Okay. I think we're gonna get started here with next session. Very pleased to have with us Paul Jacobson, CFO at General Motors. GM has been our favorite idea within autos, and we're very pleased to have Paul with us today, to discuss the business and the go-forward. Alex, Paul, thanks for joining us.
Yeah.
As always, there's a ton we could talk about here, so but I wanna sort of try to keep it somewhat focused. So let's talk about the, you know, I wanna talk about the here and now, and then let's transition to sort of where we go over the midterm and then where we go, you know, maybe a little bit longer term. But, you know, we got sales updates yesterday. Things look good. You know, it seems to us like things are tracking in line with sort of what we expected and probably what you expected. But, you know, you do have about three weeks left in the year.
So just curious if you could give us a little bit of an update as sort of how you've seen the quarter play out relative to the guidance you issued at the end of the third quarter?
Yeah. First of all, Joe, thanks for having us. And, you know, you have been a fan of GM and probably one of the longer ones too in terms of recognizing what we've been capable of. And, you know, I think when you look at this year in particular, really proud of what the team has done, this year. I think despite, it's hard to even go back 12 months and understand the type of uncertainty and anxiety that was out there. And we were, you know, pretty calm from the start and, you know, ascertaining what the impact of tariffs was gonna be, etc. We got definition around it, but we had already started working on what our plans were.
As we sit here and, you know, with three weeks to go in the year, feel really good about how stable we've been able to do that. I mean, there's a lot of work going on behind the scenes, whether it's public policy or supply chain or even on the commercial side. But, you know, I think it's a really good testament to how we've tried to pivot and run the business, to be flexible. We're not complaining about what's happening around us. We're controlling what we can control and, you know, taking a lot of that, as we've referred to it recently, self-imposed cyclicality out of the business, tighter inventory, more disciplined incentives, etc. It makes the e-business easier to run. And we've seen that in these times.
So, you know, when you look at right now, I think the environment, the demand environment's been pretty consistent for us. Let's set aside EVs for a second 'cause we'll spend some time talking about EVs. It's just a ton of noise in the EV space and probably gonna be for a little while. But on the ICE side, you know, really, I thought really respectable numbers in November. I mean, demand is holding up. There's a couple of areas we could have done better.
Mm-hmm.
We knew we had some supply shortages, and particularly on like the Chevy Trax and some of the lower-end vehicles, largely of some of the challenges we had in Korea where we had some disruptions. Those are all short-term in nature. But when you look at trucks, SUVs, etc., I think we're shaping up for a good year into 2026. And as we've started to lay out that guidance, believing that 2026 can be better than 2025, I think has kinda given a collective sigh of relief from the markets who didn't really know how to think about the annualization of tariffs, the consumer, and so on and so forth. But you know, from what we can see, and when you look at the opportunities that are ahead of us in 2026, we're really focused on the cost control items.
Mm-hmm.
Where can we go and take costs out of the business? And I think that's gonna keep that momentum going into next year.
Yeah. So let's dive into some of those things. And maybe sort of a good way to sort of transition, you know, from what you just sort of talked about and the impact this year and into next is Korea, because I think yesterday or the two days ago, London came out and said it's, you know, it's retroactive back to November. So I know last time you spoke, you said sort of it's final but not officially final. Is it now officially final?
It's final.
Okay, so we should expect a little bit of upside, I guess, in the fourth quarter, and then, you know, we've estimated that could be roughly $1 billion in 2026. Is that ballpark accurate? That sort of helps keep that sort of tariff, you know, neutral to sort of slight benefit in 2026 versus 2025?
Yeah. So let's talk about the short term. So it is retroactive to November 1st. That was our expectation when we built our guidance and went on the call. There was an opportunity potentially for some upside if they had gone retroactive to the date of the original deal.
In August or when?
Back in August, as they had done with some of the other countries. But as I understand it, there was still some tweaking going on between the parties, which meant that, okay, well, we can't make it retroactive back to then 'cause the real deal was November 1. So, you know, it is good news for us, and it'll help the quarter, but we've built that into our expectation that there's no additional upside from there. As we think about 2026, I mean, the benefit in the reduced tariff rate is actually a little bit lower than the billion. And, you know, we said $2 billion of tariffs at the beginning of the year, at a 25% level. But we were also actively working on self-help initiatives and thinking about different opportunities to bring that down. And we were successful in doing that.
But we do think that is gonna be a tailwind next year, just not as much as the whole 50%, because the ultimate tariff bill that we're gonna pay this year for Korea was gonna, is gonna be a lot lower than the $2 billion, from the stuff that we've been working on. So as we get into these deals getting finalized, and hopefully we start to see, you know, more progress on USMCA, which I think is the next big one.
Mm-hmm.
That the administration has to take on and certainly has a big effect to us. You know, we're still in the mindset where we think, you know, we can be flat to down maybe slightly, you know, certainly lower on an annualized run rate than we were in 2025 heading into 2026. So as we get into fourth quarter results and into January, we'll give more complete guidance on what we see the 2026 landscape look like.
That flat to down is as USMCA Mexico kinda stands right now. So if something happens there, which you said is probably the next thing the ministry's gonna work on now, it would be additional upside.
It could be additional upside. But as we sit here today and as we think about 2026 being better than 2025, we kinda narrowed it into those pillars that we talked about: improving EV profitability through, you know, the restructuring actions that we took in the third quarter, and we've alluded to for Q4, warranty.
Yep.
Better warranty, potentially better ICE performance from compliance if GHG gets finalized, etc. There's some good news there. And then that annualization of tariffs is a part of it. And that's all, opportunity available to us before we even talk about what is the consumer going to do.
Right.
Hold up, so either it's a bit of a relief valve if we see some weakening in the consumer next year, or more importantly, it's additional upside if we could see a stable or potentially even improving consumer environment next year.
So let's start on the, you know, for lack of a better term, sort of self-help initiatives, and on the cost side. You know, you mentioned some of the regulatory stuff, which, I guess is self-help, although it's really sort of above you, if you will. Really let's focus more first on warranty and restructuring, right-sizing of the EV business. You know, you've talked about how you're seeing some better experience on the vehicles and the lag that that sort of takes into 2026. Can you just remind us sort of what gives you the confidence that warranty can be that year-over-year tailwind into 2026?
Is it just the experiences or are there any? I mean, I know that you had some big one-time items from the recall this year as well. So like order of magnitude, how much could we be talking about in 2026?
So yeah, it's probably a little bit early to tell, but we think it could be in the billion-dollar range, if not more. So, you know, to understand warranty, there's so many things that are going into it right now. Our incidence per thousand vehicles has actually been down and trending down over the last couple of years. We've seen a little bit of a pop with some of these supplier-related issues around the L87 engines and some of the transmission issues, which is unfortunate, but, you know, these things happen from time to time. But the actual sort of overall quality of vehicles has been improving. So we've seen a couple of different things. Number one, the cost per repair is off the charts.
Mm-hmm.
I mean, when you have to replace an engine or you have to replace a transmission, it doesn't matter if you're 25% better at having incidents. The incidents are costing you three times, five times as much. So we've gotta get after that. And I think we're in a good position on the L87 where we should be cresting over the top and starting to come down that hill. There's also inflationary pressures. And we've seen this not just from dealer labor rates in the shop, but also the way state legislators have legislative bodies have changed the laws to help markups. And we see some, you know, activity where dealers are taking advantage of that, to be honest. And that's an industry issue.
Mm-hmm.
We've seen, we've seen that across the board. So we're, you know, talking to the dealers and making sure that we've got a fair balance about making sure you get the right retail markup and return on your investment for the work that we're causing with the warranty. But let's not make sure that it's over the top. So I think, you know, there's some inflationary pressures that we can work on. The bulk of it ultimately is just getting at this cash spend. So what we alluded to is that as the cash spend is going up, your warranty liability is going up at a higher rate 'cause just remember, liability is all about the current spend level projected across the future set of vehicles as well as the vehicles that are out on the road.
So the first thing that you have to do is flatten that curve on warranty spend. We're flattening it. We're pretty flat on the cash outflows per month. Now we gotta bend it down.
Yep.
That's where the lag effect comes in. What, you know, the year-over-year improvement in warranty is really gonna be a function of when do we see that curve come down and how much of that benefit do we get in 2026. Coming down the curve, if it doesn't help us in 2026 as much as it could, it's still gonna be a tailwind into 2027. This is about managing it for the long term. We're all over sort of every variable in the equation.
Mm-hmm.
to try to get after it.
On the EV side, and you mentioned, you know, there's obviously a little bit of noise in the market now, so there was pull forward, now there's give back. You know, we'll sort of see where things settle out. But I think, you know, our expectation, I'd say market expectations are that EV demand will be lower next year than we've seen this past year. You've talked about restructuring, but then, you know, Mary and the team also sort of still talk about EVs being sort of the North Star.
So can you just help us, you know, square those comments, how you're sort of really going about right-sizing the capital that you've already invested, how you sort of think about additional sort of future investment, because I think that's still one of, I think, the concerns that the investors have here, which is that you're going to be forced to or going to invest in product that really doesn't have the same return profile as?
Mm-hmm.
As the rest of your business.
Yeah. I think, you know, this I'm gonna be a little bit more long-winded on this answer.
Yeah.
Because I think you've gotta provide the overall context. 'Cause when we were sitting here a year ago, you know, the apprehension in the investment community was the $7,500 is gonna go away.
Right.
You know, the president has made that a signature that we're gonna take away the consumer tax credit. Everybody was worried about that. Nobody saw coming.
Mm-hmm.
The regulatory framework changes, which, you know, are the stick to the $7,500 carrot.
Right. Yeah.
When you really sit back and digest the overall economic impact of the regulatory environment on the 7,500, the 7,500 was a drop in the bucket compared to the cost of the stick.
Mm-hmm.
That was what was really driving the industry. So you saw, and you still to some extent see the behavior even post-September 30th where manufacturers were offering massive irrational incentives on EVs. You know, some manufacturers out there offering 50% to 70% incentive levels.
Right.
There's only one reason you do that. It's not to have a successful EV business model. It's to accrue and acquire credits to be able to continue to sell your ICE franchise. So that's the type of irrational environment that I think what this administration has pulled back from is saying, "Look, we want an industry that makes the vehicles that consumers want." And there are some consumers that want EVs.
Mm-hmm.
We've seen it, and that's grown over time. It was there before IRA. It popped after IRA. It's come back now that IRA. It's come back down since IRA consumer tax credits are gone, but it's not zero.
Right.
It's likely not gonna be zero. When you think about all that landscape and what does it mean for GM, we were basically creating the infrastructure to comply with the laws and the regulatory environment heading into 2030, which was going to require 50%.
Mm-hmm.
Of all vehicles sold to be EVs. And we have always talked about the penalties for violating GHG stringency. It's.
Mm-hmm.
Far greater than 100% of the net sale value of a vehicle, let alone the margins. So nobody's gonna do that. So we set up this infrastructure to be able to do that. And now what we're having to do is to pull that back.
Right.
So I don't, I'm not a fan of writing off capital investments. I, I think, you know, we, we've gotta be very disciplined to try to minimize that. But if ever there was an opportunity or a situation that drove that, it's this seismic shift in the regulatory environment. So what we're doing is going and saying, "I'm never gonna get EVs to profitability if I'm producing 150 to 200,000 EVs on a capacity set that was tooled to build a million.
Right.
Because everything's costing five times as much in terms of overhead absorption, etc. So, you know, ultimately what we're doing is going through manufacturing segment by manufacturing segment and say, "What kind of capacity do we take out because of the regulatory piece of it so that we get a more accurate picture of where our EV trajectory is?" And that's why we haven't talked about variable profit or EV profitability this year 'cause it's just noise.
Mm-hmm.
Right? Until you get that right-sized and really understand it. We're making good progress on reducing the cost of the vehicles. That's been totally absorbed and hidden by supplier claims, fixed cost allocations, cost thickening from underutilization of plants, etc. So what we've gotta do is we gotta get out from underneath that. That was part of the restructuring charge that we took in Q3. We've alluded to.
More.
More work.
More.
That work is still going on in Q4. We're not prepared to talk about what it is today. The intent of all that is to right-size that footprint to make sure that going into 2026 and this new environment, whether EV adoption sits at 5% or 7% or it goes back up to 8% or 9%.
Mm-hmm.
We're in a position where we can actually have much more transparency into the profitability of those vehicles going forward for us and for our investors. So that's where a lot of that upside is gonna come because, like I said, even though this year we were reducing the costs, the losses were continuing to grow because you have one-time.
Right.
Charges coming in all the time.
You know, you had certain facilities which were, let's say, EV dedicated. You had others like in Tennessee that were sort of more flexible. You did mention, right, EVs aren't going to zero. There is still some demand.
Right.
Again, I think most people would agree that, you know, with enough time, right, you will see EVs start to sort of move higher again. Is that flexible capacity model something you will look more towards as if and when you sort of begin to reinvest in the business, or is the dedicated facility something you'll need to reevaluate?
I think it's a combination of both. I mean, at first it starts with the capabilities of the plant, right? You've gotta make sure you've got the right plant setup that can absorb the makeup space, etc., to be able to do ICE and EV on the same line. Spring Hill's a great example of that. I think Fairfax we're gonna be able to do that, as well. Other plants are just geared towards one or the other. You know, Factory Zero now becomes the sort of linchpin for EV production. It was going to be Orion, but that was gonna be at such volume we weren't gonna be able to fill it for years.
Mm-hmm.
At a lower EV demand or EV penetration. So the natural switch, which we announced earlier this year, was to pivot and onshore more truck and get some incremental SUV production at Orion on the ICE side while still, you know, sort of optimizing the capacity utilization at Factory Zero. So that's an example of us pivoting. And, you know, it's expensive.
Yeah.
You know, there's no doubt about it. But I think, you know, when you look at $4 billion of incremental capital that we announced this year for reshoring, but we only took our capital guide up by $1 billion a year for two years.
Mm-hmm.
That's the type of pivoting and dynamic management that we need to do because the priorities changed.
Right.
Right? The more we can do that and the more nimble we can be there, I think the greater longer-term returns for shareholders we can drive.
All right. So we talked about warranty. We talked about you know the EV profitability. There are other elements which you sort of alluded to from a regulatory environment. One is just sort of the absence of credits right? Which I don't think you've quantified this despite us sort of asking multiple times if you're willing to today that'd be great sort of what it was in 2025 and how much of an easy sort of unwind that is in 2026. Beyond that I think the thing investors are really focused on is mix and you know I think your message has been that this is a potential tailwind over time but maybe not that meaningful in 2026.
But correct me if I'm wrong and just sort of how you sort of view MIX going forward. And really, you know, I think one of the things we struggle with is, like, it seems like a very difficult exercise to actually figure out where demand left unconstrained by a regulatory environment can go because we don't really know what the market looks like because you and your competitors have been supplying the market with vehicles to meet some of these onerous regulatory requirements. So how do you think about that as an organization? And is, you know, you mentioned the $4 billion investment in the U.S. A lot of that was, or some of that was for trucks, SUVs.
that can be viewed as a little bit of sort of, maybe tariff mitigation, but is the other way to sort of interpret that as a clue to where you think industry mix can go?
Yeah. Well, first of all, on the regulatory and compliance front, what we have talked about is in 2024, we spent about $2 billion on credits.
Mm-hmm.
Now, that's not an annual number 'cause you're buying ahead and you're amortizing them over years. But, you know, last year was about $1 billion in compliance expense that we ran through and roughly half between GHG and CAFE. You've seen, you've seen us write off in Q3. We wrote off about $120 million of CAFE credits. Those are now zero.
Mm-hmm.
But we also had liabilities going forward that net out from that and so on. So CAFE is done.
Yep.
And, you know, the administration is continuing to look at the standards in addition to zeroing out the penalties. And I think that's all good in terms of getting consumers what they want, to buy. The other piece on GHG, which constitutes the other sort of half of that expense load, and it's been trending at a little bit of a higher rate in 2025 just because of the mix that we've been producing, it's not done yet.
Mm-hmm.
We expect that to be done in 2026, in which case there would be a headwind 'cause or a tailwind 'cause we are, you know, we are.
Sure.
We are expensing the credits right now, and the compliance costs that we won't have to next year. So we do think, assuming that they're on the timeline that they say they are and what they're working towards, we do think that there'll be a tailwind for that in 2026.
Mm-hmm.
Part of what's giving us the confidence going forward. On the bigger question, you know, I think that is the next five years, the fundamental strategy piece that we've gotta get right because we've been shaping up for the last two to three years a portfolio that was going to be compliant with the prior standards. That meant more EV offerings, fewer ICE offerings.
Mm-hmm.
Now we're pivoting that back. We've said pretty publicly we're still gonna invest in EVs. The investment in EVs is gonna be very different than what we saw in the last three years where it was about building a portfolio, getting more entries, which you have to do if you're gonna get to the type of penetration levels that the prior administration was looking for. We have that portfolio. There's no reason to not necessarily still offer them because you've got, you've got a lot of sunk costs into it. You gotta make sure that you're gonna be able to build them profitably and before you scale up. You know, we have that opportunity to do so. Instead, the capital that we're spending today is not about proliferation of the portfolio. It's about getting the cost down.
Mm-hmm.
LMR technology, prismatic cells, etc., these are gonna take thousands of dollars out of the costs of the EVs and position us well for when EV demand starts to grow again or if there's a regulatory shift, etc. When we talk about EVs in the long run, we still do think that long-term customer adoption is gonna go up. The capabilities, the performance of electric vehicles and what they can do is winning people over. What is causing that to be slow is the anxiety of range, of charging speed, of charging locations. That's going to get fixed over time, and it's going to improve over time. What we do know is that roughly 80% of customers who have bought an EV have said their next vehicle purchase will be an EV.
Mm-hmm.
You're starting to mount with some smaller, albeit, you know, slower growth rate of incremental adoption, but you're also starting to bring in the people who might be on their second or third EV that are coming in. That's what I said before, that before the IRA, EV adoption was in the 5% to 7% range. It's reasonable to believe that maybe that goes to 6% to 8%.
Right.
over the future. But right now, it's just noise.
Yeah.
I mean, you look at our November numbers for EVs. They were down.
Yep.
Right? Well, of course they were down 'cause some people bought their November EVs in September or August.
Mm-hmm.
So I don't think we're gonna know where natural demand for EVs sits for probably four to six months before we start to see some consistency out of that and we start to see what is the competitive environment gonna be. Because really interestingly, we're still seeing increased discounts and incentives on electric vehicles today when everybody has a sense of where the direction is going.
Mm-hmm.
So there's two reasons that's why a manufacturer would do that. Number one is, you know, they're worried about whether the compliance relief actually happens or not, and they've still gotta get credits. Or number two, they might be liquidating their inventory. So in a world where the competitors are liquidating their inventory, it gets us actually a cleaner sheet and a cleaner landscape to bring our EVs, which people have adopted pretty well based on the mileage and the capabilities and so on, to actually come to the market in a much more rational, stable environment, where we think that could be, that could be helpful. So what we're really doing now is thinking about producing EVs in lower volumes while we work on cost reductions and we work on market stabilization.
Then hopefully, as we get into 2028 and 2029 and we get the lower-cost battery cells with more capability, then we start to see adoption take up, and that can be a recipe for us to be really, really successful.
But it's only at that, so you could get maybe to variable profit on the first leg, but to get to true profitability, you do need that scale eventually, right? That volume inflection. Is that fair?
You know, I think what we're trying to do is to bring down that break-even point with the restructuring.
Okay.
That we're doing right now because if I have to grow into a million units of production capacity.
Yep.
Yeah, there's a lot more scaling than if I cut that capacity down significantly to something that's more manageable for the next five to 10 years of where we think that's gonna go.
Mm-hmm.
It's gonna be a lot faster for me to actually scale that up.
Yeah. So we talked a lot about, we focused on a bunch of the potential tailwinds into 2026, but this is, you know, as I'm sure you quickly learned since coming to GM, it's a very complicated business. There's a lot of, there's always puts and takes. So one of the things which, you know, you've alluded to a little bit, but I was wondering if we could just spend a second on is launch costs next in next year because you are planning to, I think, refresh the full-size truck platform. There's usually some cost associated with that. Now, you're always launching stuff, so I don't know whether that seems like a larger program than normal, so maybe there's a little bit of an incremental headwind there.
and then you mentioned, you alluded to earlier, some of the additional capacity, the $4 billion in the U.S. I think that starts maybe late 2026 or really more 2027, but some of that presumably needs to get spent in advance of that. So how do we think about that level of investment on the cost side next year?
Yeah, you know, it's not something that's over the top worry. We're worrying about it 'cause we're always constantly refreshing something.
Mm-hmm.
But we will have some sort of re-startup costs for at the end of 2026, getting Orion up into 2027. So we'll have to start staff up ahead of that, etc., but all stuff that we think we can absorb and still be better in 2026 than we were in 2025. But when you look at that truck platform, I mean, it's a real opportunity to take the gains that we've gotten in share and the performance that we've seen on our incentives and relative incentives to the industry and really amplify that on a really high-quality, highly desirable new platform. So we're excited to see that come in, and I think that's gonna be a good opportunity for us, as we get into 2026.
Anything to note on material costs or metals? Like we've seen a little bit of movement in metals. Is that anything worrisome?
You know, it's, I became sort of inundated five years ago when I started with worrying about every possible variable, and what we've gotta do is just make sure that we manage that. There's gonna be noise in there. You know, I think the consumer's been really resilient over the past several years on price. I'm not sure that going into 2026, we can count on that same backdrop into 2026. Nothing in the data indicates that there's any weakness, but you just gotta be ready for it. So as we've done in past years, we'll probably come into the year conservative on our commercial and our revenue assumptions because it's easier to adjust the business if pricing and incentives are stable than it is to hit the brakes on everything else and bring it back.
So we use that as a bit of a disciplinary tool in our own budget-setting process so that spend doesn't start to accumulate because, you know, in any budgeting exercise, people wanna spend to their initiatives first and then deliver their performance later, right? So we can't be in a scenario where we start to raise our costs and then not see that performance come in. So we use that as a real disciplinary lever on the business.
But in terms of that sort of K-shaped recovery we have been seeing, you don't really see any major changes, from that for the consumer, right?
I mean, there's nothing in the data right now that would indicate, again, if you filter out the EV noise and some of the small crossover noise, that I mentioned earlier, November looked a lot like October.
Mm-hmm.
You know, we have fewer production days in December, and, you know, we gotta get through the seasonality issues. But, I think the year is gonna close out well and very much in line with our expectations. And heading into next year, a lot of reasons to be optimistic.
One of the other things you've had to focus on a lot since you've come to GM is supply chain management, diversity of supply, right? And I think, you know, I think there's a couple things going on here which I'd like you to touch on. So one is, right, there was a report that you're trying to get the supply base to de-emphasize China. I was wondering if you could sort of spend a minute on that or comment on that. The second is, you know, over the past couple days, there's been a lot of media and reports and a little bit of worry on memory for automotive and how there could be a shortage maybe at some point next year or maybe in 2027 or at the very least some additional, you know, prices.
So how are you viewing those two parts of the supply chain?
Yeah. So first of all, on the resiliency project is what we call it. It's not so much de-emphasizing China as it is de-concentrating or taking out the concentration that we've had. And this is work that really kinda began in the immediacy of post-COVID, where we saw ourselves really susceptible to geographic shocks.
Mm-hmm.
To the system, whether it was, you know, some of the fires that we saw in Japan, the chip shortage, as well as, you know, COVID in and out of China and back in again and so on, that we realized we just needed to actually distribute our supply chain a little bit more. So that work's been going on, and I think we're probably farther ahead than most of our competitors in that work, and we're in the sort of final legs of it, and that's why you're starting to hear more and more about it. But, you know, it'll, it's raised our costs a little bit for sure. You can't do that, but it's important because it's overall stability of the company and the supply chain as a whole.
That work's ongoing, and, you know, we should be able to finish it in the next, within the next couple of years, is what we're looking to do. On the broader piece on chips, you know, I think the nature of chip buying has really changed since 2021, and the chip shortage that we have, and you're still seeing some of that with Nexperia. So, you know, for example, some of our chip costs right now are, we're spending more money on chips right now because we're having to go source them from all over the place, to make sure that we maintain production. So we've seen some cost pressures in the current quarter as a result of that, going forward, but the team's done a great job of finding them and making sure they're balancing them in our production.
I don't think we've had nearly as many production challenges as some of our global competitors have. But the way we buy chips is different, you know, because the other thing the auto industry buys is typically older generation, lower margin chips that if you're a chip manufacturer, you look at that and say, "I don't. I would rather not use my capacity to build that. I'd rather build the next generation of higher margin AI chips," etc. So we've had to make investments. We've had to co-source. We've had to go in and, you know, whether we do a pre-buy commitment or we do some capital injection, joint ventures, etc., the way we're buying those chips is very different. And I think that'll help protect us into the future against what those demands are.
Okay. One question, and we'll open up to the audience. And just as a reminder, if you scan the QR code on your table, you can get a question. It'll show up on an iPad, and I'll ask the question on your behalf. But before we do that, just obviously the question that always comes up, and we're saving it for the end, but capital allocation, so you know, you've been aggressive buyers of your stock over the past couple years. The cash remains really high. We did talk about some of the other sources that you need to use for that cash, some restructuring, right? Some a little bit higher sort of CapEx, but overall, the cash generation still remains pretty strong. How do you think about the pace of returning that cash over the coming years here?
Look, I think, you know, at the end of the day, we've seen a little bit of an uptick on our multiple, but by any measure against the market, against the industry, against our own historical performance, we're still, I think, pretty significantly undervalued.
Yeah.
I think the board feels that way, as well. So, you know, buying back the stock is one of the best investments that we can make. We still have the same capital allocation policy that we've been following, you know, very, very carefully, which is number one, invest in the business. Our capital budget of, you know, $10 to $12 billion for the next couple of years is informed by two things. One is affordability. We can afford to actually invest a lot more.
Mm-hmm.
Right, with the type of cash we're generating. But number two is, do you have the infrastructure to deploy it effectively? And the answer is we're kind of at a limit there because I don't wanna have to go hire a lot of logistics people, buy real estate, you know, get more engineers, etc., to be able to absorb that additional capital base and actually bring our margins down because of the fixed costs associated with managing that capital. That's not an effective use. So I think we're in a good position where we're investing in the priorities that are important, for the, for the next five to 10 years or more, and we've gotta continue to balance that. So we're in a good range on that $10 billion-$12 billion. Second is the balance sheet. Balance sheet's in great shape.
You know, we used an opportunity to pay off some maturities, this year. We don't really have any maturities next year of any size, some capital leases, amortization, etc. So there's a little bit of work we can do, but there's no urgency to go out and say the balance sheet needs to be fixed. It's in a really good spot. So that leaves the third leg of the stool, which is returning capital to shareholders. And, you know, we've established a really good track record of, not only buying back shares but also starting to step into a bigger and bigger, more meaningful dividend. You know, I think we're gonna continue to do that. The priority, as long as the stock remains as undervalued as it is, the priority is to buy back shares. And I think you'll continue to see that from us, going forward.
No changes with everything going on to the $18 billion to $20 billion cash level you want to try to manage?
No. I mean, when you look at the cash, $18 billion to $20 billion plus we carry about $16 billion in revolving credit.
Yeah.
We have enough to be able to get through, you know, anything that might come our way. But what I'm really proud of the team is we've taken a lot of that historical cyclicality out of the business 'cause the biggest thing that would always happen in a downturn, and I'm not predicting a downturn, it'll come one day, and we need to be ready for it. But, one of the things, first thing that would always happen in a downturn is demand would soften, and I've got four months of inventory sitting out there in dealer lots, etc., that I've got to go stimulate demand for while the floodgates are still open on more production coming in.
Yeah.
That's what I mean by self-induced cyclicality. So you take a cycle that should look like this and make it look like that because you're chasing demand at the exact time you don't need to be doing that. So we've taken 30%-40% of the inventory out. The working capital drain that results from that is a fraction of what it's been historically, which gives me the comfort that between $18 billion to $20 billion+ my revolver capacity, we don't need to take cash up under virtually all circumstances. Now, if there's another global pandemic, God forbid, or something like that, I'll change that story. But I think if it's typical cyclical stuff, I think we're in pretty good shape.
Excellent. I don't see any questions coming in, so, maybe just in the final minutes here, and let's focus on sort of GM, you know, more into the future. You've started to talk a little bit more about, let's say, the tech side of GM, right? Some of the software, some of the services, you might disagree with this sort of reassessment, but restarting sort of the autonomous venture. But there's also been, it seems like, a bunch of tech leadership changes at GM over the past couple of weeks. And, you know, I know Sterling's in now. So, and he's, I think, it seems like this is sort of him maybe re-evaluating sort of the landscape and how he wants to be organized as sort of GM goes towards this vision.
But maybe you just shed some light on what Sterling has brought to the organization, what some of these actions are going, and when we can start to sort of get a little bit more information and see some of that inflection in that tech business because, you know, you mentioned the multiple, and, you know, that could be one potential factor for the multiple to re-rate as the market appreciates that a little bit more.
Yeah, for sure, and you know, I'm thrilled that Sterling decided to join us. It's been great getting to know him and working side by side with him. He's just a force. I mean, he's just brilliant, and getting you know more you know up to speed with the size and the scale of GM and what it means, but also the opportunity set that's above it, ahead of it. You know, we had a GM Forward event a few weeks ago, where we talked about that vision, talked about eyes off, hands off, autonomy in 2028 and the retail offering. So while you said we're kind of restarting the autonomous effort, we never really gave it up. I mean, what we.
I certainly would disagree with you.
Yeah. Well, I understand the characterization, but what we really walked away from was Robotaxi.
Right.
We've faced some criticism for that. But when you look at capital stewardship, you really have to ask yourself, is if I have to fund that, which is what we were seeing out in the market was that we were gonna have to fund that, can we compete with the zero cost of capital, Waymo's, Tesla's of the world that are doing the same thing? That's where we said, let's focus our efforts on how do we actually bring that technology package into a retail offering. That's what we're working on doing and getting there. You know, with Sterling's leadership, we think there's an opportunity to do that. But even beyond that, you know, we've started to increase our disclosures on software. You know, we've got over $5 billion of deferred revenue on the balance sheet right now.
that is starting to come in, and you're gonna see more growth into 2026 and 2027 and beyond, in the, both the deferred balance but also what we're bringing into the P&L. And that's coming in at a 70% or higher margin, whether it be from Super Cruise or OnStar, etc. So there is a big, bright future there. We alluded to this in 2021.
Mm-hmm.
Nobody believed us at the time, and we've been kind of quiet about it, as we get SDV 2.0 up and running in the next couple of years, but importantly, what the commercial team has done with the limited resources that we have has been really impressive, and I think bodes incredibly well for what the future of the industry can be 'cause the more we can derive revenue out of the car park versus just the wholesale model, the potential in terms of the revenue and the margin expansion it becomes off the charts, and we're laying the foundation for that right now.
Great. Hopefully, we'll be able to talk even more about that next year.
Yeah.
Paul, thanks again for coming in.
Well, and the good news is it'll accrue to fewer and fewer shares.
Excellent.
All good.
Okay.
Thanks for the time, Paul.
Take care, Paul. Thanks.
Thank you.