(Reuters) – General Motors (NYSE:GM) lifted its full-year profit guidance on Tuesday, in large part because it plans to invest less in new products and cut operating costs by an additional $1 billion through the end of next year.
GM said net income for the second quarter rose by nearly 52% to $2.6 billion, as revenue grew 25% from the year-ago period when production was hobbled by semiconductor shortages.
The Detroit automaker said it now expects full-year net income of $9.3 billion to $10.7 billion, up from a previous forecast of $8.4 billion to $9.9 billion. On a per-share basis, GM is now forecasting net income of $7.15 to $8.15 for the year, up from a range of $6.35 to $7.35.
The new outlook does not factor in the potential costs of a strike by the United Auto Workers union should it fail to reach a new contract with GM by the Sept. 14 deadline.
GM’s more bullish outlook comes after six months of stronger demand and richer pricing than expected earlier this year, Chief Financial Officer Paul Jacobson said during a media conference call.
GM’s higher profit outlook also reflects decisions to ratchet down spending.
GM said it will spend $11 billion to $12 billion on capital investments this year, down from an earlier plan to spend $11 billion to $13 billion. Jacobson did not identify specific projects that would be cut.
“There’s a lot of focus on winning with simplicity,” he said.
The automaker said it also will expand a previously announced drive to cut operating costs by $2 billion through the end of 2024. GM will now target an additional $1 billion in overhead, marketing and other costs, Jacobson said.
In contrast to Tesla (NASDAQ:TSLA) CEO Elon Musk’s strategy of cutting prices to accelerate demand, GM pushed average transaction prices in North America up by $1,600 to about $52,000 in the latest quarter, Jacobson said.
“We’re focused on profitability. Our recent results demonstrate that we’re not sacrificing margin for volume. We will continue this strategy to help drive a fundamentally stronger company beyond 2023,” he said.
GM’s decisions to cut new product investment and operating costs come as the automaker’s profit margins are under pressure. GM’s pretax profit rose from a year earlier to 7.2% of revenue in the second quarter. But for the first six months of the year, GM’s pretax margins fell to 8.3% of revenue, down from 8.9% a year ago.
GM’s second-quarter results included a $792 million charge for “new commercial agreements” with South Korean battery maker LG Energy Solution.
GM said it has agreed to shoulder more of the costs for a recall of Chevrolet Bolt electric vehicles to replace LGES batteries that could catch on fire. Other agreements with LGES should result in lower battery costs for GM in the future, Jacobson said, without elaborating.
In China, GM’s second-largest market, the automaker reported a profit of $78 million, reversing a year-ago loss. But GM is still earning far less than it once did in China as Chinese EV brands and Tesla gain market share.
“The environment there remains challenging,” Jacobson said. “We saw the economic recovery slow down a little bit and a lot of price competition there.” GM increased its combustion vehicle sales by 38%, but petroleum-fueled vehicles are losing market share overall in China.
