Rod Lache: It’s great to hear the comments about changing the EV margin narrative. I’m hoping you can maybe just broadly address the developments that we’re seeing in North America and China in the EV market. It does look like competition is pretty aggressive in both areas. So I was wondering, if anything that you’re seeing is surprising to you? And are there strategic adjustments that you are making as you kind of observe the market dynamics in both markets, North America and China? Maybe you could just provide a little color on how you adjust strategy in real time.
Mary Barra: So let me — Rod, appreciate the question. Let me start with China. As Paul said, the industry is pretty tough right now. It’s still recovering from COVID. Pricing is very aggressive, as you know. And when you look at the fundamentals of the industry in China, you got 50% capacity utilization. You’ve got more than 100 brands competing. I don’t think that’s a steady state that you can look at. But if you look a little longer term from a country perspective, I mean, there’s still tremendous growth, and I think the market can still be strong and have great profitability potential. So from a GM-specific perspective, we’re launching the right EVs right now off the Ultium platform. I think ’24 and ’25 are going to be key years for us as we not only get the right EV products in market that we think will compete at the right price that allows us to be profitable, but then we’re also aggressively pursuing improvements from a structural cost perspective across across our China operations.
So I think China is in a period right now because of where the industry is and the number of competitors with the pricing challenges that will sort, and I think we’ll be well positioned. We do have brands that have value in the country, and we’re going to have the right EV portfolio there. And frankly, right now, our ICE portfolio is strong. And so that’s going to enable us to fund funded as we look at the price challenges. From a U.S. perspective, our main focus right now is twofold. One is getting the EVs out there. We’re launching the battery plants, the module, the assembly and then the vehicle, also at the same time, from a Cadillac LYRIQ perspective, we’re launching — it’s really the first vehicle with Ultifi. So there’s a lot of new.
That’s why we have a very measured cadence as we’re ramping, where now, the battery cell plant is flowing very well, and that is enabling us now to really focus on module and pack, which we’re doing. That’s why we said even at the beginning of the year that the second half is when you’re really going to see the curve start to accelerate, and we’re on track to do that. So we’re really focused on getting the vehicles out there, because we think we price them right to begin with. When you look at where the LYRIQ is below, it starts below 60,000 or right at 60,000; the Equinox at around 30,000; the Blazer in the mid-40s. These are price points that I think are very important. And then when you look at the vehicles from a styling technology perspective, I think they’re going to be great.
While we’re working to really get these vehicles out there because the customer response is so strong, we’re also working on costs. And so, the $2 billion structural cost reduction that we’re working is, as Paul indicated, we’re doing well on that, and we’ll continue to look for those opportunities. But then we’re also looking at how do we continue to drive improvements from both an ICE and the EV margin perspective. And there’s a tremendous amount of work going on there. So get the vehicles out, continue to work on pricing around costs, so you can count the right price Italy, the focus that we have right now, and this is going to be a critical year for that. But as Paul and I both said, we believe, even with not only the challenges of commodities, but also the pricing pressures, we still think we are well positioned to achieve the low mid-single — low- to mid-single-digit margins in 2025.
Rod Lache: Great. And just kind of keying off of the comment on costs, can you talk a little bit about the components of that $1 billion cost increase that we saw in North America? And obviously, over time, just given the amount of spending on growth initiatives, your structural costs are going to go up, certainly through mid-decade. Can you just provide some thoughts on how we should be thinking about the trajectory of that and the extent to which that changes breakeven points in the business?
Paul Jacobson: Yes. Thanks, Rod. So a couple of things. On costs in North America, obviously, we had the lower pension income, a little bit higher commodities and logistics costs, in particular. We also saw a bit of an uptick in warranty costs. I think that’s probably a bit of an anomaly and won’t repeat throughout the year across the board. So, we’re still getting, like I said, early traction on the $2 billion controllable fixed cost reduction, as we talked about, the biggest placeholder on that being the voluntary program. So the $1 billion of savings will begin to accrue savings really probably late second quarter and then really start to get into bulk in the second half of the year. So that was a really good way to kick start that program, and we’re grateful to the employees who chose to take that package.
The other side is a lot of grinding around on overhead as we talked about going forward, a lot of discretionary spend. So, we’ve got teams that are focused on getting savings in discretionary spend, IT-related costs, marketing-related costs across the board. And we think that we can get traction on those things pretty quickly as well. So, that’s where we feel confident getting to about 50% this year, with the remainder accruing into 2024. Now this is important, I think, not just for offsetting some of the near-term pressures, but some more of those competitive dynamics that we’ve talked about for the long term in an effort to continue to improve the margin trajectory of the Company.
Rod Lache: Just any color, Paul, on the kind of intermediate term outlook for structural costs? Is that something that you think can be sort of held at this level with the amount of capital that you’re spending and the growth initiatives, who would think that there’d be some uplift to that?
Paul Jacobson: Yes. Well, we’re seeing obviously some pressure in D&A, but that’s where — if you recall, we talked about the $2 billion program offsetting that and resulting in savings. So that’s what we’re aiming for. That’s going to be a little bit of a hurdle to get over, but one that we feel comfortable that we can do.
Operator: Thank you. Our next question comes from Dan Levy with Barclays. Your line is open.
Dan Levy: First, I wanted to ask about the share buybacks. Interesting to see that you did share buybacks in the quarter, and I’m guessing that speaks to your — the confidence in your liquidity profile. But as you need to ramp on growth spend and as there’s an open question on type of cycle normalization that we’re going into, how are you going to approach share buybacks?
Mary Barra: Well, I think what you saw in the first quarter, when you look — and our cash generation is cyclical as we move through the year, but we’re following our capital allocation framework at, first, reinvesting in the business. And we think we’ve optimized that to have the right products, both from an ICE and an EV perspective as we make this transformation, along with the focus that we have on some growth businesses like BrightDrop and Cruise that are — we really think are going to lead to tremendous growth and margin expansion as well. But with that, we saw our way to do the share buyback. We’re going to continue to evaluate that quarter-by-quarter as we go through the year. But I think we felt confident doing that. We felt confident in raising guidance. And we feel confident overall in our cash position to be able to continue to look for those opportunities.
Dan Levy: Great. And then the second question, I know you’ve laid out the 2025 low- to mid-single-digit EV margin target. One of your competitors obviously has put out — they’ve laid out more clearly where they are in EVs today. I don’t know if you’re in a position to disclose more thoroughly where you are in terms of the contribution margin standpoint or on an absolute EBIT standpoint. If so, that would be great. But beyond that, in light of the current environment, I think this touches on Rod’s question. You have this 400,000 EV target. But given the ongoing cost dynamics, are you going to be nimble with that target or balancing profit dynamics with volume? Or is that purely going to be a function of the supply, and you’re going to be very firm on that 400,000 target?
Paul Jacobson: Yes. So Dan, I’ll start with that. Mary can jump in. I think in the early stages, we’re going to be very firm with those targets across the board. Because when you look at the EV profitability, and we’re not going to give a lot of details right now just because the numbers aren’t that meaningful, when you look at the infrastructure investment that we’ve made already starting to depreciate that, not fully utilizing as we ramp up, et cetera, that will start to become more clear. So we need to be able to ramp up the capacity to realize the scale benefits and get to the pricing efficiency or the cost efficiency that we’re targeting to be able to drive those margins going forward. So I think it’s one that we’ve got to make sure that we look to where the demand is.
But as we look at the order books and the indications of interest for the vehicles that we’ve announced and the ones that we’ve taken orders for, we feel very confident about the demand there for the 400,000 and ramping up to the 1 million, and we’ll continue to balance that. But structurally, we obviously have a lot of work to do on costs. We’ve talked about that. We’ve got a lot of work to do on scaling, and all of that is coming together and, as you can see, picking up speed pretty quickly as we get into the middle and back part of this year.
Mary Barra: Paul, you said it well.
Operator: Thank you. Our next question comes from Adam Jonas with Morgan Stanley. Your line is open.
