For the next session, we're very happy to have General Motors. It's a company that we think arguably is leading the charge in the core to future transition that we mentioned earlier today. Really leveraging its core in a tremendous way to drive tremendous profit and cash flow here in the near term and has been for actually the last few years to fund its investment in the mid and long-term strategies of EVs, AVs and connected vehicles and creating a huge opportunity that they've highlighted at their Investor Day recently for 2030 of almost doubling the revenue base. It's some pretty impressive, you know, targets and it's all being funded internally. That's really important because you have such a st rong core.
Today, we're very happy to have Paul Jacobson, the Chief Financial Officer, that joined GM in 2020 from Delta, where you had a long-esteemed career there. We hope you have a long-esteemed career and stay with us here in the auto industry for a while, Paul. Thanks so much for joining us. I know you have some opening comments, I'll turn it over to you, and then we'll get into the grill session.
Well, great. Thanks, John, and good morning, everybody. Appreciate y'all coming and those of you that are on the webcast today. I just wanted to start by giving a little bit of an update on the business. You know, when we gave out our full year guidance, we talked about, you know, making some conservative assumptions around, you know, a 15 million unit SAR but still being able to deliver profitability that was in line with last year after you take into account the changes to the pension and to the normalization of GMF. What we found so far, you know, in the first 3 months of the year, we're obviously still closing the books on the quarter is, you know, I think the Q1 came in right alongside our expectations.
I think the encouraging things in the environment right now is, sales were up. They were up about 18% the Q1 . We gained share during that time period, and we did it without going after price. We did it without increasing and ramping up incentives. If you look at price and incentives, they were relatively flat. I know when we announced that. First of all, we had said on the earnings call that we were gonna be managing inventory in that 50- to 60-day range. I think, the market kind of reacted a little bit negatively when we said we were gonna take Fort Wayne down for a couple of weeks.
I think as you can see from the data, you know, what we've got is a production enterprise that's an infrastructure that's much, much greater than a 15 million unit SAR. Despite the fact that we took Fort Wayne down for a couple of weeks, we still managed to grow sales. We still managed to grow share. We held price consistent, most importantly, and inventories were essentially flat from 12/31 to 3/31 over the time period. I give a lot of credit to the commercial team and the manufacturing team and the partnership we're creating to be able to manage that production to demand and where we are right now. I think you'll see more of that throughout the year as we try to balance that out.
All in all, the quarter, I think, came in really well, given, certainly given the circumstances and where we sit. Balance sheet remains strong, as we've said. Then, we've gotten a really, really good head start on the $2 billion cost program. I'm sure many of you read about the voluntary severance package that we offered. That offer went out to a substantial number of people across the company. Essentially anybody with more than 5 years of experience at General Motors was eligible for that. We saw about 5,000 people sign up for that.
We'll have a charge in the quarter of probably about $1 billion. We're working through that. We've already achieved $1 billion of run rate savings when all those people exit later this year across the board. As we talked about when we launched that program, we were looking at trying to simplify the business, reduce complexity, increase sharing of parts, decrease some discretionary spending around travel and marketing and other things across the board. Then also ride the attrition curve. This was a tool to get us to really accelerate the attrition curve. Got a pretty quick payback.
I think because of what we were able to do, I think we probably are gonna come in at the higher end of the 30%-50% of the $2 billion program realized this year. While it's still early in the year, you know, we're 25% of the way through it, we feel good and in line with the guidance that we put out back in early February, late January.
Well, we have a lot to talk about. Now there's a lot more to talk about. Thanks for the update. I guess maybe really just to follow into this, I mean, you know, the market is holding in, I think, a little bit better than people have feared. I mean, obviously, you're managing inventory well, which we'll get to in a second. You know, what are you seeing, you know, out there as far as the, you know, the sell-through to the customer? I mean, there's kind of this belief that inventory is building up, pricing is gonna fall apart, and that's just not what's happening. I mean, what is sort of your flow through when you're hearing from your dealer network?
I mean, why is this working so well, in addition to how you're executing?
Yeah. You know, and with all due respect, John, to, you know, many of your competitors out on the street, you know, this has been a chorus that's been going on now for probably about six consecutive quarters, of the bottom's about to drop out. We're gonna see pricing come off the peaks. I think you've seen some behavior changes in the market. Certainly, we've seen that. You know, I think the fact that we continue to grow share while maintaining price, I think is a testament to the products that we have out there and with the mid-size trucks coming out, et cetera. We see a lot of demand out there for our vehicles. I think trim levels are still holding in.
You know, we've seen, I think, probably a little bit of a higher take rate and penetration on GM Financial. That is, you know, just competing. I think, you know, we're not going down the credit spectrum in terms of approving credit. They still have a very strong portfolio. I think the consumer, for the full-size trucks, for the SUVs are really actually still performing quite well. That's been, I think, fairly consistent from what we've seen over that last several quarters across the board. There is a balance out there with production, certainly as we see it going forward.
I think that's the important thing, is we just continue to manage that and not get into the temptation to overproduce and find ourselves in a problem later on.
Okay. Now, the 2 weeks that you took at Fort Wayne, you guys have said or kind of were in the parameters of how you were thinking about, you know, the quarter and the year. Maybe you can kind of, you know, help us understand that decision, right? To produce or not to produce. I mean, some people might say it's simple 'cause the inventory is building, you cut it back. You know, you know, in the olden days, maybe you cut price a little bit. Not you. Long time ago. Not you and not the current management team. Let me qualify that statement 'cause it's important. How do you make that decision?
Hey, listen, I could sell another, you know, 10,000 trucks if I cut price by $500, or it just makes more sense for me to take Fort Wayne down for 2 weeks. I mean, how is that decision functionally made in the company now?
Yeah. Well, you know, what I'd say is there's a little bit of a shift in mindset and, you know, I think historically, for all the right reasons, I think the industry was really tilted towards share and volume. I think what we know, and I think what many others have realized too, that there's a strong need for cash flow and for free cash flow, importantly in the business right now. We've got a lot of capital coming up to make sure that we're retooling the plants. We're funding this transformation, and I think the mindset is understand that what you may gain in the short run by producing, overproducing to demand and slashing price jeopardizes long-term cash flow growth, right?
At the end of the day, your brand is your product, and, you know, the more dynamic you are and the more you start cutting price, that erodes future brand value, and therefore it erodes future cash flow. Thinking about the business like that and thinking about how do you protect that brand value that's there is the secret to longer term cash flow production. You know, I think historically for a lot of different reasons, there was more of a short-term mentality. I come from an industry that very much was high capital and low marginal cost. You know, you look at what that industry was able to do when it focused on margin and it focused on the revenue side of the equation and pricing as well.
I think that there's a lot that can be done, at the company and the industry as a whole.
The other thing you mentioned is the take rate on the buyouts is I don't know if it's running a little bit higher than expected, but it sounds like it's pretty robust, and it's helping you achieve, you know, the cost saves. I mean, the payback period, basically less than 12 months, right? Because getting people out is, I mean, has pretty big payback. That sounds like it's almost half of the $2 billion, or has this been a surprise that there might be even more than $2 billion, you know, in addition? I mean, how much of that $2 billion was your expectation on these buyouts and/or and other costs?
I would say that the voluntary program came in about in line with our expectations.
Okay.
As part of that $2 billion, we'll have more information and get more specific on it when we have our earnings call in a few weeks. Generally in line with that expectation. We wanted to make sure we got a good head start on it. I think, you know, from a culture perspective too, it's important that, you know, we were willing to pay for the voluntary program to incent people to go who maybe were closer to retirement or had just decided they wanted a change in career or lifestyle, at the same time to do everything we can to try to avoid involuntaries or layoffs. I think we're in a position where we're gonna be able to do that.
I mean, obviously, the market is very, very dynamic, but to be able to achieve that, you know, 5,000 people voluntarily choosing to go, I think is an important step for the culture as well.
The other roughly $1 billion that'll come from other actions, that sounds like that'll be 2023 plus, right? It'll be 2024 and beyond. What was the timeframe on that actually being realized, and what kind of cost and payback period do you expect on that incremental $1 billion and beyond?
What we said, John, was, $2 billion coming out, in the run rate by the end of 2024.
Okay.
With 30%-50% of that coming in 2023. you know, with this program and with the update we gave this morning, we now expect to probably come in at the higher end, this year. many of those other decisions, like if I'm going to cut travel or I'm gonna cut discretionary spend, there's not a lot of restructuring that comes with that. It just accretes into that. like I said, we'll have more details on that on our earnings call. we feel like we've gotten off to a really good start on it.
Sure, sure, sure. Definitely seems like it. We've seen inflation in labor. We've seen inflation in raw material costs. There's this concern in inflation ultimately over time, whether it be labor or raws. We don't need to get into specifics on each of those. Will eat into profitability. As you mentioned before, you're getting pretty strong pricing in the market. You're focused on the right vehicles in the core business. You're cutting costs here. I mean, you know, as you think of sort of this balance, it seems like you're running almost ahead of, right, this cost inflation, or at least keeping pace with it on the cost side. If pricing is a positive, that could be incrementally positive in incident results over time.
I mean, you know, our initial question was, you know, you're looking at this inflation, you might be able to offset it with pricing. Actually, seems like you're offsetting it with cost actions and pricing, and then pricing might even be an incremental lever over time as you focus on it. I mean, how do you think about the pricing opportunity in the market? I mean, everybody keeps saying, "No, it's going down, it's going down." We had Jonathan Smoke from Manheim say, "Hey, listen, the market's gonna be short on used. Pricing's not falling apart in the used market anytime soon.
We're seeing discipline and upside in new vehicle pricing here. We're seeing some levels of shortages and managing inventory. It just seems like the pricing dynamic might actually be a, a small positive lever, I dare I say, for you guys over time.
Yeah, well.
Mix.
Yeah.
Mix.
You know, I think we highlighted that we've got some year-over-year pricing goodness that is the annualization of actions we took last year. We haven't banked on getting more pricing from where we are right now. You know, I think the consumer's been really, really strong. I think we've been blessed with a strong pricing environment over the last two years, where we weathered most of the inflation that we saw in the business, whether it was in raw materials, commodities, et cetera, you know, some of the tiered supply labor issues.
I think what you see now is a, you know, probably a realization that the probability of going much higher in the pricing environment probably isn't there, and we need to be more urgent around cost-cutting to like you said, stay ahead of it. That's where I think we can take out a lot of structural costs. You know, while we had a really successful program back in 2019 that took out about $4.5 billion, we did grow pretty significantly and brought all that back on. Well, we brought it back in forms that were funding the transformation, growing new businesses, et cetera.
If at the end of the day we find ourselves where margins are tightening, some of those growth businesses that might have had a longer runway, a longer trajectory, we're gonna have to prioritize down those to focus on those that are gonna convert to revenue faster in order to be able to drive the margins through the EV growth and through the EV scaling that we've talked about.
Got it. Okay. Just maybe one last question on this. I mean, if you think about these cost-saving efforts, I mean, is this the kind of thing that we should think. I mean, you said you have 2019 plan, you have what you're working on right now. I mean, is this the kind of thing that is really gonna just be part of the sort of the mantra of how the business is managed over time? You're always gonna need to take a couple billion dollars out, and you just need to keep going after it, and this isn't the kind of thing we should be thinking about sort of onesies and twosies. This is just part of the treadmill of operating the business.
Yeah. I, you know, look, I think we, for the, for the foreseeable future, have to be in a little bit of a grinding mode, right? Which is, how do you grind those costs out of the business to try to make it more efficient? As we've said, you know, in our, in our prior guidance at Investor Day that, you know, we expect EVs are gonna be lower margin, in the short run, right? We said low to mid-single digits by 2025. You know, we know that ultimately the margin expansion comes through Cruise, it comes through software, it comes through BrightDrop, and as we get that scaled up in the back half of the decade.
What we're gonna need to do is drive that cost efficiency into the business to meet that guidance that we said, which is drive margin stability until we get to margin expansion, so we don't see a big drop-off as we're scaling up EVs in the short run. I think this is all part of that longer-term plan that we've talked about both at Investor Day 2021 and Investor Day 2022. What you see is probably a little bit of a heightened sense of urgency given the inflationary environment around us.
Okay, that's great. on the EV front, you know, competition is heating up. You've got a lot of good product coming to the market as well. I mean, how do you think about the competitive dynamic for GM versus, you know, everything else that's coming out in the market and some of the big players like Tesla that are out there right now? Do Ultium and Ultifi really kind of lead the day as sort of the differentiating factor to really drive that differentiation, the competitiveness of GM product?
Yeah, we think so. I think, you know, you know, as we've said with Ultium, not just the platform that we've got and we've already put into place, the lead that we have in terms of scaling production with 3 battery plants under construction, a fourth one to be announced soon. We've got enough capacity in place. We've got the raw materials secured to be able to ramp up to 1 million vehicles annually by 2025 in North America. You know, I think we've got a good start. You know, the Ultium platform's also very flexible, so as chemistries change, as composition changes, that interface to be able to operate the vehicle can change along with it. So we feel good about what we've designed.
We've gotta get it scaled, and as we've said before, we're in execution mode right now, and there's a lot of scaling that's coming on between now and 12 months from now to hit our 400,000 vehicle goal by in the first half of 2024. We did 20,000 in the Q1 , so really good progress. You're gonna continue to see that number grow as we get through the year and really, really start to scale as we get to the back half of the year.
If we think about the, those targets of, mid-single digit margins by 2025 at that million units, I mean, is this really a question of scaling the business, and you think you've got a lot of the other building blocks, you know, worked out? Or are there other things that you need to kind of finagle on the supply chain in design and engineering, and the process of bringing these vehicles to market that will help? Or is it really just purely scaling up?
I think a lot of it is scaling. I mean, I'm never gonna discount the engineering that still goes into the vehicles and securing the supply chain, 'cause that team does an amazing job with the complexity that they deal with. Really this is about scale. You know, part of the thing that we talk about where the margins are lagging and you're gonna see significant improvement coming on over time is we've already built a lot of that capacity. When you think about what we've done at Spring Hill, what we've done at Factory Zero, what we're doing at Orion now, that capacity is really underutilized, right? The unit profitability on an EBIT basis, because it's absorbing so much depreciation across the board, is challenged.
Scale obviously brings that up, and you start to get margin improvement pretty quickly, once you scale the business.
Okay. One thing that's just changed in the last week is we've got some more color on the IRA, you know, on the battery side and the minerals side. You know, how do you think about, you know, how that changes your plans? I mean, were you kind of just waiting for these to make decisions, or you've already, I mean, you've already laid out everything you're doing on sourcing on raws and battery production at this point? I mean, and how do you think that's going to impact sort of getting to that mid-single-digit margin by 2025?
I mean, what is seven and a half thousand bucks, which might be another $3,000+ on the sell side, you know, seems like it closes a lot of the gap on sort of the gap on the bill of materials right now on EV versus an ICE, that might help you get there faster. I mean, how do you think about how this changes or implements this, augments the strategy and impacts that profitability target?
Well, at the risk of sounding insecure, I, you know, said when the IRA was first passed, we talked about it's better to be lucky than good because most of the provisions in the IRA were actually aligned with the way we were scaling the business and onshoring the business anyway. You know, while a lot of companies had to make a sharp turn and adjust their business model, we just had a couple of tweaks to what we were already doing. I think, you know, getting off to a head start the way we have with the combined approach between supply chain and corporate development, and we get together and we meet weekly to talk about opportunities that are out there. That's where the Lithium Americas deal was born.
That's where the POSCO joint venture was born. You look across the board at what we've been doing, we're already secured with everything we need through 2025. We're spending our time building a lead for 2026, 2030 and even beyond, and trying to look at it from a portfolio standpoint when you're looking at the battery raw materials, because we want, you know, mining companies, we want processors to be successful in this space, and we can bring the volume to help grow projects and help get projects launched across the board. I think what you've seen is us, a willingness to deploy capital. We've got to get a return on that capital, whether it comes in the form of discounted commodities or cash flow.
We can be really creative across the board, and I think, you know, we've got a lot of exciting things that we continue to work on. You know, as you can imagine, there are a lot of people that come to us, based on how open we've been, in terms of capital. You know, I think it's important that maybe not all of these things work. We're certainly taking some bets. You know, assuming that we get a really good success rate, I think we're gonna be in a really good leadership position, not just to get the material, but to get the IRA-compliant material, which is obviously a much, much smaller basis than when you see global commodities. That's what we've been focused on.
I think we're in good shape. There's no doubt that whether you're looking at the production credits or you're looking at the consumer credits, that this is a big boost to help build infrastructure. It's creating jobs in the U.S. and in North America, and we're investing heavily alongside it to help accelerate or expedite the transformation where we can.
And when you think about some of the challenges, and I'm not sure you can comment on this, so I mean, if this is... I mean, if you think about sort of the view that Manchin has that this commercial vehicle loophole through a leasing entity really opens the door for a lot of foreign vehicles and foreign batteries coming into the U.S. market. You know, obviously, that runs counter apparently to the intention of the bill, at least the way that we interpret it, and I think he interprets it, and I think probably the way that most would've interpreted originally. Do you have a view on that getting, you know, shut down or changed over time?
Is that something through GM Financial, you know, you can leverage here in the short run to bridge the gap where you might have, some, you know, differences in the strategy that you'll meet, you'll be IRA compliant by 2025 plus?
Yeah. I mean, we're focused on being as compliant as we can in terms of meeting all of the requirements in there, and I think that's very consistent with the intent of, I think what Congress was looking for was to stimulate a lot of onshore job production, a lot of industrial growth across the board. That's what we're really focused on. I think, you know, there are applications where the leasing credit or the commercial credit are important.
You know, I think, you know, when you look at BrightDrop and you look at our fleet solutions on the, on the light-duty pickups, you know, the Silverado and the Sierra, you know, there's opportunities there for businesses to help lower their footprint as well, which I think is very consistent with it. You know, I think we're gonna, you know, continue to work within the law and try to maximize the benefits to us.
Got it. On the pickup truck side, which is obviously incredibly important to profitability, as we are seeing the Silverado and Sierra roll out, the electric Silverado and Sierra, we're also seeing some, maybe some wackier design concepts coming out in the quote-unquote pickup truck segment, how do you see that shaping up over time? I mean, do you see something where the Silverado and Sierra electric are sort of augment your existing, you know, volumes? Or do they cannibalize your existing volumes? As you see some of these, you know, designs, maybe like a Cybertruck, are they really sort of side stories and essentially a different segment and don't really compete generally with what you're going after in the traditional pickup truck segment?
Well, I think you can discount the competitive nature of Tesla at your own peril. I won't speculate on what they're gonna do, but they've done obviously a really good job and I think that's really important. You know, I think when you look at the early returns and, you know, while not a direct comparable to your question, but the Cadillac LYRIQ and the HUMMER EV, the orders that we've seen, and as we talked about at Investor Day, a lot of people that are new to General Motors, that are new to the brands, a lot of penetration on the coast where we've under-penetrated in the past.
You know, this thesis that EVs, at least in the short to medium term, are accretive to share, I actually think is holding up in the order data as well. I mean, ultimately, over time, we've gotta make sure that the business is able to pivot to keeping that market share and keeping that loyalty with customers as the industry pivots to EVs. I feel really good about where our products are, you know, in terms of their capabilities, the range and the performance characteristics. And I think we're gonna have a really, really good sort of baseline lead with the vehicles we've got, as well as the built-in share and loyalty that we already have from customers.
I think this is probably a net good guy for us and a net positive in terms of being able to pick up, sorry, forgive the pun, pick up share.
Good one.
... in pickups, to people who may not have historically looked at them because of the GHG footprints .
Thank you.
I think I have a question. maybe the kind of the EV discussion could bring us a little bit to capital allocation. You credit investors, you certainly look at the amount of money that's gonna be required to be as competitive as you've been in EV is substantial. I think you've come out and said that between $11 billion and $13 billion is the right kind of CapEx number, I think, through 2025. If you could just give us a big picture, have you set a number of how much you're gonna spend in EV yet? Of the CapEx number of 11-13, can you kinda show us what mix is EV versus ICE?
Yeah. right now we're running about 75% of that investment is EV related. There's still some program capital associated with new ICE refreshes, mid-cycles.
Right.
-et cetera, that we're still putting in. We think it's important, you know, because not everybody is gonna wanna transition to EVs at the same pace. I think we wanna be there for our customers across the board. That's why we've got this transition through 2035. That's gonna require some refresh. Right now, the preponderance of the capital, about 75% of it, is going to EV infrastructure, EV programs, across the board. You know, I think the good news is we've accelerated that over the last couple of years.
It's been transferred.
you know, I think the question about are we serious about this, I think you go through two periods of really heightened uncertainty with the chip issues coming out of COVID, et cetera. During that time, we were able to lean in not once, but twice in terms of accelerating the volumes to our current goal of 1 million vehicles in North America by 2025. we're still in a position, based on the performance of the business, and I think it goes back to the earlier question, John, about margins and why this is so important to us is because we're self-funding this journey.
Right. Gotcha.
The balance sheet is in a really, really good spot. You know, I think that's a, that's an asset, and that's a resource for us, when you look at where the pension sits, where you look at where the debt sits on the performance of the business, that, you know, should we need to lean in, or should we need to maintain this trajectory if we see a dip, I feel good about being able to utilize that balance sheet if we need it.
Right.
To bridge the gaps to make sure we're keeping a smooth transition. 'Cause what we don't wanna do in this journey is we don't wanna stop-start, right? That's where you lose momentum. That's where you add frictional costs. That's where it becomes really difficult to maintain that consistent story.
Leaning on that strong balance sheet's important.
When we were talking earlier that gross leverage is a little bit less than one turn now, which in my career is the lowest it's ever been in 25 years I've been looking. I think bondholders are comfortable with the leverage going up if you're making the right investment in EV because they know that's the future. Having that balance sheet in such great shape, you know, is really an asset to help you kind of get to the next, you know, evolution of EV. I think the balance sheet, you know, makes sense.
Rocky and the team have done a great job on the balance sheet as well as the GMF team with their managing the issuances. They've had the good fortune of good timing. The Green Bond we did last year was really successful, and I think represents a good step in terms of opening up the markets to people that wanna participate in this.
Right. You had a little lift of the rating-
at Moody's, which was nice to see. Last question, I'll turn it back over to John. The cash balance, I think, is about $24 billion or so. You through what could potentially be a recession in the next year or so, what's the right level of cash that you feel comfortable with given the flexibility?
Yeah. We came into 2023 carrying a little bit more cash than we typically do. I think that provides us a really good, stable baseline if we see things tighten in the short run. We haven't seen that. I think that allows us to manage and balance capital spend and be aggressive with it for the right investments across the board. You know, we historically have probably operated with about $18 billion. You know, I think we wanna be strategic. We wanna have cash that's flexible-
Right.
for us. I think we'll probably trend in the low to mid-20s, for a little while, as we go through this transition because it's so important to keep that continuity going on.
Great. Maybe if we can queue up for questions in the audience. I'll ask one last one here. When you think about Cruise, BrightDrop, and everything else you're working on, these are sort of new adjacent businesses that will have value at some point over time. The market is really just basically ascribing zero to them, and maybe even negative, depending on how you look at sort of the sum of the parts. You know, how does that change your strategy about how you think about them, how you allocate capital to them, and really, you know, why do you think everybody's getting this so wrong? I mean, I think you're in your Investor Day, you've outlined a great 2030 outlook.
You've talked about, you know, the margin potential and, you know, creeping up over time, largely because of more software and services, and these new businesses. What do you think people are just not getting, or they're just ignoring it for the moment? I mean.
Yeah, you know, look, I think, there's a lot written about Cruise, but I think anybody who's had an opportunity, and I see some faces in here that have had an opportunity to ride in Cruise, you know, I think a lot of people speculate that that's, you know, 10 years out in the future. It's actually not even in the future. It's today. Cruise is charging for rides in San Francisco. Cruise has expanded to Austin and to Phoenix. What we're doing is really proving out that model that, number one, the technology is relatively easy to expand. You see that. You know, we got Phoenix and Austin up and running in 90 days. Then the second is, okay, let's prove out the revenue model. We've got that.
We are expanding the footprint where we can generate revenue in San Francisco. Then the operational side of how do you expand it, and how does the operational side come in? You know, we've got a real asset in Gil West, who's the Chief Operating Officer over there at Cruise. He was the former COO at Delta. We worked together, and he was responsible for ensuring that 200 million customers a year had a consistent good experience with reliability, cleanliness, on-time performance, et cetera. So he's the right guy to scale up that operation. He's doing a really good job with that across the board.
You know, I think a lot of companies, especially when you look at sort of the last iteration of the markets prior to interest rates going up, a lot of companies got the benefit of the doubt. What they said garnered heavy investment, even if it actually didn't come into fruition. I'm not complaining. I just think we have a different lot. You know, ours is more of a show me story. We have to prove it out. We're doing that, you know, and I think we look at the stock price as a lot of incentive for us, a lot of motivation for us to prove some of the skeptics wrong.
I won't miss the opportunity to say what I usually say in these forums, which, you know, today you can buy a share of General Motors at a discount and get, you know, a 0.8 of a share of Cruise for free. You know, at the end of the day, there is a lot of opportunity built in there when you think about Bright Drop, when you think about Cruise, when you think about the things that are coming out as we get further down the road. We've got to continue to prove it. I think the team, especially out in San Francisco around Cruise, is executing really well.
Okay. Have any questions in the audience?
Thanks for taking the time. Just to follow up on structural investment, we talked about sort of $800 million now $1 billion of cost outs that's being absorbed by structural investment increases this year. When do you reach sort of the peak structural investment and you can start taking down that ICE capacity as a substitute for increasing EV capacity? Is that within the mid-decade timeline, beyond the mid-decade timeline? That'll be great. Thank you.
You're talking about structural expense, not structural capital. Yeah, the, sorry if I wasn't clear. The structural expense kind of built up after that four and a half billion was taken out. We kinda see this at the peak. What we've talked about the $2 billion is that we'll take that out of the run rate coming, you know, at the end of 2024, and we'll just have a $2 billion reduction. This isn't being replaced at this point. This is coming down off the peak.
Jim?
I have a question back here. Hey, just a question. I guess as you, as you build out your EVs and you're getting a lot more, you know, experience kinda building them, producing them, sourcing them, you know, componentry and stuff, how do you think about sort of the different components that go in that? Have you kinda evolved your thinking in terms of what might be, you know, strategically important for GM to control versus what might be more, you know, more suitable than maybe outsourcing to a supplier base?
Yeah, it's a great question. You know, I think there's 2 elements of control that I think about. One is just controlling your destiny, right? As the chip shortage taught us, and I think taught many others, going further up the supply chain vertically is critically important when there are things that might be in shortage in the future. You know, we've done a lot of that with chip makers already. We've talked about the GlobalFoundries deal, where we reduced the number of chip families by 95%, but did the deal with GlobalFoundries so that we can allocate our chips through the structure and not worry about having to be allocated across somebody who has multiple customers. You're processing that for us across the board.
I think the same is true in a lot of EV raw materials. That's one element. I think the second element, and this probably gets more to software in particular, is where can you make unique brand improvements and where do you need to control the brand? Whether that's around data or around interfaces, et cetera, making sure that we've got that opportunity and it doesn't become commoditized in the vehicle.
Jim.
Hey, Paul, good to see you again. I wanted to go back to this issue of your assessment of the industry's production capacity for North America. You've been converting facilities, reusing. You're not really trying to add more capacity for North America. It's not clear to me when you add up Tesla, 2 million and wants to grow 50% a year, and some of your other legacy peers who appear to be adding new brick and mortar on the EV side. I'm thinking about 2024, 2025, and where you think some of those price mix dynamics might move. Been very clear on 2023. I think you're right in your assessment. Again, kudos to you for being capital efficient. I'm looking at 2024 is mix alone, even GM.
I think the GMC Yukon, $57,000 entry to $95,000 for a Denali fully loaded. Huge room to move on price mix.
I see Stellantis, you know, kind of misjudging the market a bit. just kind of walking through your... I know 2024, 2025 is not in your horizon, but I think about the industry competitive dynamics and if that's something that gives you some pause and you're aggressively taking costs out. I think the answer is it does give you some pause about the competitive landscape. Just wanted to kind of get your thoughts on that. Maybe I'm speculating too much on where transaction prices could move, but $35,000 a couple years ago, $47,000 today, it's a lot of room there. Thank you.
Yeah. I'm not gonna speculate on industry pricing and nor can I comment on any of the competitors. You know, what I can tell you over the last few years, we've had the advantage of a lot of slack capacity that was underutilized in the system, and that allowed us to be able to convert to EV without impacting the ICE production. You know, that gets more challenging for us too in the future as you ultimately think about, you know, how do we transition to 2035.
We have a pretty intricate view that probably will change 1,000 times between now and then of how do we phase out and how do we restructure and, you know, retool the plants to convert them from ICE to EV across the board. You know, I think the interesting thing about EV pricing is, I think let's set Tesla aside for a second. Everybody else is in the same boat. It isn't that we can't compete with Tesla today, it's we're behind. Tesla today wasn't Tesla 10 years ago across the board. I think that growth curve in terms of knowledge base, margin improvement, et cetera, can be faster for everybody else, having learned some of the things going forward, going into a bit of a more mature market.
The reality is when you look at raw materials and when you look at EVs scaling up and all the automakers, I think everybody's in the same boat, which is it's really difficult to generate EBIT in the short run across the board, where I think that provides a little bit more stability in pricing, because at the end of the day, you can want to compete in EVs to your heart's desire. If you can't do it cost effectively, price isn't gonna save you, right? This isn't gonna be a case of, I'm gonna go win a bunch of market share by slashing prices and losing my shirt, and then I'll build it up, because the industry's too big. This is still very much a scale business.
I think that probably puts a little bit more pricing discipline than you've seen historically because everybody needs that in order to just get the baseline profitability of the vehicles as the industry scales. I think this is a longer term problem even than that 2025. Now, don't get me wrong, I think it's gonna be really competitive out there, and I think you're gonna compete a lot on features. I think you'll compete on price somewhat across the board. I think we've been relatively calm about, you know, our pricing, in the midst of a lot of changes in the short run because we think we're priced right, especially considering the demand that, and the orders and the reservations that have built up, for us going forward.
we're gonna continue to look at it, but certainly the consumers responded really well to our pricing.
Great. With that, we are out of time. Paul, thank you so much for joining us.
Excellent.
We really appreciate it.
Thank you.
Really appreciate the update. Thank you.
Great job. Have a seat