to do well.

Gautam Narayan:

Understood. The mention of Super Cruise just connects to my next question. You are very confident that level 3 autonomous driving will be launched in 2028. Several German car manufacturers have tried level 3 autonomous driving, but progress doesn't seem ideal. I think they have experienced some problems with insufficient consumer demand, partly due to the limited operating design domain. I think your situation is different. So I'd like to ask you guys to talk about why they can provide better services than their level 3 autonomous driving? And what makes you more confident in getting what consumers want?

MARY BORA:

I think the Cadillac Escalade IQ will be the first model equipped with this technology by the time it is launched in 2028. We'll talk more about it at tomorrow's GM Forward event. Our motorway autonomous driving will be used on highways, and its operating design domain will not be limited as previously mentioned. It will also continue our focus on safety, and I'm sure everyone and customers have seen this with Super Cruise and are trusting and using it as a result. So I think they're going to see a very capable product. I've just ridden this car in the past month. Compared to when it was tested a few months ago, the level of comfort it showed in terms of driving at highway speed, etc. has improved markedly. So I'm very confident about the products that will be launched soon. We'll tell you more tomorrow. I think customers will use it and are willing to pay for it because it will definitely improve their lives, and there will be plenty of opportunities for them to use it.

Operator:

I now turn the meeting back to Marie Borra and ask her to make her concluding remarks.

MARY BORA:

OK, thank you. Thanks for the questions, too. As we discussed today, GM has performed very well, and that hasn't changed. Although the trend of inflation remains uncertain, we are working to continue the current trend and generate significant cash returns for shareholders. Through strategic investments in new products and technology, as well as improving quality and operational efficiency, we are strengthening our core business. This year, while offsetting the impact of commodity, logistics, and other uncontrollable cost increases, we have raised our annual guidance twice.

In the next few years, as the Silverado and Sierra light pickups are completed and put on the market, and then products such as next-generation heavy-duty pickups, next-generation full-size SUVs, and new Cadillac sedans and crossovers are launched, our model portfolio will only grow stronger. So I think you can see that we have a lot more products coming soon.

At the same time, we will expand our technical capabilities for autonomous driving on highways, starting with the 2028 Cadillac Escalade IQ; we will also develop cutting-edge battery technologies such as lithium-manganese-based batteries to help improve the profitability of electric vehicles and establish closer relationships with customers through digital experiences. We believe this is a proven strategy that will create greater shareholder value in the future, and we look forward to implementing it. Thank you all for attending today's meeting and I wish you all a great day.

Operator:

This concludes today's conference call. Thank you all for attending.