Q3 2025 Earnings Call Transcript

Good morning, and welcome to the General Motors Company Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded Tuesday, October 21, 2025. I would now like to turn the conference over to Ashish Kohli, GM's Vice President of Investor Relations.

Thanks, Amanda, and good morning, everyone. We appreciate you joining us as we review GM's financial results for the third quarter of 2025. Our conference call materials were issued this morning and are available on GM's Investor Relations website. We are also broadcasting this call via webcast. Joining us today are Mary Barra, GM's Chair and CEO; along with Paul Jacobson, GM's Executive Vice President and CFO.

Susan Sheffield, President and CEO of GM Financial, will also be joining us for the Q&A portion of the call. On today's call, management will make forward-looking statements about our expectations. These statements are subject to risks and uncertainties that could cause our actual results to differ materially. These risks and uncertainties include the factors identified in our filings with the SEC.

Please review the safe harbor statement on the first page of our presentation as the content of our call will be governed by this language. And with that, I'm delighted to turn the call over to Mary.

Good morning, everyone. I want to begin by recognizing the dedication and hard work of our entire GM team, including our employees, dealers and suppliers. Their agility in helping navigate a rapidly changing regulatory and policy environment while keeping our customers at the center has been outstanding. Thanks to their efforts and our leading portfolio of vehicles, we delivered another very strong quarter of earnings and free cash flow.

In the U.S., we achieved our highest third quarter market share since 2017 with strong margins, and our restructured China business was profitable once again. Based on our performance, I'm pleased to share that we are raising our full year guidance. I also want to thank the President and his team for the important tariff updates they made on Friday. The MSRP offset program will help make U.S.-produced vehicles more competitive over the next 5 years, and GM is well positioned as we invest to increase our already significant domestic sourcing and manufacturing footprint.

We appreciate the administration's ongoing support for American innovation and jobs, and we look forward to progress on trade deals with countries like Canada and Mexico. As trade policies have evolved, we have acted with urgency and discipline to strengthen GM's position. Earlier this year, we announced $4 billion in capital investments to onshore production at plants in Tennessee, Kansas and Michigan over the next 2 years. Today, I'm happy to share that we have decided to more than double the planned Chevrolet Equinox production at our Fairfax Assembly plant in Kansas, above and beyond what we announced earlier this year.

Once these investments come online, we plan to produce more than 2 million vehicles per year in the United States. We are also investing close to $1 billion to build a new generation of advanced fuel-efficient V8 engines in New York. Importantly, we are maintaining our capital discipline while addressing this production and creating new jobs in the United States. We are also monitoring the supply of certain chips from China.

This is an industry issue I know you're all aware of. While this has the potential to impact production, we have teams working around the clock with our supply chain partners to minimize possible disruptions. The situation is very fluid, and we will provide updates throughout the quarter as appropriate. On the regulatory side, our portfolio and capacity plans over the last several years had been heavily influenced by steadily increasing stringency requirements for fuel economy and emissions.

To meet these requirements, we were working aggressively to install and scale EV capacity. Now with an evolving regulatory framework and the end of the federal consumer incentives, it's clear that near-term EV adoption will be much lower than planned. This is resulting in higher variable costs as we expect to utilize less capacity across our EV plants and supply chain. All of this drove our decision to transition Orion Assembly from EV to ICE production and to sell our joint venture-owned cell plant in Michigan to LG Energy Solution.

It's also why we recorded a $1.6 billion special item charge in the third quarter. $1.2 billion of the charge is for noncash impairments, most of which are related to the Orion transition, reductions in battery module assembly capacity, our decision to stop development of next-generation hydrogen fuel cells and the write-off of CAFE credits and associated liabilities. The remaining $0.4 billion is for cash charges related to supplier contract cancellation costs. Our retail product portfolio is unchanged. We will continue to build award-winning products like the Chevrolet Equinox EV and the Cadillac Escalade IQ, which have been very successful with customers.

We're proud of them and we believe their performance will improve even in a smaller market. However, we have decided to stop BrightDrop production at CAMI Assembly and assess the site for future opportunities. This is not a decision we made lightly because of the impact on our employees. However, the commercial electric van market has been developing much slower than expected, and changes to the regulatory framework and fleet incentives have made the business even more challenging.

Our actions on BrightDrop and our ongoing work to reset our capacity will cause us to recognize a charge in the fourth quarter. By acting swiftly and decisively to address overcapacity, we expect to reduce EV losses in 2026 and beyond, making us much better positioned as demand stabilizes. EVs remain our North Star, so we will continue to invest in new battery chemistries like LMR, new form factors and other architectural improvements to drive improved profitability. I'm equally confident in our ICE strategy.

It is clear that ICE volumes will remain higher for longer. We lead the industry today, and we are increasingly well positioned to meet strong sustained demand. For example, we are onshoring production of the Chevrolet Blazer, developing a next-generation Cadillac CT5 and redesigning and extending the Cadillac XT5. And when Orion Assembly comes back online in early 2027, it will produce the Cadillac Escalade and then add our next generation of full-size light-duty pickup trucks. Looking ahead, our top priority as a leadership team remains returning North America to our historical 8% to 10% EBIT margins.

To do this, we will continue to drive EV profitability improvements, maintain our overall production, pricing and incentive discipline, manage our fixed costs and further reduce our tariff exposure, net of our self-help initiatives. In addition, cross-functional teams are attacking our warranty expense by addressing the root cause inside GM at our suppliers and at our dealerships. We are also executing plans to grow software and services like OnStar and Super Cruise to generate even greater revenue during and after each vehicle sale. So far this year, we have recognized nearly $2 billion in revenue from OnStar, Super Cruise and other software services, and our deferred revenue was up 14% from Q2 to almost $5 billion.

That's off a base of 11 million OnStar subscribers, which is up 34% year-over-year. This includes more than 500,000 Super Cruise customers, which nearly doubled year-over-year. We expect robust double-digit revenue growth through the end of the decade with gross margins of about 70%. We also continue to make great strides in our autonomous strategy and in the development of our next-generation software-defined vehicle platform.

It will be transformational because we will be able to evolve the software layer of each vehicle independently from the hardware-defined physical layer. For customers, their vehicles will become smarter, more capable and more personalized over time. Our platforms will be more stable and last longer. We will see large reductions in complexity, and we will create new revenue streams from features and services.

This work is exciting and full of opportunity, and we're hosting a media event in New York tomorrow to hear from the leaders who are executing our technology strategy. We will share more on these and other initiatives with you as we go forward because great vehicles, innovative technology, a rewarding customer experience along with strong financial results will continue to set GM apart in an increasingly competitive landscape. Thank you, and I will now turn the call over to Paul to discuss the quarter in more detail.

Thank you, Mary, and good morning, everyone. I also want to start by recognizing the entire GM team for delivering another quarter of outstanding results, driven by our compelling portfolio of internal combustion and electric vehicles. We continue to demonstrate disciplined incentives, pricing and inventory management while attaining a 17% U.S. share in the quarter, up 50 basis points year-over-year. Our U.S. incentives remain below the industry average for the 10th consecutive quarter.

During the quarter, we reduced dealer inventories by 16% year-over-year, ending at 527,000 units. ICE inventory is turning quickly, and we actively managed EV inventory down by almost 30% since the end of the second quarter, bringing it to a more appropriate level as we move forward. As we highlighted at a recent conference, this performance exemplifies how the team has structurally transformed GM over the past decade to focus on profitable growth and durable cash flows. We have successfully adapted to evolving macro conditions while restructuring underperforming business units.

Combined with a leaner cost structure and the support of GM Financial, these actions have enabled us to significantly improve free cash flow efficiency while maintaining a strong, resilient balance sheet. Let's now turn to the third quarter financial results. Total company EBIT-adjusted was $3.4 billion, down $700 million year-over-year. This included a gross tariff impact of $1.1 billion, which was a little less than we had expected due to lower import volumes from Korea.

We were able to offset more than 30% of this amount through go-to-market, footprint and cost initiatives. The administration's recently announced expansion of the MSRP tariff offset broadens the scope of parts eligibility for the program and will make U.S. vehicle production more competitive. Additionally, this supports tariff mitigation in 2026 and beyond while we work to adjust our supply chains. On heavy-duty tariffs, the impacts to GM will be minimal and are already factored into the tariff guidance we've provided.

Adjusted automotive free cash flow was $4.2 billion, partially aided by $300 million in cash tariff offset reimbursements, which have now commenced and will continue into Q4. North America delivered Q3 EBIT-adjusted margins of 6.2%, enabled by record crossover deliveries and strong performance of our full-size pickups and SUVs. As in the second quarter, EBIT-adjusted margins in Q3 would have been around 9%, excluding tariffs, well within our prior margin target of 8% to 10%. Pricing was up modestly year-over-year with model year 2026 incremental pricing being partially offset by a small fleet headwind.

EV sales reached record levels in Q3, supported by a pull forward in demand ahead of the consumer purchase incentive being eliminated. GM solidified its #2 position in the U.S. EV market with 67,000 deliveries and a 16.5% share. In October, we are not surprised to see EV demand soften significantly, and we expect this trend to continue into early 2026 before we see what the natural demand is for EVs.

Throughout this period, you can be assured that we will build to demand and continue to focus on improving EV profitability, including through material cost reductions by leveraging larger module sizes and new battery chemistries. Warranty expense was a $900 million headwind year-over-year in the third quarter. This is too high, and we need to do better. That being said, our customers always come first, and we are committed to looking after them as we take a comprehensive multipronged approach to reduce warranty expenses.

We are asking our dealers in the spirit of partnership to help us lower warranty repair costs. We are also pursuing deeper supplier quality validation and leveraging data, AI tools, OnStar connectivity and proactive over-the-air updates to identify and resolve issues faster. Internally, GM is managing repairs to minimize customer inconvenience, and we are refining repair processes, such as shifting from full transmission replacements in many cases to targeted component fixes, which have already yielded substantial cost reductions. In fact, because of these actions, we've seen overall warranty cash outlays stabilize over the past few months.

Turning to GM International. GM China is continuing its successful turnaround and is comparing favorably to many of its global peers. In the third quarter, our market share grew 30 basis points year-over-year to 6.8%, and China equity income, which has now risen for 4 consecutive quarters, was $80 million. We continue to expect the full year to be profitable.

GM International ex China EBIT-adjusted was nearly $150 million and remain relatively stable year-over-year, supported by strong full-size pickup and full-size SUV sales in the Middle East. GM Financial posted another solid quarter with Q3 EBT-adjusted of $800 million. They continue to deliver value for our customers and dealers while paying a $350 million dividend in the third quarter. Regarding capital allocation, we invested $2.1 billion in capital projects, paid down $1.3 billion of balance sheet debt and repurchased $1.5 billion of stock in the quarter.

Despite a challenging external environment, we've repurchased $3.5 billion in stock year-to-date. As a result, our diluted share count at the end of Q3 stood at 954 million, a 15% reduction year-over-year. Looking ahead, we expect our share count to continue trending lower as we continue to repurchase shares. Regarding our outlook, let me now walk through our updated guidance along with key supporting assumptions.

Based on strong product traction, ongoing disciplined execution and assuming minimal production disruption from the chip issue Mary mentioned earlier, we are raising our calendar year 2025 guidance to EBIT-adjusted of $12 billion to $13 billion, EPS diluted adjusted of $9.75 to $10.50 per share and adjusted automotive free cash flow of $10 billion to $11 billion. This increase reflects our confidence in our underlying business performance and also incorporates the administration's recently approved expansion of the MSRP tariff offset. We expect capital expenditures to be at the lower end of our $10 billion to $11 billion guidance range as we recalibrate our plan in light of policy and upcoming footprint changes.

Our gross tariff exposure for 2025 has improved from the original $4 billion to $5 billion gross impact to a range of $3.5 billion to $4.5 billion, driven by the expansion of the MSRP tariff offset. We expect to offset around 35% of this lower gross tariff impact through go-to-market cost and footprint initiatives. Relative to deliveries, we now expect a calendar year 2025 total vehicle SAAR of around 16.5 million units. From a wholesale perspective, seasonality will play a role in Q4 relative to Q3 with 7 fewer production days in the U.S., along with lower EV wholesales following the phaseout of the consumer credit.

For the full year, we continue to expect North American pricing to be up 0.5 point to 1%. In the fourth quarter, model year 2026 pricing will be partially offset by higher seasonal industry incentives. We will maintain disciplined production levels and are on track to achieve our year-end inventory target of 50 to 60 days. GM Financial is on track to deliver on its guidance of $2.5 billion to $3 billion of EBT-adjusted for the full year, reflecting continued strong performance.

Now looking ahead to 2026, we have multiple levers to carry our current momentum forward, including progress on EV losses, warranty costs, tariff offsets, regulatory requirements and fixed costs. As a result, we expect next year to be even better than 2025. In closing, GM is stronger and more resilient than ever. We are adjusting our business to a new tariff and regulatory environment. In addition to the self-help initiatives I mentioned earlier, we are expanding our U.S. capacity and working together with our suppliers to increase U.S. content.

We see a clear path back to our historical 8% to 10% EBIT margins in North America over time and remain committed to continuing to repurchase shares in accordance with our capital allocation policy. Thank you, and I look forward to your questions.

[Operator Instructions] Our first question will come from Joseph Spak with UBS.

Paul, maybe just can we dive in a little bit on some of the updated tariff disclosure? You lowered the gross by $500 million from the MSRP offset. You mentioned more parts. Is that specifically some of the language around engines in the release from last Friday?

And how exactly does that work? Because I thought the rule of thumb was if you had about 80% USMCA content on a vehicle made in the U.S., it was basically effectively no tariff. So it seems like it's an additional reimbursement. And I just want to understand how that flows through.

Yes, Joe. So the President's announcement on Friday did a number of things beyond just the heavy-duty tariff. It included the lengthening of the MSRP offset to 3.75%. It also included the ability to designate parts into 232 that expands the pool of eligible parts.

So that's where we're seeing some savings on the tariff, and these are parts that are imported into the U.S. for U.S. production. So that expanded pool of parts gives us some ability to use that MSRP offset a little bit more. So that's where the savings are being driven from.

Okay. And if that's all in the fourth quarter, again, like all else equal, does that imply it's like $1.5 billion year-over-year tailwind into '26?

Well, I mean, we haven't given any specific guidance on '26 yet because as we've said before, we need to get Korea resolved, Mexico, Canada, et cetera. But as we've said that we expect that we can be in a position where our net tariff exposure, which is net of our self-help initiatives, could be lower in '26 than it was in 2025 despite having an extra quarter that we have to lap. So that's what we're setting our sights on. We'll have more details as we give 2026 guidance and as more of these deals get finalized.

Okay. And then I guess, dovetailing off that, I know you mentioned in the slides and in the commentary, you expect a stronger 2026 and some of the levers you have. I was just wondering if you could touch, if you don't mind, on maybe some preliminary high-level industry or macro factors, especially since it seems like there's some incremental concerns in the market about the consumer and credit. So how do you sort of preliminarily view demand into '26 and maybe also some of the competitive dynamics with the competitor having some additional product in the pickup segment?

Yes. Well, look, Joe, I think it's too early to start to speculate on 2026. I think our commentary that we could see '26 being better than '25, you start with, if the environment is the same, there's a lot of tools that we have that can lower our costs and drive better performance. And we touched on some of those, getting better at warranty, reducing some of our EV losses, the net tariff burden, et cetera. So we'll obviously have more color as we complete our 2026 budget and get to our full year guidance in January.

And we'll have a better understanding of where the consumer is and where the macro sits as well.

Our next question comes from Itay Michaeli with TD Cowen.

Just a first question on just the shifting emissions regulations. I'm just curious if you could talk about the extent of which over the next few years, it could allow you to sell more ICE full-size pickups and SUVs. As we think about Orion capacity, should we think about that as effectively incremental volume growth opportunity for GM? Or is it sort of, to some degree, just a tariff mitigation from [ Sowell ]?

Well, Itay, thanks. And as we look at shifting emission regulation, first, we -- all the signals are there going to be less. We've already seen some of it change. We are waiting, and I think it will be early into next year where it's finalized.

But anticipating that we're going to be able to sell our internal combustion engine vehicles for longer, there's a couple of triggers. First, as we announced that the -- installing Equinox into Fairfax, we have unmet demand from an Equinox perspective. So that's one upside. The second is around full-size trucks.

And right now, we -- our demand -- we are supply-constrained from a full-size SUV. So when Orion comes online, that's going to give us an opportunity to fully maximize really what is a franchise for GM with full-size utilities. And then with the truck, some of it will be -- we'll be shifting more to the U.S. to -- from a tariff perspective, but also there could be global demand from a full-size truck perspective. So I think some of it is tariff mitigation, but there definitely is upside on some of the vehicles that have been constrained, and demand has exceeded what we've been able to build.

Terrific. That's very helpful. And then maybe as a follow-up, Mary, it's great to see the progress on Super Cruise and software and services. Curious how you're thinking about your next generations of Super Cruise.

And maybe if you can also talk about where you are in the journal to -- the journey to personal AVs with the Cruise team. Just love to get maybe an update on how you're thinking about the road map there.

Sure. Well, I'm really pleased when we look at what [indiscernible] continuing almost with every quarter, Super Cruise gets better. We've now done integration with Google Maps, so our vehicles can follow a planned route when Super Cruise is engaged. We're working -- the Cruise team and GM are working, and we have vehicles now that are operated by trained test drivers to gain more and more insights to train the next generation of features.

Also bringing Sterling Anderson on in addition to his product expertise, obviously, from his time at Aurora has significant expertise in the autonomy area, and this activity is now under him. So I think you're going to see Super Cruise continue to get better and better. We also are working on our next-generation software-defined vehicle that will really be a step-function improvement and I think put us at parity or potentially better than the best in the industry today. And we'll be sharing more about that on our GM Forward event.

But I think that positions us well, and we're going to keep working because we do believe it's going to be very important from -- to have personal autonomy and the PAV work. And we see Super Cruise continuing to build that we get to a full level for over time. So we're definitely committed from an AV perspective, but we're making progress, I would say, driver assistance technology with Super Cruise. And we're really excited to see the adoption rates and the attach rates that we're seeing from a Super Cruise perspective.

Our next question comes from Dan Levy with Barclays.

I wanted to just jump back on to the tariffs. And it looks like your mitigation is yielding stronger benefits. Maybe you could just unpack that a bit because it seems like in the market, pricing is a bit maxed out. We haven't seen the type of price increases we would have expected.

So it looks like you're probably getting benefits off of the other 2 buckets you've discussed, which is cost and footprint. What's the runway on actions there and how this plays out in '26? And just to be clear, the current guidance for '25 tariffs does not include any easing of Korea tariffs. Is that correct?

Yes. Dan, thanks for that question. So let me start with the first part. So if you go back to what we said at the beginning of the year, we really kind of highlighted 3 buckets: go-to-market, footprint changes and fixed cost reductions.

So go-to-market, we were pretty quick out of the gate to talk about changing our pricing forecast for the year, if you remember in the first quarter call. And that's held up, and we still expect to be up 0.5% to 1% on pricing year-over-year, somewhat helped by model '26, continued to help by the disciplined inventory and incentive approach that we've taken across the board. So that continues to bode pretty well for us. On the manufacturing footprint piece, we have some of those savings.

If you recall, we announced an increase in the line rate in Fort Wayne, that's given us a little bit more utilization there that has flowed through. But the bulk of that is really going to be when the capital expenditures that we announced this year start to take effect in late '26, early '27 time frame. And then the third bucket is fixed cost. So I think we've done well to be disciplined there.

We've seen a flattening of the curve pretty much, and I think we're maintaining that discipline. So all of those things we expect will hold into 2026 and the manufacturing footprint bucket can expand a little bit. And that's where we feel comfortable that we -- I believe, we can get our net tariffs to lower than what they are in 2025. And you're correct that there's no impact right now on any Korean changes in our guidance. We're still waiting for that to be finalized.

Okay. Great. As a follow-up, I wanted to ask about EVs. And wondering, you've talked about the opportunity for improving some of the EV -- reducing some of the EV losses that you have.

Maybe you could just give us a sense of what you might be assuming or the parameters on whether it's improved -- reduced overhead spend, reducing some of the EV sales. And then how do we think about the EV lineup in this environment when on a true economic basis, presumably most of those vehicles have had problems or challenges on a variable profit basis, how you think about the need to sell those vehicles if you don't have the regulatory requirements out there?

Well, first, we do see EVs as being our North Star. The consumer feels -- or indications that we have really strong EVs as we've seen our market share grow throughout this year. So we think we've got EVs people want to have. We did expect that we'll see EV sales slow in October and probably through Q4 based on the pull ahead that we saw in Q3. So it's really going to be into early next year when we're going to know what true EV demand is.

But we will -- our plan is to keep the retail EVs that we have again because they're so strongly recognized from a leading perspective. And what we're really going to focus on is working on cost. We also are going to stay true to what we've said before that we're going to build to consumer demand. We're not going to overbuild.

We're going to maintain that discipline. We're going to maintain our discipline from an incentive. We're about half of what the rest of the industry is from an EV incentive perspective. So that discipline, I think, has paid off.

And then we're going to work on how do we improve the EV profitability. As Paul mentioned, we have several layers -- or levers to pull. For instance, all the work we're doing on complexity reduction, commonizing parts. Having an EV platform, once we make a change, we can work across all of our vehicles quickly.

So that's the advantage of having the dedicated EV platform. We're investing in new battery technologies, LMR that will allow us to take cost out of the -- of vehicle in a -- from a significant fashion. And so those are just a handful of things that we're working on to improve EV profitability as we go forward but continue to stay in the market and have strong EVs because we do think they're the future.

And Dan, I'll just add one more thing too, because obviously, the EV demand is going to be pretty choppy for the near future, we think, as we come out of the 7500 and what we've already seen in October with some pretty significant pullback in demand. We do think that the EV market is going to stabilize from a supply standpoint. We had a number of competitors out there that really were selling EVs for whatever they could get for them because they really wanted to get the credits on the environmental side. So we do think it will be a more stable environment.

And while we have faced that competition with much more stable incentive levels in our portfolio, I think that will bode well for us in a more stable market as well. So I think that vehicle quality that Mary talked about against a more stable backdrop is going to be helpful as well.

Our next question comes from Mike Ward with Citi Research.

Just as an outsider looking in, it seems like there's been a pretty significant cultural shift at General Motors to move fast. And I'm just curious, does that make GM less capital intensive as we get to less volatile market environments? And what's the best way for us to track that? Is it cash flow? Is it CapEx to revenue? How should we think about that?

Well, I'll talk about the cultural shift. I definitely think the team has really excelled in this area from -- as we get a challenge, I've always said with all my experience at GM, when we have a clear challenge in front of us, that's when the team does their best work, aligns and really exceeds expectations on what they're able to do. And I think you've seen that time and time again through COVID, through the semiconductor shortage, through some of the challenges we've had post COVID. And now this year into a dramatically changing regulatory environment and a change from -- the change to EVs as well as tariffs.

And I'm really proud of the team for the results that we are delivering and sharing with you today because I think it speaks to the agility of the team, the speed. We don't sit around and look to blame others. We just say, okay, here's the situation, how are we going to adjust to it and how quickly can we do it. So I think as we go forward, there will be several things that we can look at.

I think making the changes we've talked about from a footprint change and saying we're going to maintain our capital discipline within the $10 billion to $11 billion range is one proof point. And I don't know, Paul, if you want to add any others.

Well, I look at it very similarly. And I think also, Mike, the capital discipline, the inventory discipline and what we've learned really since COVID, I think, has helped us be more nimble. So the sluggishness of over-inventory, oversupply of times long ago, I think, helped -- hurt us in terms of being able to respond because you were always carrying around that weight. So by being leaner, it is allowing us to go faster.

And as we make those decisions faster, I think we're better able to implement them. And that's really what the last few years has been all about, whether it was tariffs or chip shortage or COVID, the team has done an amazing job.

It shows up in the numbers. And it looks like when it's -- the surplus cash, you're just going to keep buying back the stock until we see otherwise. Is that the right way to read it?

Well, I think we'll continue to be wedded to our capital allocation policy. As you saw during the quarter, we invested in the business to the tune of about $2 billion. We repurchased about $1.3 billion of debt and retired that and repurchased about $1.5 billion of stock. So that balanced capital allocation has served us really well, and we expect to continue that.

I think the other thing, Mike, to think about is the upside that we have from a software and services perspective. We have incredibly talented engineers and people across the company who have been here who really know how to do great vehicles, pair them up with the team that we've been able to bring in from many of the different tech companies from a software perspective and from an AV perspective. I think we're marrying the 2 worlds very successfully. And I'm really excited about what we have coming in the future, not only the discipline of the core business, but what we can do from a software and services perspective, and we've shared a little bit about that with what we have with OnStar and Super Cruise.

But we think there's growth opportunity there with very attractive margins. So I think there's a lot to focus on as we go forward.

Our next question comes from Mark Delaney with Goldman Sachs.

Congratulations on the good results. You mentioned you expect GM North America margins to get back to 8% to 10% over time. Can you help us better understand what might have to happen to get back to that level? And how feasible do you think that margin level is without a substantial reduction in tariffs?

Mark, thanks for the question. As we said earlier this year, that's our aspirational target, and we're not making excuses about what's happening to us. So I think giving some time to adjust the business is what gives us confidence to be able to get back to that 8% to 10% level. So we talked about some of the levers in the script about having a lower net tariff burden, whether it's agreements that get done or we continue to exercise our self-help and make sure that we're balancing the other inputs around the P&L, is helpful.

We've got, we believe, the opportunity to come over the hump on warranty expense. As we said, cash outflows have stabilized. That's a good indicator. So the liability has to catch up a little bit on the accruals.

But hopefully, as we get into '26 and into '27 and beyond, we'll start to see some tailwinds on the warranty piece of it. We think rightsizing EV capacity is going to be an important step for that, too. As we've seen -- we talked a lot over the last couple of years about scaling into EVs was going to be an important driver of cost savings to fill that capacity that we had to build given the prior regulatory environment, making sure that we're balancing that burden in the future is going to help us. And like Mary said, we could be successful in EVs in a smaller demand set, but one that's much more natural than really the artificial environment we've been in, which was really compliance-driven.

So going forward, we think there's a lot of forces there that can help us do it, and we're aiming to do that as soon as we can.

My other question is on supply chain. I'm hoping to better understand where GM and its supplier stand with aspects, including aluminum, semis and rare earth in light of the recent events. And do you have visibility into how many weeks of stock GM and its suppliers have in some of these key areas and how fast you might be able to bring up the additional sources of supply if necessary?

Sure. Well, I think just overarching, we've been working now for a few years to have supply chain resiliency after we lived through COVID and the semiconductor shortage. And so from a battery raw materials, rare earths, Paul has led the activity to really work to source where we can from a North America perspective. We said either onshore or ally-shore.

And I think those investments will continue to pay off. We saw it from a magnet perspective. And Lithium Americas, I think, is another strong investment that we've made. I think when you look at the specific situation around Novelis, we are minimally impacted.

We've been able to find alternative sources. So I don't think that's going to have an -- be an issue for us. And then as I said in the opening remarks, we are very hopeful from the China chip situation. And we know -- we understand, I should say, that the governments are talking that are involved in this and hoping that they will work through that, though our team had jumped into action with evaluating where we have potential disruptions and what different sources we could use.

So the team is working around the clock to get that done. And I don't have any specific timing to share with you, but I think that we're very hopeful this is going to get resolved in the meantime. But the team continues to work as we speak to make sure we continue to identify other sources that we keep running. And that's really common course for us in GM right now with some of the different supply chain challenges we've seen over the last couple of years, whether it's natural disasters or other issues affecting it.

So our -- we have an incredibly strong supply chain that I'd like to recognize and also the partnership we have with suppliers working with us. I think this is where relationships matter, and we're going to continue to work to resolve. So I don't have any specific, and we'll keep you posted as we have clarity.

Our next question comes from Ryan Brinkman with JPMorgan.

After another strong quarter of performance from GM Financial and given the seemingly increased investor interest in consumer auto loan performance, I thought to ask on what you're seeing on that front, how your overwhelmingly prime customers purchasing above industry average transaction prices might be faring relative to the average borrower or even to the subprime borrower where it seems much of the concern may lie in the aftermath of the Tricolor bankruptcy? Recently, you shared some stress testing of the GMF portfolio. I think you're relatively more bullish on the consumer. But in the event that employment were to weaken in the U.S., in fact, did enter a downturn, what type of performance could investors reasonably expect from the GM portfolio?

Ryan, I'll start, and then I'll turn it over to Susan Sheffield, who's on the line as well. She's done a great job of taking over after Dan, and the team has done a -- what I would say has continued to be really strong and hold them up is what I would say is probably the best auto captive out there for sure, and their execution has been strong. Susan?

Yes. Thanks, Paul, and thanks, Ryan, for the question. What we've seen so far in our portfolio performance as a consumer that's been pretty resilient. We've seen credit performance kind of as we would expect to see given the credit mix on our portfolio, which is predominantly prime.

As we've said, even in the less than prime space, in the subprime space, which is a very, very small part of our portfolio, that performance too has been pretty consistent. Yes, there is some stress for those borrowers, but they continue to be employed. And so the performance, again, really as expected, and we see the normal seasonal trends that we see, but charge-offs were pretty flat year-over-year on -- so at 1.2%. So again, pretty resilient consumer.

We're tracking everything very carefully, but performance has been good. And then as far as the stress test, we have a very strong balance sheet, and we manage our business to make sure we have a strong balance sheet, and we can weather any changes that might come along. In unemployment, history would tell us that, if unemployment rises, that will have an impact. But we are in really good shape from where we sit now, and again, seeing a pretty resilient customer.

And again, I would say from an affordability standpoint, given the breadth of products that we offer at GM at multiple price points, we're able to serve the customer there and get them into a vehicle that they can afford.

Okay. And then just lastly for me. If I were to sort of combine the comment on Slide 23 that '26 is expected to be even stronger than '25, which is now guided to $12.5 billion of EBIT at the midpoint. I sort of combine that with what I thought I heard you say in response to an earlier question that you haven't included the tailwind from lower Korea tariffs, which I've estimated at $1 billion because they haven't been finalized.

And presumably for the same reason, you haven't included any tailwind from the elimination of GHG or corporate average fuel economy credits because some of those promulgations have yet to be finalized, and I've estimate that at $1 billion. Is it fair to say that under some potentially likely circumstances here that $14.5 billion of EBIT is even on the horizon as reasonably possible next year?

Well, thanks, Ryan. I don't think we're going to get into any specific commentary directionally on your model. I appreciate the thoughts. There's a lot of things that can change going forward.

But as we said, we do expect that 2026 can be better than 2025, assuming a similar macro backdrop going forward for all the reasons that we articulated. So we're going to continue to just focus on executing the business and executing the plan, and that's worked really well for us, and we expect it will in '26.

Our next question comes from Adam Jonas with Morgan Stanley.

So Mary, this is my last GM conference call, which is bittersweet. It's bitter for me, might be sweet for you. But I just have to acknowledge the consistency of the team's execution through some really challenging environments. You have higher margins and higher growth than Tesla and you trade at 6x earnings, not 200x earnings.

So basically, you guys have been kicking butt and proving the skeptics, including at many times, myself included, very, very wrong. So I just wanted to acknowledge that for the record, and bravo to the team. Mary, I've got a couple of questions for you. First, China, do you see a future for Chinese OEMs participating in the U.S. market?

And if so, how do you see that evolving?

Well, first, Adam, I really appreciate your comments. I couldn't be more proud of the team of not only the strategy that we've outlined, but the agility to handle all the different changes, and the execution is really paying off. And although you and I haven't always been completely aligned, I always appreciated the ability to discuss it. So I wish you well in your next assignment.

As it relates to China competition, I have no control of what's going to happen from a China perspective of where they compete and where they don't. What I will tell you is General Motors is focused on making sure we have beautifully designed vehicles with the right technology at the right cost. We understand those vehicles very well from our -- not only from our JV in China, but also from the comparisons that we've done. And so we're aiming to compete.

We need a level playing field, and I've been pretty vocal about that. But given a level playing field, we plan to compete and with better vehicles that customers want to have like we're doing today.

And just as a follow-up on autonomous vehicles. It does look like the autonomous vehicle problem, once seen as basically nearly impossible, is getting solved -- is getting solved. If you haven't been in Austin recently or SF, I mean, I know you guys get around, it's incredible. Now you've recalibrated your autonomous efforts to focus more on the ADAS and Super Cruise and the personal autonomy side.

And thanks for the disclosure of the $200 million of revenue, anything of how profitable that is would be helpful. But you are -- and you did say in your comments, you're still committed to bringing a Level 4 autonomy. But I think you caveated by saying to personal vehicles. I'm wondering, are you rolling out robotaxi?

Or is it just let's do the personal first and see where it goes? And in that vein, what milestones can we expect for 2026 on your autonomy journey?

Yes. First of all, I am really pleased with the performance from Super Cruise today and the fact that it continues to get better. And as I said, we're enjoying 70% -- approximate 70% margins on that business. We are focused on personal autonomy and Level 4. We're not in a rideshare 1.0 today.

And when you look at owning a fleet and all the other aspects that go into running a robotaxi fleet, that's not our core business today. That's not where we're focused. We're focused on individual vehicles. I think we've seen, even with rideshare 1.0 today, people leverage those, but they still want to own a car and that freedom of I can go where I want to go when I want to go.

And so we think that's going to be with us for an extended period of time. But personal autonomy on those vehicles will be very important. We'll have more to share as we get into next year what our milestones are, but I can tell you the team is working aggressively. And as I said before, the software team in partnership with the Cruise resources, along with Sterling Anderson, who joined from Aurora, I think, puts us in a really strong position.

So stay tuned on those '26 milestones. And like I said, there'll be a bit more that we'll be sharing tomorrow in our GM Forward Media Day. So appreciate it, Adam, and best of luck to you.

Our next question comes from Emmanuel Rosner with Wolfe Research.

I was hoping to drill down a little bit more on some of these levers you have for continued progress in 2026. And maybe starting with the EV losses. Can you maybe help us better understand or dimension some of the recent actions you've taken in Q3 and Q4, writing down some of the EV assets and sort of like shifting your own capacity? Just those -- all else equal by themselves, by how much does this improve your EV structural costs?

Emmanuel, I think if you look at this year, we talked about being able to improve our profitability with higher volume. And what we've seen is when we get into a situation where we have sequential step-downs in production capacity, it really wreaks havoc throughout the supply chain, logistics, supplier ramp-up costs, et cetera. So we found ourselves sort of chasing that downward. And what we really ultimately have realized is for now under the changing regulatory environment, we expect EV demand growth to slow pretty significantly from what it was going to be.

And so we need to make sure that we rightsize the capacity footprint to be able to not have to absorb a lot of those fixed costs. So while it's unfortunate, I think it is a quick adjustment to the reality around us that we're facing, and we're pivoting to be able to do that. So the charges that we took in the quarter will help that a little bit. And as we've said, we're continuing to review this.

We do expect there to be some additional charges in 4Q. We haven't fully sized that up. But as we do that work and ultimately finalize that in the quarter, I think we'll have a better view of how we can translate that to '26 and beyond.

Understood. And then on the CapEx front, the lower spending presumably on the EV side, is there any opportunity or appetite to reduce overall CapEx for the company? Or is there a lot of need for this to be reallocated elsewhere?

Well, I think, Emmanuel, we've talked about this fairly extensively. If you look at the inflation-adjusted numbers, our capital expenditures are pretty much in line with where they were at the end of the last decade before COVID. I mean the absolute numbers are higher, but the inflation adjusted numbers are actually pretty similar while our cash generation is up exponentially. So I think where we have strong affordability of what we can do with the investments, I think we've demonstrated some resiliency.

As you look at capital expenditures going forward, what we've said is the last couple of years have been about expanding the portfolio of EVs for the next few years is going to be about lowering the cost and making structural improvements to the battery cells and to the architecture going forward as well as some now incremental investment into internal combustion engine vehicles because those are going to be around longer and probably more in demand than they otherwise would have under the prior regulatory environment. So balancing those capital needs within the constraints of how much cash we're generating, I think it's hard to poke at our free cash flow generation and what we've done with that discipline.

So I think we're very, very good where we're at, at the $10 billion to $12 billion range for the next couple of years.

Our next question comes from Chris McNally with Evercore.

Mary, I echo the applause on the [ stoic-like ] execution, I think, shared by most on the call just to start. But maybe a bit of a boring question for Paul. Ironically, I think one of the parts of this year's upside, which has not been the expected major contributor that we all thought was pricing. And Paul, when we reconcile some of the average wholesale unit price that we see that we can back into, it's up almost 5% Q3, it's up 2.5% year-to-date, but the walk guide is only up 50 basis points to 100. You talked about the fleet drag on Q2. But wouldn't we have seen that in the wholesale ASPs as well?

I apologize, it sounds like a modeling question, but what are we missing between the wholesale pricing and pricing in the walk?

We've gone to market and looking at incentives. I think we've seen some step-ups in incentives on the EV side generally across the industry and a little bit of incentive pressure as we've seen throughout the quarter from some of our competitors. I think we've maintained some pretty remarkable discipline in the face of all of that, and I think that's continuing to serve us well. So I don't think I would complain about being up 0.5% to 1% on pricing this year in the aggregate going forward.

We want to continue to make sure that we balance our performance against customer affordability issues and GMF and everything that Susan mentioned as well. So I think that's an important piece of the puzzle. But maintaining that discipline, I think, is going to be helpful for us into 2026.

And then, Paul, that's just the follow-up. Is one of the pieces on the walk you talked about as some of the lower EV losses will be lower EV incentives. So even though it's kind of a mid-teens, 10% portion of the overall sales, the incentives have been quite high there because of the competitive environment. And as those are walked down, that's a piece of this year-over-year EBIT walk for ICE and maybe -- for EVs and a little bit of ICE on the overlay?

Yes. I think it's a little bit too soon to tell. I mean we certainly have seen a lot of behavior from competitors where they increased incentives into the face of the pull-ahead demand in September, et cetera. I mean that really looks like a sign of kind of liquidating a lot of inventory, and we've seen inventories come down, which I think portends for a more stable supply-demand balances as we talked about earlier.

So for what it's worth, our incentives as disciplined as we've been on the ICE side, the difference between us and the industry on the EV side is actually even more stark. So we expect that, that can be stabilized for us. And the customers that want EVs, and let's remember, there was EV adoption before the $7,500 tax credit, and there will be EV adoption afterwards. I think those customers are looking for the quality and the range of vehicles that we can provide with our platforms, and I think that will bode well for us.

But we certainly expect that we can get into a stable run of improving profitability, but we do have a ways to go, and we're going to be patient about how we do that.

Our last question comes from the line of Federico Merendi with Bank of America.

One question on the back of what Adam asked about China. During the quarter, you mentioned that you're partnering with Hyundai for the development of new vehicles, and I believe it was for South America. Is that the strategy of GM to go or at least to compete with Chinese OEMs going global? And is it -- should we think about GM going after the international markets once again?

Well, I think in many of the international markets, we have a strong business today. Paul mentioned in his comments, the Middle East, we're seeing very strong full-size truck and full-size SUV. We've seen progress in our South America markets, and the Chevrolet brand is doing well there, and it's also considered a premium brand in many of the South American markets. I think the partnership that we announced with Hyundai speaks to what I think the industry can do more of, do things that the consumer -- or not consumer-facing where we can save from an R&D perspective and in cases, save from a capital perspective.

And we're looking to do that and get those efficiencies to make our vehicles even more competitive. So I think it's a broad strategy and we really have a strong partnership with Hyundai that we'll continue to evaluate as we go forward for additional opportunities.

And maybe I missed on this, but what are the working assumptions for 2026 in terms of tariffs for Mexico and Canada? Should we expect that something will be -- I mean, what are you expecting there?

Well, right now, the tariffs are 25% and 35%. I know there's conversations going on between the governments, but I'm not going to get ahead of that. So we're just continuing to monitor it just like you. So there's nothing -- no change built into our assumptions.

I would now like to turn the call back to Mary Barra for her closing comments.

Well, thank you, and I want to thank everybody for joining us this morning. I want to reiterate my confidence in the strength and adaptability of our team and our vehicle portfolio, which we believe has set GM up for long-term success. Our immediate priorities are clear. We are committed to restoring North America to our historical margin levels and accelerating the expansion of our software and services business on top of great vehicles.

We also see significant new opportunities ahead. Our investments in advanced technologies, manufacturing and talent are creating a more resilient, innovative GM capable of leading through change and delivering strong results for our shareholders. So in closing, I'd like to thank our employees, dealers, suppliers and other partners once again for their ongoing dedication, hard work because I believe this continues to set us apart. We're focused on building great vehicles, providing an exceptional customer experience and creating lasting value for all of our stakeholders.

And I look forward to updating you on our progress in the quarters ahead. Before I close, I would like to recognize, though, the tremendous progress our Cadillac Formula 1 team has been making. We're rapidly approaching a historic moment for our company and the sport. In March of 2026, Cadillac will become the first American car brand on the F1 grid at the season opener in Australia and will race for the first time on U.S. soil in Miami in May.

The recent announcement that Apple will broadcast F1 exclusively in the U.S. will put the Cadillac brand in homes of multiple audiences and help us build even stronger connections to an estimated fan base of 52 million people in the U.S. alone. And when we think about F1, it's very aligned with where the Cadillac brand is today with all the work we've done to make it a true luxury American brand. So thank you, everyone, again. I look forward to talking to you next quarter.

Thank you. That concludes today's conference. Thank you for participating, and thank you for joining.