“We expect EV wholesale volumes to be up slightly in the second half, as we resume building to demand.”

In context

“Paul Jacobson: Thank you, Mary. I appreciate everyone joining us this morning. I also want to begin by recognizing the entire GM team, whose hard work and consistent execution quarter after quarter underpin the solid results we're reporting today. In the first half of the year, we generated $92 billion in revenue and $8.2 billion of EBIT adjusted. EPS diluted adjusted increased more than 35% year-over-year to $7.27 a share. This was our best first-half EPS diluted adjusted performance ever, more than 25% above the prior high. Put simply, in just 6 months, we delivered an EPS result that was better than 6 of our last 10 full years. A clear reflection of how GM has transformed itself over the past decade by strengthening our product portfolio to drive revenue growth, improving core operating performance, lowering costs, and materially reducing our share count through significant share repurchases. We also maintained our pricing discipline with incentives as a percentage of MSRP running one and a half to two points below the industry average, helping to improve total company margin by 1.8 points year-over-year in the first half alone. In addition, fleet sales have been strong, with our best first half in more than five years, including our highest government sales since 2009 and record full-size pickup sales driven by strong commercial demand. Importantly, the growth in fleet comes without diluting margin. Year-over-year, our market share was down by about 60 basis points versus the first half of 2025, largely reflecting three factors. One, strategic decisions to discontinue certain vehicles in our portfolio, including the Chevrolet Malibu and the Cadillac XT4. Two, a smaller EV market following reductions in consumer incentives. Three, tight dealer inventory early in the year, which was at a low point in January and February. As Mary mentioned, the investments we are making to onshore production, launch key vehicles, and expand full-size SUV capacity will give us more flexibility and position us to grow revenue, gain market share, and improve profitability in 2027. On capital allocation, our strong first half-adjusted automotive free cash flow of $6.3 billion allowed us to continue executing against our share buyback program. In the second quarter, we made $2 billion in open market share repurchases, retiring approximately 25 million shares, which brings our first-half total to $2.8 billion repurchased and 36 million shares retired. This is nearly $1 billion more than the first half of last year, despite our EV restructuring efforts. We ended the second quarter with a diluted share count of 893 million, approximately 8% below where we ended the second quarter of 2025 and 35% below the second quarter of 2023. We have $3.5 billion remaining under our current repurchase authorization and expect to continue to consistently repurchase shares, supported by strong cash flow and our ending Q2 automotive cash balance of $19.7 billion. Let's turn to the second quarter financial results in more detail. Total company revenue of $48 billion was up $900 million year-over-year, driven by higher wholesale volumes, reflecting higher ICE volumes in both North America and South America, partially offset by lower EV volumes. EBIT adjusted of $3.9 billion was up $900 million year-over-year. The improvement was driven primarily by core business performance, supported by stronger pricing and lower costs, including EV, warranty, and emissions-related regulatory tailwinds. Adjusted automotive free cash flow of $5 billion was up $2.2 billion year-over-year. The improvement was driven by higher earnings and timing of both tariff reimbursements and CapEx spending. Let me update you on our EV-related restructuring. In the second quarter, we recorded $2.3 billion in incremental charges. Of that amount, $900 million was supplier-related cash charges, $700 million in cash charges to right size the battery supply chain with our joint venture partners, and $700 million were non-cash write-offs for compliance-related and other asset impairments. In total, we have recorded $10.9 billion of EV-related charges since the second half of 2025, of which approximately $7.2 billion will have a cash impact. Through the end of the second quarter, we paid $4.5 billion of this amount. Our teams have worked tirelessly with our partners and suppliers across the EV value chain to conclude these negotiations quickly. I'm proud to say that we believe these actions substantially complete the material cash charges we expect to incur as we align our EV capacity and manufacturing footprint with the changes in regulatory policy. While circumstances may change in the future, and we may have some true-ups, it's important to get this work behind us. Now let's move to our second quarter regional results. North America delivered EBIT adjusted of $3.4 billion, up a billion or over 40% year-over-year. Margin was 8.6%, an improvement of 2.5 points from a year ago when tariffs were first put into place. Having worked through much of that pressure, we are solidly back within our 8%-10% margin target, a clear marker of the progress this team has made. The improvement was broad-based, driven by strong pricing, lower EV losses from right-sizing our capacity, along with continued warranty and emissions-related regulatory tailwinds. These gains were partially offset by commodity inflation, including logistics and higher DRAM costs, along with manufacturing costs related to onshoring production to the U.S. Total U.S. dealer inventory ended the quarter at 511,000 units, or approximately 55 days of supply. This is right in the middle of our targeted range of 50-60 days. GM International, excluding China equity income, delivered EBIT adjusted of $100 million, driven by strong execution across most of the regions. While Middle East wholesales were significantly impacted by shipping disruptions, strong sales performance in South America partially offset this headwind. China equity income was $100 million. The team deserves a lot of credit for the restructuring work they did to enable us to be profitable despite the very difficult environment. We remain focused on execution, cost efficiencies, and mix optimization to deliver ongoing profitability. GM Financial delivered EBT adjusted of $600 million and paid $250 million in dividends to GM in the quarter, reinforcing our strategic value within the enterprise. Since 2019, GMF has grown its balance sheet by more than 25%, while outperforming other captive finance companies on profitability and growth. This performance reflects disciplined execution and the ability to generate consistent, risk-appropriate returns, and is further supported by GM Financial maintaining its leadership position in manufacturer loyalty for 10 consecutive years. The business remains within its full-year EBT adjusted guidance of $2.5 billion-$3 billion and is on track to pay full-year dividends to GM similar to last year. Based on our strong operating performance, including improved pricing and warranty assumptions, as well as a slightly better commodity outlook, we are raising our full-year guidance across all of our key metrics. We now expect EBIT adjusted of $14 billion-$16 billion, up from $13.5 billion-$15.5 billion. EPS diluted adjusted of $12-$14, up from $11.50-$13.50 per share, and adjusted automotive free cash flow of $9.5 billion-$11.5 billion, up from $9 billion-$11 billion previously. Before I address the key assumptions underlying our updated full-year guidance, I want to note that it assumes no material escalation in the Middle East and no significant increase in commodity or other inflationary pressures from current levels. Starting with the industry backdrop, we continue to assume U.S. total SAAR in the low 16-million-unit range for the full year, consistent with where it is run year-to-date. North America ICE wholesales were up approximately 1% in the first half. We expect second half year-over-year volumes to be up in a similar range. We continue to be constrained by full-size truck production, including the impact of the new truck launch and the planned discontinuation of certain vehicles we referenced earlier. Turning to EVs, we continue to expect losses to improve by $1 billion-$1.5 billion for the full year, driven by right-sizing our EV capacity and significantly lower volume. In the first half, we realized approximately $500 million of this benefit. We expect EV wholesale volumes to be up slightly in the second half, as we resume building to demand. Warranty is tracking to a $1 billion-$1.5 billion improvement year-over-year for the full year, above our previous assumption of up $1 billion. We realized $500 million in the first half and expect most of the remaining benefit flow through in the third quarter. Emissions-related regulatory savings remain on track as well. We continue to expect a full-year benefit of $500 million-$750 million, primarily from lower regulatory credit amortization. We recognized approximately $400 million in the first half and expect a smaller benefit in the second half as we begin to lap the savings that started in the second half of 2025. On pricing, we recognized a $600 million year-over-year benefit in the first half and now expect full-year North America pricing to be up around half a percent, which is at the high end of our prior guidance. The pricing benefit is expected to be smaller in the second half as we lap last year's 2026 model year price increases. We continue to expect gross tariff costs of $2.5 billion-$3.5 billion for the full year, which is largely flat year-over-year. Through the first half, we incurred approximately $1.3 billion net of the $500 million IEPA benefit recognized in the first quarter. We expect the gross tariff impact in each of the third and fourth quarters to be similar to the impact of the second, which was around $900 million. Let's now turn to the headwinds. We continue to expect commodity inflation, logistics, and higher DRAM costs to be a headwind of $1.5 billion-$2 billion for the full year. We realized approximately $600 million in commodity costs in the first half and expect that headwind to increase in the second half, largely because it reflects two quarters of higher costs rather than just one. In addition, spot rates continued to rise after our first quarter earnings call. While they have eased somewhat recently, several commodities remain above those levels. Given the lag in how these costs flow through our results, the recent improvements should begin to benefit us in the fourth quarter and into early 2027. On DRAM specifically, our expanded collaboration with Micron strengthens access to critical memory technologies and deepens integration across our vehicle platforms, reinforcing supply availability for the long term. Separately, we are also investing approximately $1 billion-$1.5 billion this year to onshore production to the U.S., strengthen our supply chain, and expand our software capabilities. We incurred approximately $400 million in the first half. We expect these costs to ramp further in the second half as we approach production in 2027. Finally, turning to our international operations, we continue to expect some softness in GM International ex China, reflecting the dynamic environment in the Middle East. From a cadence perspective, we expect the fourth quarter to be somewhat weaker than typical seasonal patterns would imply, primarily due to the launch of our new full-size trucks, including higher launch-related costs and anticipated year-over-year volume headwind of approximately 35,000 units. We also expect onshoring costs to build as the year progresses, with the fourth quarter having the largest impact as we prepare to transfer Escalade production to Orion Assembly. Before I close, I want to take a moment to underscore the strength of our core business. In North America, margins have returned to our 8%-10% target range, and we are winning in the segments that matter most, including full-size trucks and SUVs, while maintaining disciplined pricing and inventory levels. That strength provides the foundation for everything else we are building. Our OnStar digital business, including Super Cruise, remains a growing margin accretive asset. Subscriber growth drove deferred revenue to $6.3 billion, up almost 50% from a year ago, while second quarter recognized revenue was $800 million, up 20% year-over-year and well on pace to hit our full-year growth target of $400 million. This momentum carries into 2027, where amortization of our existing deferred and subscriber growth is expected to drive double-digit growth in realized revenue, building on our estimated full-year 2026 realized revenue of more than $3 billion. We are also building a select number of adjacent higher-margin businesses, including GM Defense and GM Insurance, in a capital-efficient manner that leverages our capabilities. These businesses are modest contributors today. We are optimistic about the long-term opportunities they present and will continue to share progress as they scale. While our primary focus is to deliver on our 2026 commitments, we are already looking ahead to 2027. As Mary mentioned, based on what we know today, we believe we can grow revenue, margins, EBIT, and free cash flow next year. Several drivers support this view, including continued improvement in EV profitability, growth in OnStar digital revenue, incremental warranty improvements, fixed cost efficiencies, a full year of our all-new Chevy Silverado and GMC Sierra pickups, and increased full-size SUV supply to meet demand in the U.S. and in markets around the world. Additionally, as we also continue to repurchase shares, we can expect even further EPS growth. With a broad portfolio of EV and ICE vehicles, we are well-positioned to capture demand across segments and continue delivering ongoing value for both our customers and our shareholders. With that, we'll move to the Q&A portion of the call.”