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GM expects inflation, semiconductor shortage will add $ 3 billion In extra costs in the second half

Brand new Chevrolet cars will be on display at the Stewart Chevrolet on May 14, 2021 in Colma, California.

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General Motors expects the lack of semiconductor chip shortages and rising inflation to increase its spending in the second half of the year by up to $ 3 billion, CFO Paul Jacobson said Wednesday afternoon.

Additional costs include a larger-than-expected hit from the shortage of parts in Q3 as well as rising commodity prices that will force it to spend up to $ 2 billion. More than it did in the first half of the year, he said.

Much, if not all, of these costs could be offset by GM̵

7;s performance in the first half of the year. Earlier Wednesday, GM increased its earnings forecast for the first half of the year to between $ 8.5 billion and $ 9.5 billion in adjusted income before tax, up from an estimated $ 5.5 billion.

The new forecast was driven by better-than-expected results from the GM Financial unit and improved short-term production because they were able to get some semiconductor chips, which were expected in the third quarter, according to the company.

“I’m actually familiar with where we are right now as we think about the second half of the year, even though there may be some continuing supply challenges,” Jacobson said. “But there is some basic pressure in the second half that I think is unique compared to the driving rate we’ve seen in the first half. It probably starts with commodity inflation.”

For the year, GM said earlier that the expected pre-tax profit “at the higher end” of a range of 10 to 11 billion dollars. It did not provide an update of its earnings for the full year. The forecast included the potential impact of chip shortages, including a hit of $ 1.5 billion to $ 2 billion in earnings.

The first half of the year has been better than many expected for automakers like GM. Supply constraints due to chip shortages have led to higher car prices and profits.

“We are certainly bullish as it relates to our previous guidance,” Jacobson said. “We deliberately do not provide guidance throughout the year, yet we will do so on our earnings call when we begin to enter the third quarter and begin to understand what the chip dynamics look like.”

Jacobson said the chip situation remains very fluid. For example, a new Covid outbreak in Malaysia is disrupting the semiconductor chip market, he said. Expectations for vehicle supply are expected to continue in 2022, he said.

“As long as it continues, we’re losing some production there from some important chip providers, and it’s something like that that really makes this a phenomenon from week to week,” he said.

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