In 2019, there was the United Auto Workers strike; in 2020, the pandemic lockdowns; and in 2021, a shortage of semiconductors. It is fortunate that investors have come to see General Motors as a growth stock, otherwise they might worry more about its meager cash flows.
The largest U.S. auto maker by sales said Wednesday that it expected the global microchip shortage to cost it between $1.5 billion and $2.5 billion in free cash this year. Ford made a similar projection when it reported quarterly results last week. Combined with high capital spending, the problem will reduce GM’s adjusted automotive free cash flow to just $1 billion-to-$2 billion in 2021, according to its internal forecasts. Its shares sank 6% in morning trading.
Last year, the company generated automotive free cash flow of $2.6 billion. The pandemic lockdowns that closed factories across the world caused GM surprisingly little financial trauma across 2020 as a whole—by most metrics, less than the shutdowns caused by the 40-day strike the previous year. One reason for that resilience was a strong rebound in vehicle demand in its key U.S. market. Another was tight financial management, including delaying some capital spending.
The tab for capital expenditures in 2021 will be correspondingly larger: The company expects to fork out between $9 billion and $10 billion, up from just $5.3 billion in 2020 and a pre-pandemic $7.5 billion in 2019. Catch-up spending isn’t the only reason; GM also is accelerating investments in electric and driverless vehicles. Last month, it made headlines with an aspiration to phase out tailpipe emissions from its light-duty vehicles entirely by 2035.
The company has attracted huge attention and a soaring stock-market valuation with its bullish EV plans, but the big gap in its pitch to Wall Street is a cutting-edge EV in car showrooms. The first vehicles GM will launch on its much-hyped Ultium battery platform, the Hummer truck and the Cadillac Lyric, are both slated for the 2022 model year.