Good morning, everybody. Thank you so much for joining us for this keynote session with GM as part of Deutsche Bank's Global Automotive Conference. My name is Emmanuel Rosner. I'm the lead U.S. autos and auto technology analyst here at Deutsche Bank. I'm incredibly pleased to be joined by Paul Jacobson, who's the EVP and CFO of the company, to talk about how things are going for the industry and for GM this morning. GM obviously put out an exciting update this morning as well, and we'll talk about it, but very much appreciate the support of the Deutsche Bank funding. So thank you so much.
Well, thanks for having us, Emmanuel. Really excited to be here.
So maybe, just to set the stage, the first few initial questions around industry condition and, you know, near-term outlook. Can you provide us an update on operating conditions you've seen so far this year and, you know, I guess so far in Q2?
Yeah. Actually, I wanted to, if you don't mind, make a couple of introductory comments before we jump in.
Of course.
I think some of that'll be responsive to what you just asked. So, first, just start with the underlying business. When you think about where we've been and how long we've been there, I think one of the measures we've been holding up is, you know, we wanna maintain consistent performance. I'm pleased to say that May was a really, really strong month for us. So when you look at whether you're talking about just vehicle volumes, which I think was our best month since December of 2020, EV penetration, really strong gains there. But overall, the business is continuing to show that resiliency. In fact, the, you know, roughly 1% discount to industry average incentives that we often talk about actually widened in the month of May, a little bit as a sign of our strong, continued commercial performance.
So, we actually now think, as we look at Q2, we actually think Q2's earnings are gonna be better than Q1, from that standpoint. So consensus is still trending a little bit lower than that, but we feel strong that Q2 is gonna be better than Q1, going forward. On the EV side, while a lot is being written about how the growth rate has kinda diminished, we still see really strong performance in the GM portfolio. Cadillac LYRIQ was up over 3,500 vehicles in the month. We saw really good traction with the Blazer EV, and as a result, sold about 9,500 EVs in North America in the month of May. So despite the fact that we're seeing a little bit of slowing in that growth for our portfolio, it's still pretty strong.
But given where the retail penetration is, you know, we've gone into the year. I think most prognosticators were thinking that the EV market would be up to about 10% of total autos. We still see it trending kinda around that 8% level. As a result, we've talked before about 200,000-300,000 EVs this year. We're actually gonna trim that to 200,000-250,000. So at the lower end of that, and I think it reflects the momentum that we have in the business. Importantly, we said that we would be able to achieve variable profit positive in the portfolio in the low 200s. We think we can still do that. That's probably Q4 more than the second half, but we still think that that's an achievable goal going forward. So really making good progress.
As we come to market with the game-changing Equinox EV, which, you know, that vehicle will have over 300 miles of range, and with the $7,500 tax credit, comes in below $30,000 at a retail level, I think is a really strong good sign of things to come. And then lastly, on capital allocation, no doubt you saw the announcement this morning. We have completed or will complete by the end of June the last remaining $1.1 billion, which was left after Q1 of our prior share repurchase authorization. And I'm pleased to say that the board is continuing to lean into our capital allocation policy and the announcement today of another $6 billion program. Keep in mind, this is over and above the $10 billion ASR that we did.
So we've been in the market with some open market repurchases already this year, as we're working and the banks are continuing to finalize that. So, really, strong performance. And then lastly, on the Cruise side, we are going to put $850 million into Cruise this month. That will be a what I would consider to be like a stub financing. So if you understand the way we had funded it before, we wanted them to have a pretty sizable cash balance, etc. Given a lot of the repositioning that we've done and now relaunching, going forward, it's kind of a pay as you go, but this buys us time to continue to pursue our strategic review going through how we're gonna think about Cruise's future as they continue to make good progress getting back to autonomous and full autonomous driving.
So, more to come on that, but that about sums up what I wanted to talk about. It might wipe out a number of your questions. I'm sorry that.
No, that's everything. We could just go home. Thank you so much. Now, this has been really great and, yeah, great to hear in terms of of the progress on a lot of these, a lot of these fronts. So let me talk a little bit about, you know, go back into some of these things, but first in terms of the environment, what are you seeing in terms of vehicle pricing and incentive trends, for you and, and the industry? At the time you reported Q1, pricing had remained more resilient than your initial assumption. You're not talking about Q2 potentially better than Q1. Is that, you know, partly, you know, that pricing strength continuing? And more broadly, do you worry about rising inventory that some of your domestic competitors and, and what it could do to the pricing discipline of this industry?
Yeah. I mean, well, first of all, at the at the end of the day, the performance has been very, very consistent. And I think it's been that way for a number of quarters, for us. Average transaction prices so far look very similar, if not slightly better than kinda where we were in Q1, and that's why we can say that Q2 is, is likely gonna come in better than Q1, on an on an EBIT basis. When you look at inventory levels, you know, I think I'm really proud of the way the team has handled the discipline on our side. We've talked about 50-60 days of inventory. We ended Q1 with 63 days, which didn't give me a lot of concern. And the reason is, is 'cause we were working through it, getting into a little bit of a seasonally strong period.
So at the end of May, we ended with 59 days of inventory. So back into that range. And you'll see it kinda ebb and flow over time. But we're making the right decisions with our production to make sure that we can balance the value that we bring to customers. And I think when you look at the industry, I mean, obviously, our competitors have varying levels of inventory. We've seen different levels of incentives in the market. We are just really focused on our customers. And what our customers are telling us is the value and the demand for the vehicles is quite strong. You know, we're excited about bringing the Chevy Traverse and the next generation Equinox, all of these vehicles like the success that we've seen with the Trax.
Not only are they coming with new strong demand, they're also more profitable than the prior models that they were replacing and refreshing. So really coming down this evolution in a way that I think matches the customer expectations quite well.
Just following up on this, so your outlook continues to be in general for like 8%-10% margins in North America across, across cycles. It's a level you've consistently generated each and every one of the last, you know, several years. But this has arguably been possible because your North American business has benefited from really strong pricing, close to $20 billion in gains over the last.
You say that like that's a bad thing.
It's an amazing thing. And which seemingly continues, you know, so far. But it's been offsetting almost as large an amount of cost headwinds and inflation that has sort of like happened at the same time. When and if vehicle prices eventually moderate, what levers does GM have to maintain the consistent profitability?
Well, I mean, I think at the end of the day, this is still a very competitive business and one that we haven't shied away from. You look at the work that we've done on the cost initiative side, you know, we took $2 billion of net reductions, which is about $3 billion out of run rate costs when you factor in depreciation increases as well. You know, we said we're not done. We've gotta continue to work. I mean, we look at the global threats that are out there. The way you can be competitive is make great vehicles at an efficient price. And that means we need to continue to strive for efficiencies.
The team is focused on that, not just in getting EVs to the profitability levels that we need them to get to, but also in the core business as a whole. And I think you've seen the benefit of that. You know, pricing, there is some of it that's inflation, but I think a lot of it is the quality and the demand for our vehicles. That doesn't happen overnight. That happens with a lot of focus and a lot of commitment from our design and engineering teams. And I think we're seeing the benefits of all that work that has been done over the last several years, putting out a product like that that people love.
Yeah. Now, following this, a very strong Q1 performance of nearly $4 billion in EBIT, now you're also talking about Q2, you know, being, you know, potentially higher than this, but at the time, you raised your 2024 guidance by the amount of the beat, essentially about $500 million, which at the time, again, suggested moderation in earnings, you know, for the rest of the year. This would be even more so the case on the back of a strong, you know, Q2 performance. What could drive this moderation? And based on current conditions, are there opportunities to sound more positive?
Well, I mean, I think, you know, we've tried to sound, I would say, positively measured, or measured positive, however you wanna say that, which is to just at the end of the day, we're focused on running the business month to month, quarter to quarter. And you've seen that in the consistency of the results. We've gotta plan for contingencies, which, you know, as we said at the beginning of the year, we built in our expectations that prices were gonna decline 2%-2.5%. But while I said expectations, that's not really what we were seeing in the market. It was really an assumption for planning because we've gotta set an EBIT budget and a capital budget that allows us to achieve what we need to do. We can't end up setting a capital budget that's based on a set of assumptions that don't work.
So we naturally build some conservatism in there. We haven't seen that 2%-2.5% price decline. And that's why in the first quarter, we were able to say, "Look, we can outperform what we said at the beginning of the year," because we've got a quarter behind us. So that's the way we're kinda looking at it going forward. Clearly, you know, as we are marching towards profitability in our EV portfolio, that's got a short-term mixed impact. So as we continue to ramp up EVs, despite the fact that they're improving in their variable profit, it's still a drag on the mixed side of the equation. But you know, we're gonna continue to work at it. And that's what we're focused on doing is just executing every quarter.
So let's focus a little bit on your EV strategy. You know, at the beginning of this conversation that the goal for Ultium production this year will be 200-250 instead of like the 200-300 thousand units that you had targeted before. Can you maybe tell us what drives this? Is it the demand side? Is it the supply side? Obviously, initially, earlier, you had some issues with the production of the modules, the battery modules. And how's that going right now? And I guess what's driving sort of like the change in outlook?
So it's 100% demand-driven. So on the supply side, you know, we, we've overcome the module issues. You know, we were on track to be able to produce, like we said, up to 300,000 vehicles this year. But what we don't wanna do is get in this trap of, you know, I think the market a few years ago or even more recently than that had said, "You've gotta produce more EVs if we're gonna ascribe any value to your company." And I think we, you know, as an industry, overproduced. And, and you've seen a lot of that pricing, impacts result from that, residual value impacts, etc. So, you know, while we're focused and I and I think we've done, a really good job of maintaining that intermediate and longer-term horizon of where we are and sometimes to the detriment of, of public sentiment in the short run.
We're not producing enough, etc. We've been very consistent about building a platform and growing EVs off of that and being able to do it in a way that meets customer expectations and we can grow into profitability. That's, that's where we are. We don't wanna end up in a position where we give out a production target and then we just blindly produce and end up with hundreds of thousands of vehicles in inventory 'cause the market's just not there yet. We think that this is a, a really good blend of being able to drive the scale benefits that we need but still not get crazy with inventory levels, such that we have to, you know, start engaging in deep discounting to where customers who have already bought one start to see their residual values suffer.
Maintaining that consistency is really important on our journey.
Now, you just confirmed also these. You're expecting these positive variable profits from EVs in, I guess, at fourth quarter of this year at least. What drives this? So can you unpack that a little bit in terms of, you know, how much of it comes from volume, how much of it comes from cost? Is this enabled by some of these inventory write-offs that you took at the end of last year in 2023? And then if I can ask you also, looking forward, that goal of like mid-single digit.
Mm-hmm.
Operating margin by 2025, is that still realistic?
We think so. I mean, at the end of the day, this year has been more about scale than anything else. So if you go back to the comments that we made last November, we talked about 60 points of EBIT improvement this year and getting to variable profit positive. About 60% of that was driven by scale. So that's principally concentrated in cell plants. So you had cell plant one operating at full capacity this year, cell plant two, which is coming. As you fill the infrastructure that we've built already, that's where you're starting to climb up pretty significantly on getting cell costs down, etc. So about 60% of that improvement this year is scale-driven. And we're still gonna get a big chunk of that, which is why we think we can still get to variable profit positive.
The second side was about 20% of mix. So we sunset the Chevy Bolt until we bring that back, at the end of next year. You know, the Chevy Bolt's prior technology, customers loved it. Couldn't make any money selling them. But we think with the relaunch of the Bolt with LFP chemistry under the Ultium platform, we'll get a vehicle that customers will love that we can also make profitably. And that's a big step function change from where we were. But because we're selling Ultium and not the Bolt, there's another chunk of improvement. That's about 20%. And then the third 20% is really cell costs and materials. So the raw material costs have come down.
There's a lag effect hitting us this year because we had so much in inventory, coming off some of those module challenges that we had last year and early part of this year. So as we work through that, that's the composition. Then as we go from 2024 to 2025, it becomes less about scale and much more about mix and about cost coming down in the overall piece of it. So we feel good about the trajectory we're on right now. I would rather probably that EV demand was a little bit stronger. But as we've seen in our results, it's nothing that we can't work with in the here and now.
I was gonna ask you what sort of assumptions you have to make in terms of volume or pricing or cost in order to get to that point of profitability?
So the only thing we've talked about so far is 2024 because I want the team laser-focused on getting to variable profit positive because that's the first step, obviously, getting to EBIT positive. So we're continuing to watch that. We haven't talked specifically about 2025 volumes. We'll do that as we get into the fall, and into our 2025 guidance, but really want the team laser-focused on getting to that variable profit mark.
And you said.
I think that'll be a good step function indication of the progress that we're making in the portfolio.
And you said a big step up is the mix going into next year?
Yeah. So next year is really more about product costs and, you know, learning and scaling into what we're doing, but applying those lessons learned and, you know, bringing in more high-volume entries. So we'll have the Silverado out there in bigger volumes. We'll have the Equinox and the Blazer ramping up versus some of the start that we've got this year.
So taking a step back, EV demand has been somewhat disappointing in the U.S. The global EV market seems incredibly competitive with some new EV players rising, you know, especially from China and established global players like yourself in the middle of an EV transition. In this context, what are the key factors that will help GM succeed, and be profitable at the same time?
Yeah. Well, I don't think of EV demand as disappointing. I think it's just it is what it is. And that's what we have to manage through. I mean, at the end of the day, we're gonna win customers over with high-quality vehicles that are really capable, that are stylish than what they're used to. And I think the more vehicles that get out under our platform, the more people are going to see the benefits. And I think you see that in the LYRIQ and in the Blazer as we are ramping those up. So we've gotta manage that. But that's where I think the GM story is a little bit undervalued. Well, I think it's significantly undervalued, but I think a little bit is attributed to the market doesn't understand the flexibility that we have.
So I think, you know, when you see EV demand is softening, you know, at the end of the day, we've got an ICE portfolio that's going to probably throw off cash longer than what some people who might have more of an aggressive EV adoption. But if EVs pivot, then, you know, ICE may come down, but it's at the same time our EV profitability is going up. And that's why I think it is so singularly important that we get to variable profit positive and we get to EBIT margin positive because once we do that, then we've got the ultimate flexibility in our levers where we're not really hurt if at the end of the day, EVs go up, and we see that growth because we can make those profitably too.
Can you talk about your strategy in China, the fastest EV penetration market, you know, to be expected, you know, for the next decade or so? Can you talk about your EV strategy there specifically? And do you need new or additional partners to succeed in the region?
Well, I think, you know, there's no doubt China's challenged. You know, we lost money, for the first time in a while, ex-pandemic, in the quarter. You know, I think we've struggled to get traction a little bit in Q2. It's probably trending a little bit behind where we thought. But it's something we need to be laser-focused on. But similar to, you know, the way we've gotta compete, in the U.S. and everywhere else in the world is we gotta get our costs down and we gotta make sure we've got a portfolio that works for our customers. So, we are focused on that business as we talk about in Q1. We've obviously got some challenges to fix, but we're absolutely on it.
I guess strategically though, like, when you're saying you focus on it, is it do they need their own separate product? Is it, you know?
No, I mean, I think at the end of the day, it's a lot of tactics that, you know, inform the strategy going forward. The reality is we've got vehicles that have struggled. That means we've gotta get costs out, etc. And I think that's where tactics and strategy really come in is we've gotta be competitive in that market.
Now, there's quite a bit of regulatory uncertainty surrounding EVs. Recently, the Biden administration rolled out a series of tariffs on, on batteries as well as on critical, you know, materials imported from China. At the same time, the IRA benefits, in terms of tax, tax credit for EV buyers, they could potentially be at risk, you know, after the upcoming U.S. election. How do you manage all this uncertainty?
Well, I mean, at the end of the day, produce products that customers want and do it profitably. You know, at the end of the day, we have said that we support IRA as a bridge to the compliance mandates that public policy has established because we need that to be able to scale up as rapidly as policy is indicated. So, you know, we're focused on doing that. But as we said, that while we'll benefit from IRA, we need to be focused on getting to profitability excluding all of that. And that's why we're aiming to get to parity by the end of the decade, which is what we've talked about before between EV and ICE. That's the important step.
So, you know, I think, it's important for consumers, you know, as a matter of helping them on that journey because in the short run, EVs are more expensive. They're more expensive to build than ICE vehicles. They've got lower ownership costs, overall in terms of what your monthly spend is. But you've gotta help get consumers over that hump. And that's where I think the IRA benefits and the EV tax credits are helpful for consumers in the short run. But it's not like we can build an industry that's dependent on that.
Will the tariffs have any, you know, material impact on GM?
I don't think so. I mean, we've talked about having LFP chemistry in the Bolt. So there's some impact on that project. We're still working through to assess what the final impact is gonna be in terms of how we source and how we build that vehicle. But we're committed to making sure that we can get that vehicle profitable, as part of the portfolio. So, all things that I think in the ordinary course of business, we've gotta manage through. No excuses.
What is GM's strategy with the hybrids? And what is your view of the penetration of this powertrain in the mid to long term?
So we actually have come out and said that, we're gonna bring a plug-in hybrid to the market in 2027. We haven't talked about what that is yet. But, you know, I think it can be a very effective bridge to compliance. So as we're marching towards these increasing EPA stringency levels, if the consumer isn't ready for full battery electric, bringing an option to them that also qualifies as an EV under the compliance standards is gonna be really important for us as a flex lever. And, you know, at the end of the day, if we invest the capital in a plug-in hybrid that we ultimately don't need because battery electric has taken off, that's actually okay.
But we can end up in a position where we're fully dependent on credits at the end of the decade that might not be there if EV adoption isn't there. So we see plug-in hybrids as a really good tool, for us to help bridge to that compliance path depending on where you see demand taking shape.
Let's pivot maybe to Cruise. So your update before, at the start of our conversation was that, GM has poured in some money into Cruise, this quarter. But I guess in a way that is sort of like a bit of a bridge until sort of like more permanent type of solution. I think in Q1, Cruise earned maybe like $700 million or so. So the amount that you're, I mean, I don't know if there's some seasonality, but the amount you're describing seems like it's about a quarter's worth of runway, maybe a little sort of like a little bit more than that?
Well, they still have cash on their balance sheet today. So, you know, we're looking at essentially getting them through the end of this year into Q1. So there was a little bit of seasonality in that. But if you just generally look at that $1.7 billion EBIT level that we've trimmed it down to after pulling $1 billion of expense out, that's the run rate and the trajectory that we're on, as a general rule. Again, like I said, some quarter-to-quarter mismatch, but this is where it puts us. And, you know, the team there is doing a really good job. They've got autonomous vehicles back out on the road in Phoenix. We have backup drivers as we continue to build data for the safety case and work proactively with the regulators.
I think the team has executed well. We're in the midst, as we've talked about for a little while, of the strategic review of how do we think about that business going forward because I think, you know, the idea that, you know, six, eight months ago, you know, there was a pool of capital available for robotaxi, we've gotta earn our way back into that. And right now, we don't have that. So getting momentum back in the business is gonna require some capital, and we're trying to figure out the best way to provide that.
Yeah. I was gonna ask you. So it's obviously back on the road mapping in Phoenix. But in terms of your outlook on how critical is it to the overall, you know, GM portfolio, you know, besides, I guess, the lack of outside financing, where does it generally fit in terms of, you know, GM's success?
Well, I think I think this is a really important R&D phase, not just for the notion of robotaxi, but ultimately for personal autonomy. And, we, we all know that the next arena of competition in the auto space is really gonna be fought over vehicle technology and, and what that does, whether it's software-defined vehicles or autonomous or, or Level 2+ driver assist. We think we've gotta leg up. I mean, Cruise, before, before the incident on October 2nd, we logged almost 6 million driverless miles. So we've gotta really had a really good head start. You know, I think as we've paused, others have caught up. But, we hadn't stopped. We were still running a lot of simulations.
But establishing that credibility by getting vehicles back out on the road and getting them done and then autonomous, fully autonomous again, is where we're aiming to do. But we're not gonna do that before it's ready. And that's gonna be with heavy sort of oversight from, you know, our new sort of regulatory and safety team that's over there.
In terms of a timeline on your update, decision around the strategy for it, now that you've scheduled an investor day with a specific date for, you know, October, it had been I think it's been rescheduled a couple of times. Is it fair for investors to assume that by then you would have a Cruise strategy or it's not necessarily related?
I think it's fair for investors to assume whatever they want. It's a free country. But, you know, at the end of the day, we'll have more information and be able to demonstrate more progress on Cruise. But we're making sure that just the way we're running the EV portfolio, we're doing it deliberately and methodically and doing it with the intermediate and the long term in mind.
Let's talk a little bit about the product for your consumer cars, Super Cruise. Can you talk to us a little bit of the what your success is there so far in terms of, you know, take rates, what the goals are, and the ability to monetize it?
Yeah. We're actually seeing some really, really strong increased penetration in Super Cruise now. So we went through a period through the chip crisis where the chips relating to the Super Cruise technology were some of the most heavily impacted. And as we had to prioritize getting vehicles out, you know, that ended up slowing down and facing more of an impact than it otherwise might have. But we've gotten a lot of that resolved. And when you look at the penetration of vehicles sold with Super Cruise on it, it's actually seeing some really good improvements and increases going forward. It's still too early in terms of after the subscription period ends, what's the take rate going forward.
But, we're optimistic based on at least customer acceptance and what we hear from customers about Super Cruise, that take rate is gonna improve as we start to see vehicles coming off their initial subscriptions.
Then separately on Ultifi and OnStar, so some of your software efforts, how are you currently leveraging that connectivity? Can you remind us what you believe is the opportunity for GM to sell software and subscription?
Yeah. So we, we obviously talked about a multi-billion dollar software enterprise at the end of the decade. I think, you know, as you've seen some of the challenges, whether it be with chips or as others have had with software issues and we've had with the Blazer launch, etc., we're focused on making sure that we get the vehicles right at the same time that we're building that platform. So it's probably a little bit behind. But the, I think the promise of what it can be there in terms of connected vehicles and, and particularly with that OnStar brand and, and what we've seen in terms of customer acceptance of that, there's still a lot of opportunity there. And as we come out and get closer to Investor Day, we'll be talking more about software, as we get to the back half of the year.
I guess generally speaking, is it about selling to consumers? Is it tied to ADAS? Is it more for fleets?
I think it's all of that. I think it's, you know, what, what can you do with a vehicle that's connected in ways that historically we haven't been able to participate in the revenue chain? So if you think other than customer care, after-sales parts, etc., accessories, we're pretty much out of the picture after, after the vehicle wholesale, you know, not, not counting the finance captive, which is obviously a very important piece of the business. But that was our revenue stream. Now with the connected vehicle, we have so much opportunity to interact not only with the purchaser of that vehicle but the second owner and third owner and fourth owner of that vehicle, which is just a significant additional revenue opportunity by driving in those connection points, not just, physically with the vehicle but also with the customer.
And that's what our mission and our mandate is to make sure that we can capture some of that addressable market that historically has never been available to us.
Maybe a couple of questions on capital allocation. So when you announced the ASR back last November, that was obviously very well received by the market, $10 billion. But.
I'd have been shocked if it wasn't.
It is, in a way, it only represented excess cash on the balance sheet, right? Now you're announcing an extra $6 billion, which is presumably sort of like a portion of the free cash flow. What is your framework for returning free cash flow to shareholders on a go-forward basis?
So, you know, we're not signing up to any minimums or anything like that. But I think, what we've gotta do, what we've said pretty consistently, is we've gotta have a much more regular and serial application of our capital allocation policy. So, we haven't changed anything about it. We're still invested in the business. $10.5-$11.5 billion of capital is very manageable, and it's something that we can execute. Well, number two is maintain a strong balance sheet. The balance sheet is quite strong. We've got really good relationships with the rating agencies. And I think the fact that we did a $10 billion ASR in the fall with no rating agency implications at all, in terms of bringing us down or changing our outlook, I think speaks to the strength of where the balance sheet is.
and then the third is returning capital to shareholders. I don't think we've been very consistent about that. Therefore, investors don't know how to model in, "What do I do with free cash flow?" So, you know, beginning with the $10 billion share repurchase, which, as you mentioned, is really a reflection of the cash that we had generated prior to that, that, you know, we had a lot of uncertainty in the business through COVID, through the chips, through the UAW, etc. Getting all of that resolved and sort of de-risking going forward was what paved the way to be able to do that. But as I said at the time, if that was just a one-and-done transaction, it's gimmicky. It's financial engineering, and there's a place for it. But the reality is, how can we consistently apply free cash flow going forward?
So at the time we did that, we still had $1.4 billion remaining under our prior authorization. We've now gone through that. So that 1.4 that we just talked about this morning, that we had is already done, or will be done by the end of June. And that's, that's where the $6 billion comes in. So that's just the next phase of, of returning cash back to shareholders. And it represents really, continued conviction on the cash generation capabilities of the company going forward.
I guess in terms of capital allocation framework, is there a percentage of free cash flow that you're thinking about for share buybacks? Is it 50, 70%, 100%? Is there any larger priorities than or higher priorities than returning cash to shareholder with the free cash flow?
That's a softball question. Our highest priority is shareholder returns. Everything we do, but no, on the, you know, nothing on any specific allocation of free cash flow because we need that flexibility strategically. But consistent return of capital back to shareholders is important. And while we've been leaning heavily into share repurchases, that's really a function of our valuation. You know, we're still valued at a discount to where we were five years ago. And it's striking to me that the business, which is much, much healthier today than it was five or six years ago, in a bigger industry, is striking that we're valued at a discount to what we've been historically. It's also striking that we're valued at a discount to the industry and many of our peers, when we put up the type of consistent results that we have. So I get it.
You know, I come from an industry that was pretty heavily discounted in the past and, you know, worked hard to try to make sure that we can reverse that trend and get people focused on the value side of the equation, which is a lot of really strong cash free cash flow generation, even despite the run-up that we have now. I mean, we're still talking about 15%-20% free cash flow yield. So as long as we see that discount, buying back shares, in my view, is superior to a dividend. But we can also, as we did at the end of the year, walk the dividend up, as our share goes down. And hopefully, we get into a position where we get a better valuation and a better multiple, in which case we can probably lean more into dividend.
Yeah. I wasn't gonna ask you specifically about valuation because I always feel like it's the investor's job to, you know, figure it out. But since you're, you know, mentioning it, the stock being sort of undervalued, there's always this sense that the reason is investors don't want to put a full multiple in this year's earnings because this year's earnings is not necessarily sustainable in the cyclical industry and with, you know, all sorts of, you know, other pressure. What, what can you tell investors? What can you tell the market on why people should take, you know, what you expected to earn in 2024, which is obviously incredibly strong, and why, you know, they shouldn't apply sort of like a discount to this on a go-forward basis? What, why is it sustainable?
Well, well, I will accept that valuation is the investor's job. At the end of the day, if our investor if our valuation suffered and the management team said, "That's not our job, it's your job," I, I think we'd all be replaced. And we probably should. So we, we take that very, very seriously, from, from, from that perspective. But, you know, I used to, say in the prior, industry that I was in, and I think there are a lot of similarities. When you look at the discounts to the market, that discount wasn't earned overnight. It took decades of cyclical, you know, in a lot of cases, wealth and value destruction, over time. So you're not gonna earn your way out of that overnight.
So I don't I don't expect people to say, "Oh, you should be at an S&P Industrial multiple because you've got four quarters in a row of really strong performance." That's a journey. We've gotta earn our way out of that. And, and I think one of the ways we do that is we just consistently run the business and, and get it to a level that's that can be more counted on. And when you talk about, our inventory targets, when you talk about our incentive strategy, when you talk about our margin targets, when you talk about our, our walk and our go-to-market strategies, when you talk about capital discipline, which is, you know, I think undersold because so many people wanna look at, "Well, you used to invest 7-8.
Now you're investing 10.5-11.5." Well, number one, inflation adjusted probably takes that 7, 8, and then to 9-10. And the 10.5-11.5, we're actually doing it while building a portfolio, investing in ICE, investing in EVs, and rebuilding our infrastructure for the long term. I actually think that's pretty, pretty good stewardship across the board. And we could actually afford to do more. And that's one of the debates I think that corporate finance tends to have across companies is, "We're throwing off more than $20 billion of operating cash flow. We could invest more." The problem is it's not just a question of affordability. You've gotta execute.
And in order to execute a higher capital budget, we've gotta hire more engineers, more planners, more supply chain, acquire more real estate, build more facilities to actually affect that additional capital spend if we're gonna deploy it in a way that's gonna generate value. That then puts pressure on free cash flow, and it puts pressure on margins, etc., and we can't be competitive. So having that added discipline lever of, "I can afford it, but what can I deploy effectively?" is what's creating all this cash flow. And we're able to do that, in a way. So I think there's a lot of safety lines built into the performance that if we start to see cyclicality, that we can't reduce our costs or throttle back a little bit on production if we go into a recession.
I think there are a lot of levers that we can downturn. [audio distortion] On the out, is by getting through that consistency. So the downside case in your mind and in the mind of the people that aren't all on board, you take out that sort of really dire circumstance, and it brings in a lot of value to the equation because you can more fully recognize what's actually happening in the business.
That's really helpful. Final one from me. Maybe you'll have some couple of minutes or so for questions in the room. Yesterday you announced a date for your upcoming Investor Day. What will be the focus?
So we're really gonna be talking about the journey that we're on. So, we're gonna do it in Spring Hill. So, it'll be a great opportunity to see, not only the Ultium Cell Plant but a lot of vehicles out there. And Spring Hill, we talk about a lot, is the ability for us to flex between EV and ICE production. It's, I think, a really good example of, you know, if you believe EV adoption is gonna soar, we can put more LYRIQ on the line. If it's not, then we can put more XT6s on the line and continue to balance that. And the more nimble that we can be, I think the better our performance is gonna be through the cycle. So we'll talk about the EV journey. We'll talk about where we are. We'll talk about Cruise.
We'll talk about software, all the things that I think people wanna hear about.
Sounds great. I think we have time for one or two questions in the room if there are any.
Thank you. Hey, Paul. Jim from Moon Capital . Great to see you. I actually wanna just follow up on Emmanuel's question on Cruise and something that you just mentioned. Plan A, obviously, is deployment of AV fleets sometime in the coming years, but might not happen, according to some of the industry experts. You mentioned something about leveraging the R&D on a broader perspective. And my impression historically was this was a very separate R&D team with different technology hardware. Is that something that, as a Plan B, there's a real return on opportunity here in terms of R&D spending that GM would have ultimately been spending for Level 2+ , moving to Level 3 versus, you know, the high-end AV that was being worked on? Is that, I don't wanna say Plan A is off the table, you know? Maybe, maybe it's right around the corner.
Yeah.
But, is there a real opportunity here to get significant R&D savings that you would have been spending in the next couple of years at GM if, in fact, that is merging towards that path?
Well, there's definitely a really strong skill set and unique skill set at Cruise. And the team's been doing an amazing job to see the progress that they've made on full Level 4 autonomous across the board. You know, we've always said that that's an expensive solution that we aim to get the cost down. There's two ways to attack that problem. One is, you know, take existing technology and try to scale the tech up to keep it low cost. The other is start big, spend money, and then work to get the cost down in terms of compute capabilities, etc.
We've clearly taken that approach, as it relates to Cruise, whereas on the Super Cruise side, we'd always traditionally said, "Okay, let's take a retail platform and try to continue to improve functionality and capability." I think the level of coordination between GM and Cruise is actually at an all-time high, and I think that's a good thing going forward. So, you know, I don't want to give the impression that robotaxi isn't something that we think can work down the road, just simply saying that the capital requirements of that in the short to medium term kinda overwhelm where we were. And that's what's causing us to take a little bit of a different strategic look. But absolutely. And that's, that's why, that's why Mary and the team bought it in 2016 is because there are Ultium, strong, connections into, retail vehicles down the road.
Great. Any final questions?
You were abundantly clear.
Excellent.
Thank you so much for your time and insights today.
Thank you, Emmanuel. Thank you, everybody, for being here.