DETROIT – General Motors Co. stocks rose to record highs Thursday after the company said its efforts to address the global computer chip shortage worked better than expected and its financial results will improve.
The company said in a statement Thursday that it had made engineering changes, prioritized the use of semiconductors, and dragged some potential shipments into the second quarter. This means that the half-year result will now be significantly better than the forecasts made at the beginning of the year.
GM had forecast earnings before taxes of around $ 5.5 billion when it released earnings for the first quarter in May. The company was also optimistic for the year as a whole, but did not disclose any further details.
GM’s shares rose 6.4% to $ 63.47 in trading Thursday afternoon. It hit $ 63.58 during the day, an intraday high since the company got out of bankruptcy protection in November 2010.
The company posted net income of $ 2.98 billion for the first quarter as strong US consumer demand and higher prices offset production cuts caused by the chip shortage.
GM previously forecast pre-tax profit of $ 10 billion to $ 11 billion for the full year and said profit would be at the high end of the range. For the full year, net income is expected to be between $ 6.8 billion and $ 7.6 billion.
In an online discussion Thursday afternoon with an analyst at Credit Suisse, Paul Jacobson, GM’s chief financial officer, said the chip supply situation was volatile, but GM was able to increase production slightly than it was a month ago was expected. The company sees the shortage continuing into the third quarter.
“We’re sure to see things get better in the second half and hopefully get to a point where we’ll have normalized in 2022,” he said, warning of predictions so far into the future.
Credit Suisse analyst Dan Levy said GM has enough dealer inventory to supply just 22 days of demand, while it typically has 80 days.
Jacobson said consumer demand has been strong, particularly for full-size SUVs and pickups. He said the company may not return to the stocks its dealers had before the pandemic, but it needs to increase stocks from current levels because there are “too many dealers with empty lots”.
The chip shortage happened because automakers and parts suppliers closed factories and canceled chip orders early last year as the novel coronavirus spread. The factories came back in eight weeks, faster than expected, but by then the semiconductor industry had switched production to chips for the booming consumer electronics market.
A fire on March 19 in a Japanese car chip factory made the problem worse. The shortage has forced production cuts, reduced supply of new vehicles, while demand recovers from the coronavirus pandemic, creating shortages and increasing new vehicle prices. Used car prices have reached record highs.
Renesas, the company affected by the fire, said production has now fallen back to 88% of pre-fire levels. With the installation of new equipment, the company expects to resume production by mid-June.
Ford announced that the shortage would cut production in half from normal levels in the second quarter. Almost all automakers are affected, including Nissan, Honda, Stellantis, Tesla and Volkswagen.
GM’s statement said its factories will be affected by the chip shortage through June and July. But it is shifting chips to higher-margin, high-demand vehicles like pickups and full-size SUVs. U.S. assembly plants that make these products won’t make it through the traditional two-week summer break this year, the company said.
In addition, GM’s heavy-duty truck plant in Flint, Michigan, will produce about 1,000 more trucks per month due to the efficiency of the production lines, the company said.
GM also said that due to the shortage, it is starting to install computers in midsize trucks built without them. These vehicles will be delivered at the beginning of July.