So as we roll out anywhere, we are going to make sure we build the right relationships, they understand the technology, they understand what’s the benefit of the technology, and that’s what we’ll do. But we have confidence in the underlying technology and you’ll hear more about our plans for Cruise as we develop the plan in the upcoming weeks.
Operator: Thank you. Our next question comes from Joseph Spak with UBS. Your line is open.
Joseph Spak: Thanks. Good morning, everyone. Maybe just back to the EV’s, Mary and Paul. I mean, you talked about the positive variable profit. It sounds like the [LC and RV] (ph) charge going lower is a big portion of that, but you also mentioned some other factors. So I was wondering if you could give a little bit more detail there? And then is this something that you will continually give us on a quarter-by-quarter basis to sort of track the progress you’re making towards that positive variable profit.
Paul Jacobson: Hey, Joe, it’s Paul. Good morning. Thanks for the questions. Probably just to digress for a second on the lower of cost or market adjustment on the EV inventory. So a couple of things. Number one, that’s not in any of the metrics that I think are important. Clearly it is a year-over-year benefit for us on our journey. But when you think about the two metrics that we’re looking at, there isn’t an impact from that. So first is variable profit positive. This relates a lot more to sort of EBIT, how we think about that going forward. But variable profit is mainly benefiting from scale and lower material costs going forward. So not a contributor to that. And then when you think about getting to the mid-single digit margin target in 2025, we would expect that there isn’t really going to be inventory that’s necessarily carrying that.
If there is, we will call that out as we go forward. But it’s not in our calculations. They are not a part of what we think our journey is going to be. So I appreciate the question and not surprised by it, but we’re continuing to march along. When you think about the — sorry, the second part of your question was on — apologies, what’s the second part of your question. Oh, on tracking? Yes, on when we’ll disclose. We’ll continue to talk about our journey and give confidence as far as specific data points. Not sure that we’re going to do it quarterly yet, but we’ll continue to update on our progress. Thanks. I’m sorry for that hiccup.
Operator: Thank you. Our next question comes from Adam Jonas with Morgan Stanley. Your line is open.
Adam Jonas: Thanks. Just one question and one follow-up. I want to follow up on Rod’s question first on strategy. Can you confirm what portion of your forward year CapEx and R&D is dedicated to EV battery, AV projects, the Auto 2.0? Any reason to think that this — that you may have scope to dial back the vertical integration, given the changing market? And then my follow-up, and again, because I think in the past where you’ve talked about well over half, I think you said in recent years of your spending was on that, but I just wanted to know if that was changing. And then the follow-up was on Elon Musk recently said that in the absence of trade barriers that China will demolish most of the Western EV players. Curious your reaction to that comment, whether you’d agree? Thanks.
Mary Barra: Yes. Thanks, Adam. So from a capital perspective and to build on what I said with Rod, the majority of our capital spend is toward EV. Remember, from an ICE perspective, we have the foundation, already built the plants. And as I mentioned, all of the architectures for our really strong ICE portfolio, that capital has already been deployed. So this is really an opportunity for us to just continue to do great vehicles with very optimized capital from an ICE portfolio as mentioned with the Traverse, the Equinox and the full-size truck, just to name a few. To your point on capital deployed from an infrastructure perspective, as the market evolves and as battery technology evolves, we will continue to evaluate our level of vertical integration.
I think with the work we’ve done on LTM and the work we’ve done on electric motors and the joint ventures with plant one, two and three, and then four — our fourth plant is with Samsung, that gives us a different form factor with prismatic and cylindrical cells, I think we’re well positioned. But as we move forward, we’ll evaluate that. So I think there’s options there. And as you can see, with all the initiatives we have, we are really working to take overall capital down, but still get the number of programs that we need. So Adam, I hope that helps. Happy if you have additional questions there. And then on Elon’s comments about China, I think, look, I don’t discount any competitor. We need to make sure we have beautifully designed vehicles that have the right features, the right safety and the right customer experience.
And we have to do it at a competitive cost base, and that’s why we’re focused so much on our cost base. Now when you mentioned the Chinese consumers, we do need a level playing field. I mean there comes a point where if it’s not a level playing field between tariff and nontariff barriers, any industry is going to struggle to compete. So give us a level playing field, and I’ll put our products in our cost structure that we continue to improve up against any.
Adam Jonas: Thanks, Mary.
Operator: Thank you. Our next question comes from John Murphy with Bank of America. Your line is open.
John Murphy: Good morning, guys. Mary, I just wanted to follow up on the strategy line that Adam and Rod have breached here. I mean we’re seeing fits and starts in technology, and it will eventually get there. But at the same time, we are seeing this tectonic shift in competition, particularly coming from China, as Adam alluded to. You made sort of pronouncements on how the business strategy will be set up for a few years not too long ago. But these shifts have been pretty extreme more recently. So I’m just curious, as you think about strategy and the position of the company, you haven’t been shy from making big changes in the past like exiting Europe. Can we think about the potential for real shifts in strategy of focus where the highest margin and highest return is sort of in the business truly five to 10 years down the line, which might include things like exiting China, which sounds like heresy, but might be the best move to make for five years out, maybe rebranding Cruise and really kind of taking a new sort of approach to where the company will land in five to 10 years.
It’s really protect profitability and cash flow from a position of strength instead of maybe a position in five to 10 years where it might be a weaker position.
Mary Barra: Hi, John. Thanks for the question. And we continue to evaluate the strategy on a regular basis. We have very robust strategy discussions with our Board and with the leadership team. And as you mentioned, the world is changing quickly whether it’s EV, whether it’s software, autonomy, et cetera, and we’re going to continue to respond to that. I do agree with you that we’re doing that from a position of strength. And we’ll evaluate where we have the opportunity to deploy capital and generate an appropriate return. And like we made the decision for China — excuse me, for Europe, when we looked at that, what we said actually has happened. We said it would be a win-win-win, a win for the Opel team, a win for at the time, PSA and a win for General Motors because we participate in the warrants, and we did just that.
So we’re not going to shy away from making tough calls or maybe calls that people wouldn’t expect if we think it’s the right thing to do for the business to ensure we’re here, we protect our strengths in the markets that we have, whether it’s North America. I mentioned on the earnings call, in the top quartile, we’ve been leading that for several years, and now we profitably have taken the most affordable segment. And we have a strong business in South America and many of our international markets. China, as Paul mentioned, there’s tremendous changing not only from a technology point of view but a competitive point of view. And so we’re evaluating China. We think there’s a place to play. It is a tremendous growth opportunity if we can do that well, and that’s our goal.
