Earnings Call Transcript - GM Q1 2026

Operator, Operator

Good morning, and welcome to the General Motors Company First Quarter 2026 Earnings Conference Call. (Operator Instructions) As a reminder, this call is being recorded on Tuesday, April 28, 2026. I would now turn the call over to Ashish Kohli, GM's Vice President of Investor Relations.

Ashish Kohli, Vice President, Investor Relations

Thanks, Denise, and good morning, everyone. We appreciate you joining us as we review GM's financial results for the first quarter of 2026. 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. 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.

Mary Barra, Chair and Chief Executive Officer

Thanks, Ashish, and good morning, everyone. Once again, thanks to our strategic product portfolio and great execution by the GM team, including our dealers and suppliers we delivered an outstanding quarter. I couldn't be more proud of the team's efforts and our results. We are continuing to execute our plan to return to 8% to 10% EBIT-adjusted margins in North America for the full year. In fact, in the first quarter, we achieved an EBIT adjusted margin of 10.1%, including 1.5 points of benefit from the accounting adjustment resulting from the recent Supreme Court tariff decision. This nets to an 8.6% margin. Complementing our performance in GM North America was our sixth consecutive profitable quarter in China and higher year-over-year results in GMI excluding China. We're also building tremendous momentum in digital services. They are playing an increasingly important role in our success, and they will drive even stronger results in the future. If you look deeper at our results, especially in North America, you can see how the depth and breadth of our vehicle portfolio is driving the business. Following a very strong close to the fourth quarter, we began this year with lean inventory in the U.S., and we had planned downtime in North America during the quarter to install tooling for our next-generation full-size pickups. Even with tight inventory, we continue to lead the industry in the U.S. and Canada, and we're #2 in Mexico. We also continue to lead in full-size pickup sales and share with 42% of the U.S. market. In addition, we were #1 in fleet, including commercial deliveries, and we were #2 in EVs. As we exited the quarter, our EV market share in the U.S. was 13% up from about 10% in December 2025, which underscores the appeal of our portfolio as the segment stabilizes. I would also like to highlight the growth of our crossover business, which is an important differentiator for GM. Since we began refreshing our lineup in 2023, crossovers have grown from just over 40% of our sales to more than 46%. We've also gained 2 full points of share in vehicles like the Chevrolet Trax and Equinox, the Buick Encore and the GMC Terrain and the Chevrolet Traverse and GMC Acadia. They have become significant contributors to our profitability. Additionally, we delivered these results with incentives that continue to be below the industry for both ICE and EV. As we look ahead, the SAAR is holding steady, showroom traffic is stable, and we continue to operate with lean inventory. We began the second quarter with about 47 days of supply on dealer lots. All of these winning vehicles are laying the groundwork for higher company level profitability around the world through durable recurring digital revenue streams. We are on pace to add more than 1 million OnStar subscribers in 2026 with about 30% of our existing customers choosing a premium plan. Outside of the U.S. and Canada, we have more than 20 revenue-generating markets and regions, including Mexico, Brazil, China, South Korea and the Middle East. Within the OnStar platform, Super Cruise is also scaling quickly. Our customers have now driven 1 billion hands-free miles and our subscription performance is on pace to exceed 850,000 subscribers by the end of the year with strong renewal trends in the 30% to 40% range. You will find that our attach rates, subscription renewals and revenue generation compare favorably to others in the industry. The continued growth of this ecosystem, including the customer base, miles traveled and the insights we're gaining to train our AI models will help pave the way for our eyes-off, hands-off technology launching in 2028 on the Cadillac Escalade IQ. The Escalade IQ is just the start. We are doing something unique in the autonomous space, which is developing a system for personal vehicles that we can deploy on both ICE vehicles and EVs and scale across multiple brands and price points. We're stress testing it in the digital environment capable of simulating roughly 100 years of human driving every single day. We recently took the next step and began supervised on-road testing in California and Michigan. The way we're building this technology is a reflection of how seriously we're embracing AI across the enterprise. Today, nearly 90% of the code written by our autonomy team is generated by AI. Next, let me comment on our updated EBIT adjusted guidance, which we are raising by $500 million to a range of $13.5 billion to $15.5 billion to reflect the flow-through of the tariff adjustment. While our operating performance remained strong as reflected in our excellent first quarter results, the war in Iran has raised our cost and its duration remains uncertain. We are working to offset these cost pressures by reducing spending in other areas and by continuing to find efficiencies across the business, but we believe it's prudent to wait and see how events unfold before we make any further changes to guidance. As we move forward, I'm confident that our portfolio, production, inventory and incentive discipline, balance sheet strength and free cash flow generation will continue to differentiate GM. With that, I'll ask Paul to take you deeper into the quarter, and then we'll move to Q&A.

Paul Jacobson, Executive Vice President and Chief Financial Officer

Thank you, Mary, and we appreciate everyone joining us this morning. The GM team delivered another outstanding quarter. Thanks to their hard work and strong execution. Q1 EBIT adjusted was $4.3 billion, surpassing expectations even after excluding the $0.5 billion tariff adjustment. Once again, we demonstrated discipline in our approach to both pricing and inventory. In the first quarter, our U.S. incentive spend per vehicle as a percentage of MSRP remained more than 2 points below the industry average. U.S. dealer inventory ended the quarter at 516,000 units, down 6% year-over-year overall and down 9% for full-size pickups, even against the difficult comparison created by outsized pre-tariff March deliveries last year. While we further strengthened our leadership in U.S. full-size pickups this quarter, leaner inventory constrained retail sales. Looking ahead, we are working to increase inventory levels of key products and believe that we can take this higher over the next several quarters while being mindful of the broader demand environment. Let me now provide more details on our strong first quarter results. For the total company, revenue was down year-over-year by approximately $400 million in the first quarter, as expected, driven primarily by lower EV wholesale volumes. ICE wholesales were flat year-over-year, with higher GMI volumes being offset by lower North American volumes, which were constrained by the end of production of certain Cadillac crossovers, lower imported volumes from Korea and full-size pickup downtime. As I mentioned earlier, our Q1 EBIT adjusted came in better than our expectations, driven by solid execution across all of the businesses and good expense management. Year-over-year, Q1 EBIT adjusted was up approximately $750 million, driven by the tariff adjustment, lower EV losses and FX benefit, lower warranty expense and emissions-related regulatory savings. These tailwinds were partially offset by a full quarter of tariffs. Let's expand on a couple of these items. In the first quarter, we incurred $200 million of incremental gross tariff costs, including the tariff adjustment compared to minimal tariff costs last year. EV losses were down several hundred million dollars year-over-year in the first quarter, driven by lower volumes, manufacturing efficiencies and lower fixed costs. On warranty, we continue to expect a year-over-year tailwind of $1 billion with first quarter results improving roughly $200 million versus the prior year. Q1 results included $400 million of lower warranty liability reserve adjustments, partially offset by higher warranty rate accruals on new vehicle sales. We continue to pursue a comprehensive multipronged approach to reduce our warranty expenses from product development and current production all the way to repairs at our dealers. Let's turn next to an update on our EV charges. Last year, as you know, we reassessed our EV capacity and manufacturing footprint to better align with softer demand and elimination of U.S. tax incentives. As previously indicated, we are transitioning Orion assembly from EV to ICE production and resolving associated supplier contracts. With the exception of the BrightDrop EV van, we have not recorded impairments to our current EV portfolio. Our focus remains on improving EV profitability and scaling our business as market adoption grows, albeit at a slower expected pace than we had previously seen. In the second half of 2025, GM recorded a total of $7.6 billion in EV related charges. This breaks down into $4.6 billion of estimated cash charges and $3 billion in noncash impairments. In the first quarter, we took an additional $1.1 billion in EV charges, driven mainly by contract cancellations and supplier commercial claims. We expect about $1 billion of this will have a future cash impact. We're moving quickly to finalize claims. To date, we've already recorded around 90% of the expected total supplier commercial claim costs, and we anticipate reaching agreements in principle on most of the remainder during the second quarter. Separately, we continue to work expeditiously through rightsizing our battery supply chain with our joint venture partners. Of the total, $5.6 billion in EV-related cash charges recorded since the second half of 2025, $2.6 billion has been paid as of March 31. In April, we've already paid an additional $600 million, and we continue to expect most of the remaining cash flows to occur in 2026. We remain steadfast in our desire to get these claims resolved quickly and fairly for our business partners and our shareholders. Now let's turn to a regional perspective. In North America, Q1 EBIT adjusted was $3.7 billion with a 10.1% margin, including an approximately 1.5 point benefit from the tariff adjustment, which nets to 8.6%. We're off to a terrific start to deliver a North American margin in the 8% to 10% range for the full year. Excluding the plant sale gain, China equity income was $100 million. This shows ongoing resiliency from our prior restructuring as well as disciplined production and inventory management in the face of softer macroeconomic conditions. GM International, excluding China equity income delivered approximately $40 million in EBIT adjusted despite the Iran conflict disruptions in the latter part of the quarter. We have been and will continue to divert some full-size SUVs and pickups from the Middle East back to North America, helping to alleviate low domestic inventory levels. GM Financial continued its stable performance, delivering EBT adjusted of $700 million for the quarter. Now let's look ahead to 2026 guidance. While the U.S. economy has been resilient, we haven't seen any material changes to demand or mix thus far. There remains considerable uncertainty, and therefore, we want to be prudent as we think about the future. Based on what we know today and assuming the SAAR remains in the low 16 million unit range, we are raising our overall EBIT adjusted guidance to $13.5 billion to $15.5 billion up from $13 billion to $15 billion. Likewise, we are raising our EPS diluted adjusted guidance to $11.50 to $13.50 per share, up from $11 to $13. While our execution and discipline helped drive first quarter outperformance, we now expect incremental commodity and freight costs versus our original guidance. At the same time, our FX outlook has improved from a small headwind to neutral for the full year. As a result of these changes, we are increasing our full year guidance for year-over-year commodity inflation, including logistics and higher DRAM costs to $1.5 billion to $2 billion. The incremental $500 million is expected to be more or less equally weighted across the remaining 3 quarters. In light of that, we're continuing to take proactive steps to ensure that we are efficiently allocating our resources and are ready to quickly adjust as needed. Meanwhile, our gross tariff costs are now expected to be $2.5 billion to $3.5 billion for the year, down from our original guidance of $3 billion to $4 billion because of the tariff adjustment we took in Q1. We expect 2025 self-help offsets to continue in 2026 and are pursuing additional opportunities to further mitigate these costs. Relative to our international regions, we expect China to remain profitable and to deliver results consistent with 2025. However, we anticipate some softness in our international operations outside of China due to the impact of the conflict and around on Middle East wholesales in particular. There is no change to our other 2026 key guidance assumptions. On price, we continue to expect to be flat, up 0.5%, benefiting from model year 2026 price increases. ICE volumes are expected to be flat to modestly up though production is constrained due to the major refresh on full-size pickups as well as the end of production of the Cadillac XT6. For EVs, we expect volumes to be lower as the market shows early signs of stabilizing around 6% of U.S. industry sales. We continue to expect a benefit of $1 billion to $1.5 billion for the calendar year as we rightsize our EV capacity and run at substantially lower EV wholesale volumes. The production pause at Ultium Cells means lower benefits from production tax credits flowing through material costs, but this is largely offset by positive inventory adjustments from lower cell inventory levels. On regulatory costs, we continue to expect $500 million to $750 million tailwind year-over-year. The endangerment finding repeal in February was already assumed in our plan. GM Financial continues to expect EBT adjusted in the $2.5 billion to $3 billion range, including accelerated depreciation on its EV lease portfolio. As part of our disciplined risk management, GM Financial regularly evaluates the estimated residual values and proactively adjust depreciation accordingly. We are maintaining our adjusted auto free cash flow guide of $9 billion to $11 billion with a heavier weighting to the second half. Note that this guidance excludes the EPA tariff refund given uncertainty around payment timing. Our capital allocation policy remains unchanged. We are committed to investing in the business, maintaining a robust balance sheet and returning the remainder to shareholders. We believe that repurchasing GM stock at the current valuation remains one of the most effective ways to deploy capital and create long-term value for our shareholders. In Q1, in addition to distributing $164 million in dividends, we made $800 million in open market stock repurchases, retiring approximately 11 million additional shares at an average price of $75.02 per share. We ended Q1 with $19 billion of cash and $5.5 billion remaining on our share repurchase authorization. Before I open the call for Q&A, I want to highlight our OnStar digital service business. This includes Super Cruise, but also a broader suite of connected services that we highlighted earlier in the quarter. It's an underappreciated asset that is growing and margin accretive. In Q1, we saw recognized revenue of over $750 million, up over 20% year-over-year. For the calendar year, we expect $3.1 billion of recognized revenue, up 15% year-over-year. We are on track to reach 13 million subscribers by the end of 2026, up by $1 million year-over-year with a monthly average revenue per subscriber of around $20. Those subscribers are driving ongoing deferred revenue growth as well. In Q1, the deferred revenue balance ended at $5.8 billion, up $2 billion or over 50% year-over-year. For the calendar year, we expect deferred revenue to approach $7.5 billion, up more than 35% year-over-year. In conclusion, I have tremendous confidence in the GM team's ability to successfully navigate the evolving geopolitical landscape. Our broad ICE and EV portfolios remain key competitive advantages versus our peers and our disciplined approach to inventory and incentives keep us agile. Just like we've done with other macro headwinds, we are proactively planning for a range of potential outcomes. We are working to identify additional profit improvement opportunities and have begun taking initial no-regret steps to moderate spending. As events continue to unfold, we will remain flexible and execute the right playbook to optimize profitability, maximize free cash flow and continue to deliver strong returns for our shareholders. Thank you for your continued support. And with that, we now begin our Q&A portion of the call.

Operator, Operator

(Operator Instructions) Our first question comes from Itay Michaeli with TD Cowen.

Itay Michaeli, Analyst, TD Cowen

Maybe just to start, Paul, just a clarification on the guidance. Can you talk about the offsets from a cost perspective or otherwise to the higher commodity inflation that's leveling to kind of raise the guidance outside of the tariff receivable, of course.

Paul Jacobson, Executive Vice President and Chief Financial Officer

Thanks for kicking us off today. So I think when you look at the inflation, the pressures that we're seeing, the offset come in a couple of different forms. Number one, we've put a little bit in the bank in Q1 from our outperformance from what we've seen. Some of that was timing, but there was some good core movement on many of the staples that we've talked about, whether it's warranty or EV profitability, regulatory costs, et cetera. But then there is also the playbook that we referenced in our comments, which similar to what we've done, whether it was tariffs or chip shortage or COVID, et cetera, that's worked really well for us. So we're looking at doing that. What we don't want to do, we don't want to rush and do a lot of things that are going to jeopardize or otherwise put at risk longer-term strategic initiatives by overreacting to what's going around us. So we have sort of degrees of freedom in terms of what we're going to do, starting with relative low hanging fruit, maybe deferring some hiring or things like that. But overall, I think we're going to be measured about it. So while we have this uncertainty, I think holding our numbers consistent net of the tariff receivable, I think is the prudent thing to do with all this uncertainty. And if things abate, then we could potentially see upside in the future.

Itay Michaeli, Analyst, TD Cowen

That's very helpful. And then a bigger-picture question, just to ask about the progress on software and services. At what level should we think about the ARPU opportunity for the company on the upcoming SDV platform in 2028, as this opportunity continues to grow from here?

Paul Jacobson, Executive Vice President and Chief Financial Officer

Well, I think, Itay, you look at the momentum we have, and I appreciate you pointing it out. We've started to lean more into disclosing a lot of what's going on here. I think what we're really focused on right now is the attachment rates and delivering value to the customer. As we roll out SDV 2.0, the number of opportunities out there starts to magnify pretty significantly in terms of the digital offerings we can put out. You'll hear more information about that over the coming months as we lean into when SDV 2.0 comes. But clearly, when you look at it, we might have a lower average revenue per unit than, say, Tesla does, but we already have significantly higher volumes, more deferred revenue, and more realized revenue. That's where the real scale benefit comes across the portfolio. So we think this is a growing and soon-to-be highly influential piece of the business going forward.

Operator, Operator

Our next question comes from Joe Spak with UBS.

Joe Spak, Analyst, UBS

Paul, I know you're on TV this morning, and I think you mentioned some industry discounting. Could you expand on that a little? It doesn't sound like you've changed your own volume or pricing assumptions. Is what you're seeing roughly in line with what you expected 90 days ago? And given some of these cost pressures, if competitors start to try to price to cover those costs, do you feel that gives you some leeway to do the same to cover the higher costs you mentioned?

Paul Jacobson, Executive Vice President and Chief Financial Officer

Yes. Thanks, Joe. I would say it's largely in line with what our expectations have been. There have been some really unique things that I think have played out this year among the competitive set that we haven't seen historically. But we continue to, I think, be very disciplined in our approach. I think a lot of the share data that people saw during the quarter was probably more a result of some of the challenges we had with inventory on lots. We came into the quarter light on our targeted inventory levels primarily because we've had such a really strong December, for example. And then with the storm and some other challenges that we had, we weren't really able to catch up. Wholesales call up towards the end of the quarter, but that really didn't show up in showroom we're optimistic that as we get more product out to the dealers in Q2 that we can help to reverse some of the share losses that we saw without getting into heavy discounting across the board. So I think nothing has changed in our playbook. We're going to continue to be tactical and we're going to continue to be disciplined.

Joe Spak, Analyst, UBS

Makes sense. Maybe one question on the cost side: you had good cost management this quarter and mentioned some timing or phasing. The one I hear most and am curious about is the $1 billion to $1.5 billion in onshoring and software costs you referenced. How is that tracking? Did that start to show up this quarter, or is it more weighted toward the remainder of the year? And one clarification on the tariff receivable: this is just the receivable for your overpayment, correct? You are not assuming in your guidance that you will avoid paying this in the back half or that the 122 replacements remain in place. You are not modeling a benefit from not paying it in the back half, correct?

Paul Jacobson, Executive Vice President and Chief Financial Officer

Yes. Let me cover the tariff question first. We took the direct tariff we paid last year that was subject to the Supreme Court decision and credited that back as a receivable. We haven't changed our free cash flow guidance because we don't know when the refunds will be received or how that window might work going forward. That's the only assumption we've made. Keep in mind most of our tariff burden comes from 232, so the EPA-related portion is relatively small versus our size. Because of that entry, we lowered the tariff guidance. We are not projecting any other changes to our tariff bill. When I said guidance down, I was referring to tariff bill guidance. On the cost side, there are a few things. Foreign exchange was a benefit for us, primarily the Canadian dollar and also Korea, and some of our imports are getting better treatment there. We think that will hold. We are making progress on warranty, a couple hundred million dollars of warranty in line with what we said we would do for the year. EV profitability improved largely due to better, more efficient use of capacity as the write-offs we took have held, and also on the regulatory side around GHD. I think many of those improvements will hold. As we have discussed, onshoring costs are going to be heavily weighted toward the back half of the year, as expected, and we will start hiring people to get the plants running in early 2027.

Operator, Operator

The next question comes from Emmanuel Rosner with Wolfe Research.

Emmanuel Rosner, Analyst, Wolfe Research

So quite an uncertain environment as you certainly indicated. I was curious in terms of the factors you're monitoring, you indicated you'd want a little bit more clarity on some of those before making any additional changes to the outlook. In terms of things that could move the needle for this year that you're monitoring? Is it more on the demand side, vehicle mix, input cost, I'm curious which are the ones that could still move up or down the most and impact you?

Mary Barra, Chair and Chief Executive Officer

Emmanuel, I think the number one thing we're watching is what happens with the Iranian conflict because oil prices affect a lot more; we're seeing impacts not only on logistics but on other commodity costs as well. If the conflict ends quickly, I think we'll see a return to normal levels. If it continues, the question is how high oil prices will have to go before we start talking about demand. I also want to remind you that although we have an incredibly strong truck franchise and I'm very excited about the new truck coming out at the end of the year, we also have a very strong midsize crossover portfolio and small crossover portfolio as well as a strong midsize truck. I think we're well prepared with our portfolio; I'd stand against anyone when we look at how consumer behavior might shift depending on how long the war lasts, but we just don't know. Those are the primary things we're watching. And as Paul said, we've looked at the years and seen that uncertainty, especially as the conflict began, and that's why we started to really work on cost management. There are other areas we're working on to continue to do that. But I think the biggest variable we're looking at is how long the conflict lasts and what it causes from a cost perspective across logistics and the supply chain, and whether it ends up having any impact on mix. To date, we really haven't seen that.

Emmanuel Rosner, Analyst, Wolfe Research

That's very fair and great color. And I guess just as a follow-up on this then, in terms of input cost inflation and commodities, can you tell us what you have assumed in this updated guidance, which reflects that inflation costs have been increased by another $0.5 billion? What are you assuming for commodities in the back half, or how long they stay high as a base case scenario?

Paul Jacobson, Executive Vice President and Chief Financial Officer

Yes, Emmanuel. What we've done is take the current curve net of our hedges. It's not entirely direct or linear because of, for example, our steel contracts. If you recall, roughly one third is spot, one third expires within a year, and the remaining third is over two years, and that mix has helped us. When prices go down we pay a little more, and when prices go up we pay a little less. We expect the current environment to persist through the year, and if the conflict ends and commodity and oil prices return to pre-conflict levels, we could potentially see upside.

Operator, Operator

The next question is from Mark Delaney with Goldman Sachs.

Mark Delaney, Analyst, Goldman Sachs

You mentioned the downtime that GM had for tooling in the first quarter related to the next-gen full-size pickups. I'm hoping to better understand if investors should expect more downtime for the upcoming full-size pickup launch? And that's a potential incremental headwind? Or is that now behind and higher full-size pickup truck production should be a tailwind for the volume and share plans that you articulated in your prepared remarks.

Paul Jacobson, Executive Vice President and Chief Financial Officer

Yes. Mark, thanks for that. We had some significant downtime in the quarter primarily related to heavy-duty trucks. I think a lot of that is behind us. There may be some selective downtime, but I think a lot of it can be done during shutdown, et cetera. So we're not anticipating any material downtime at this point. But that's what we're going to need to lean into a little bit to try to get our inventory levels back into the targeted range from where they've been because even when we ended the quarter, we were still down below our target levels. So we're hoping that we can get that back. And the team has done a really, really good job of managing through all of the logistical challenges.

Mark Delaney, Analyst, Goldman Sachs

My other question was on Super Cruise and the digital services. For the strong growth that GM has been seeing in Super Cruise and the willingness for consumers to subscribe after the prepaid subscriptions last, can you speak a bit more on the breadth of that consumer demand? And is it concentrated in the higher end parts of the portfolio like Cadillac or is GM seen consumer demand for those solutions more broadly?

Paul Jacobson, Executive Vice President and Chief Financial Officer

So what I would say, Mark, is we're continuing to trend at about a 40% attachment rate after the subscription period, and we do it differently. Other competitors put the hardware on every vehicle and bear that cost; in our case, consumers who purchased Super Cruise prepaid for a three-year period, which covers the hardware cost. That creates deferred revenue tied to the vehicle, and then we have the subscription afterwards. We're starting to see an increase in the number of vehicles coming off that three-year prepaid period, and we're still holding attachment rates in the 40% range. We're very optimistic about what that means. When you look at ARPU, you have to take into account the scale advantage we have, especially as we grow into SDV 2.0 and expand it more broadly. Super Cruise is a strong leading indicator, and we're continuing to invest in delivering more value to customers to make it even more attractive in the future.

Operator, Operator

The next question comes from James Picariello with BNP Paribas.

James Picariello, Analyst, BNP Paribas

My first question is about adjusted auto free cash flow. How should we be thinking about the GM Financial dividends? That was a notable step up to $650 million for the first quarter. And to clarify regarding the EV cash restructuring of roughly $4 billion for the full year: will the majority of the remainder be achieved in the second quarter?

Paul Jacobson, Executive Vice President and Chief Financial Officer

Yes, James, a couple of things. First, on GMF, we saw an opportunity in the first quarter, largely because of GMF's cash position, to step up the dividend from our traditional level. We're not changing the full-year expectation for the dividend, so it's pretty consistent for the year, but from a timing perspective we saw the opportunity and took it. On the EV cash charges, as we've laid out, we're going hard and aggressively at the commercial relationships, with approximately 90% of the charges tied to those. We expect to have substantially all of that cash paid out before the end of this quarter, which is the second quarter. We still have a couple of battery raw material negotiations that we're working through; they're obviously more complex, but those will come in over time as we continue to work with our partners. Our goal is to put as much of this behind us as quickly as we can so we can focus with our supply chain partners on tomorrow instead of having conversations about yesterday, and I think we're way ahead of the expectations many of our competitors have placed. We're focused on that. We also don't want it to be an overhang for cash flow. Despite the significant cash outflow we've seen as a result of those restructuring charges, we were still able to repurchase $800 million of shares in the quarter, and we remain committed to our capital allocation going forward. I think the team has done a really good job managing through those challenges and conflicts.

James Picariello, Analyst, BNP Paribas

Very helpful. On the GMI downside in the guide, how should we be thinking about it? Is it roughly $300 million of incremental downside? How should we think about GMI volumes for the remainder of the year compared with the first quarter? And on that note, what's the high-level cadence for adjusted EBIT for the year? Are the second and third quarters typically the strongest for GM?

Paul Jacobson, Executive Vice President and Chief Financial Officer

Yes. I would say that a lot of that impact is being driven by the Middle East. In the quarter, we actually reallocated about 7,500 full-size SUVs that were originally slated for delivery to the Middle East operation under GMI. We reallocated them to North America, partly because of the conflict and the logistical challenges of getting them to market, but also partly to help bolster some of our lower inventory levels here in the U.S. So I think from an enterprise perspective, we're largely mitigating that impact, as we've said. But depending on how long the conflict continues and how long we see challenges in the Middle East, that's what's going to ultimately determine the pressure on GMI.

Operator, Operator

The next question comes from Michael Ward with Citigroup.

Michael Ward, Analyst, Citigroup

Just a follow-up on the truck changeover. You planned downtime for the tooling and the actual change takes place in the second half, specifically in 4Q. Is that right? And is there an impact on volume in 4Q, or is that largely behind you?

Mary Barra, Chair and Chief Executive Officer

Well, I would say as we look at that ramp will start in the third quarter and then we'll accelerate. So depending on how successful we accelerate, there's a tremendous amount of work going on. I'm really pleased with what the truck is from a quality perspective right now. But there may be a small impact, especially since we're running so lean from the current year. It's a good thing, though, that there's still such strong demand for our current generation trucks. So we think it's going to be a pretty smooth changeover, but there could be a small amount of impact as we get into the latter part of the year.

Michael Ward, Analyst, Citigroup

And then just going back to the digital services. I think you said that you expect margins to be in line with other software companies. When will we see those types of margins? I don't know if we're there yet now or not or if they're upfront costs you take. How does that cost/revenue curve look out over the next 2 to 3 years?

Paul Jacobson, Executive Vice President and Chief Financial Officer

Yes. Mike, this gets a little technical, but I’ll summarize. When we sell a vehicle with Super Cruise, all the hardware costs are expensed immediately, while the revenue tied to that gets deferred over a three-year trial period. That deferred revenue comes in at a very high margin because the cost has already been recognized. For our other digital services and OnStar, some hardware costs are also expensed with the vehicle and there are ongoing service costs, so those margins aren’t quite as strong as the fully deferred case, but they’re still substantial. As we ramp up the deferred revenue base and it starts to amortize into the P&L at increasing rates, you’ll begin to see the impact. We discussed this at Investor Day a few years ago — it was expected to grow to a point that affects the company’s overall margins — and we’re starting to see that take hold. We also see a lot of potential from SDV 2.0 and future improvements to Super Cruise and eventually autonomy as we scale.

Operator, Operator

The next question comes from Andrew Percoco with Morgan Stanley.

Andrew Percoco, Analyst, Morgan Stanley

I want to start on the digital services. I appreciate the added disclosure you guys have started to give here. But if I look at the 13 million or so subscribers that you're targeting by year-end. You've also got, I think, 45 million to 50 million vehicles on road. So I'm just curious, like how do you tap into that 35 million to 40 million other vehicles that don't currently have any subscription these digital services? Is there a hardware limitation? I know there might be some limitations around supervision, but outside of supervision, what's the opportunity to get some of those customers into some of these higher-value digital services?

Paul Jacobson, Executive Vice President and Chief Financial Officer

Yes. Thanks, Andrew. I appreciate that. So I think when we talk about the car park that's out there in the universe of GM vehicles that really is meant to signal the opportunity that exists going forward. So as we continue to put SDV 2.0 and other capabilities, many of the vehicles that are out there don't have the hardware capabilities to be able to deliver that. So we're looking at that growth potential and really sizing the box for the future as we continue to expand that. So we do have, like I said before, in response to the other question, with Super Cruise, it really is a case where the hardware is on there for people that buy it. As we continue to get the cost down, we can look to potentially approach the market differently on that. But we see a ton of potential here because we're already driving approximately $7.5 billion of deferred revenue by the end of this year with what we have. So it really speaks to the opportunity that's ahead of us.

Andrew Percoco, Analyst, Morgan Stanley

Got it. That makes sense, and that's super helpful. And I guess, as a follow-up question to that, I think super cruise is available on, I think, 750,000 miles of roads in the U.S. What's some of the gating factors in expanding that? Is it regulatory? Is it your own kind of risk appetite? Just help us think through what some of the kind of gating factors are there.

Mary Barra, Chair and Chief Executive Officer

It really is, as the company looks, both. In many cases we have LIDAR maps with the current system, and we've really focused on highways and major roads. That's a focus we continue to evaluate as we consider how to expand. As you've seen since we first launched Super Cruise and it started on a limited number of roads, we have continued to expand that over time. We are now on additional roads, not just highways, and we'll keep looking for opportunities to do that while making sure we implement the technology correctly. One of the things we're most proud of from a Super Cruise perspective is that it's viewed as extremely safe, and customers are building a lot of trust in Super Cruise as we do that, which I think will also play well as we launch our next generation with the Escalade IQ and its eyes-off, hands-off capability.

Operator, Operator

The next question comes from Dan Levy with Barclays.

Dan Levy, Analyst, Barclays

Paul, you mentioned earlier that some of these commodity costs are staggered and they hit on a lag. So presumably, if costs hold, you'll be facing somewhat of an incremental headwind in 2027. I know you're probably not prepared to outline what the magnitude of that headwind might be, but I'm curious to know: how much do you have in your back pocket on cost mitigation that could neutralize this even if commodity inflation continues to rise into 2027?

Paul Jacobson, Executive Vice President and Chief Financial Officer

Yes, Dan, you're right. It is way too early to speculate on 2027. As we said, the pressure we're seeing right now is a function of the forward curve, and that forward curve is going to change 200x between now and 2027. So it's way too early. But if you think about where we are, and we started to outline this in prior presentations, the momentum we have in 2026 and the improvements we're starting to see in warranty, EV profitability, and regulatory costs should all continue to be tailwinds in 2027 as well. In addition, we've basically stopped production at many of our cell plants to work down inventory levels, which means we're not capturing the production tax credits that we had in prior years. When battery cell inventory returns to normal, we'll be able to start collecting those credits again, along with the improved profitability of EVs. And when you look at the product portfolio, with the new pickups coming at the end of this year and into 2027, you start to see some momentum, but it's way too early to speculate. At the end of the day, we are executing on what we see and planning for future contingencies should we need to.

Dan Levy, Analyst, Barclays

Great. I have a follow-up. I wanted to double click on some of the competitive dynamics within large pickups because I think there's been some attention on one of your competitors that's trying to pick up shares. So I'm wondering if you can help just to double-click within the share dynamics. We know that there is a large skew in the profitability within some of the subsegments within large pickups. Maybe you could just tell us, we see the overall data, but within some of the more profitable areas within large pickups, are you still holding your share? And is that some of those share gains from your competitor are coming at the less profitable areas, and that doesn't matter as much to you?

Mary Barra, Chair and Chief Executive Officer

Well, I think because we ended the year so strong we were low in inventory, and with the planned downtime we expect, we still had very strong demand for our trucks. We are seeing strong demand across the board. We want to welcome every truck customer. Because of our lean inventories, and if you look at some competitors' incentive rates, you can see how disciplined we are and that we're still selling every truck we can. That's the formula we're going to continue: work to earn every truck buyer in a disciplined way because of the strength of our products. It's across the board.

Operator, Operator

The next question is from Alex Perry with Bank of America.

Alexander Perry, Analyst, Bank of America

I just wanted to follow up a bit on the input cost inflation that you guys are seeing. I guess what commodities in particular, can you remind us where you're hedged? And then are you starting to see any shortages in any raw materials? Or are you concerned at all of shortages if the war sort of persist here?

Paul Jacobson, Executive Vice President and Chief Financial Officer

Yes. Thanks for the question. We vary our hedge levels based on commodities. We're kind of seeing pressure a little bit across the board, as you would expect, primarily driven by higher energy prices et cetera. We're not projecting or worried about any shortages right now. And I think the supply chain team has continued to prove their results through yet another challenge as we've seen them do in years past. So no shortages. On the commodity side, it depends 25% to 50% hedged. That certainly helped us in the aluminum space this year. But overall, I think it's pretty manageable from that standpoint. We're just going to continue to watch it. I think the hedges and the staggered steel contracts buys a little bit of time to adjust the business, which is why we do it that way. But overall, no real concerns right now.

Alexander Perry, Analyst, Bank of America

Perfect. And then could you just remind us on the cadence of the wholesale volumes for the year with the refresh company? Any change to seasonality? And I guess as a follow-up to the inventory question, is the expectation that you'll be able to rebuild some of the depleted truck inventory? And then just on pricing, are you sort of holding that flat to up 50 bps pricing guide for the year?

Paul Jacobson, Executive Vice President and Chief Financial Officer

Yes. No change to our pricing guide. I would say no change to the regular cadence on wholesale across the board. We do have the opportunity, I think, to get a little bit of relief on the inventory shortfalls that we've had. We saw some of that come in late in the quarter. that are making their way into showrooms or have made their way into showrooms this month. But we're going to continue to work and try to manage it in that 50- to 60-day range. And the team has done a really good job of trying to make that up.

Operator, Operator

The next question comes from Chris McNally with Evercore.

Chris McNally, Analyst, Evercore

As we reach the end of the call, I wanted to look a little further out. One of the discussions is that for the first time in a decade GM will have increased capacity for pickups and SUVs because of reshoring, which I think you anticipated earlier than others. You will have both Orion and Mexico still with capacity, not necessarily in absolute numbers but in a more strategic way. Where do you think GM could theoretically sell more of these higher value-add vehicles? Is it at the upper end of the market or the lower end, or if not in North America, could you sell more in Mexico and Latin America? Just a bit about the strategy for 2027, 2028 and 2029: once Orion is complete, where could you increase the absolute number of pickups and SUVs you could sell?

Mary Barra, Chair and Chief Executive Officer

Well, I think we look, and Paul already mentioned that we shifted some production from the Middle East. Usually that's a very strong market, so after this conflict I think there's upside there. There's upside in many other markets, not only in full-size trucks but also in full-size SUVs, both in the U.S. and globally, and those tend to be higher-content vehicles. I'm extremely excited about the upside opportunity when we have more full-size SUVs and more trucks to serve the globe as well as meet demand in the United States. It's a huge opportunity for us as that plant comes online.

Chris McNally, Analyst, Evercore

And I guess the follow-on is around USMCA. I mean I imagine the determination of how much capacity you would want to keep in Mexico even after Orion is done is somewhat dependent upon sort of this next level of USMCA, where I think everyone believe at some point, we'll have some logic where we get back from 25% to something closer to the global import average of 15%. Is that fair to say that some of the stuff is going to have to be live to see where USMCA final negotiations dollar, which is most likely second half, if not even maybe early next year. So we're going to have to wait and see on some of those numbers?

Mary Barra, Chair and Chief Executive Officer

We understand that USMCA is updated periodically, and we are currently reviewing the changes. Having the right USMCA provisions is important for U.S. automakers to compete with regions such as Asia and Eastern Europe. From a cost perspective, we have moved several people and have the opportunity to build more in the U.S., and we have looked at our footprint very strategically with the moves we’ve made. We believe we will be well positioned to respond to both U.S. and global demand. Our focus on USMCA is less about footprint and more about ensuring the rules create a level playing field for vehicle tariffs, parts tariffs, and the underlying cost of parts. We are working to make the administration and negotiators aware of those issues, and the administration has been good about understanding and trying to avoid unintended consequences so they further strengthen American manufacturing. We will continue to provide input and look forward to a USMCA revision that achieves the administration’s goals and strengthens U.S. manufacturing.

Operator, Operator

And our last question comes from Ryan Brinkman with JPMorgan.

Ryan Brinkman, Analyst, JPMorgan

Could you maybe comment on your operations in China? How far along you might be with regard to some of the product portfolio refresh initiatives? You've talked about on some of these earlier calls, including the NAV push. And then also with regard to some of those operational restructuring initiatives you've talked about and taking charges for in the past. Just trying to look at like the equity income that we see for the quarter, $165 million ability to annualize that? Is that sort of the run rate of profitability your operations are at once they're done with these improvement initiatives? Or where could they get to if you complete that part?

Mary Barra, Chair and Chief Executive Officer

Well, I'm very pleased with the restructuring work we've done in China. I think we continue to be one of the only Western OEMs that is profitable while growing share in the market. Over the last few years we've launched some very important products, including our luxury brand in the premium segment. We're continuing to work on having the right portfolio, and the software and services aspects of the vehicles we've launched, and the new system we're rolling out across the portfolio, are rated higher than many Chinese OEMs from an external usage perspective. So you can see us moving to have the right product portfolio with the right software and services to continue to grow share. Having said that, the China market is seeing some weakness, so we're going to continue to monitor that. I'm not going to project our equity income goals; we want to see those continue to grow, but that will depend on having the right product portfolio and competing effectively, which I'm proud of the team for doing. As related to additional restructuring costs, Paul, I don't have any specific comments — I don't know if there's anything you want to add.

Paul Jacobson, Executive Vice President and Chief Financial Officer

No. I think the team has done a really good job from that standpoint. There's still some final ticking and time going on some of the actions that we've taken, but nothing material that we expect.

Ryan Brinkman, Analyst, JPMorgan

Okay. That's helpful. And just as a follow-up, given some of the intent that you alluded to Mary and some of the other unhealthy aspects of the China market with the operate capacity, et cetera, I think exports have been an attractive release valve. And I'm just curious if you can comment on your export business from China with regard to ruling, or what progress have you made there? Are those or is that a more profitable part of your business in China? And how do you see that potential evolving?

Mary Barra, Chair and Chief Executive Officer

Well, in markets outside the U.S., there's already significant Chinese participation. We have both products that were designed and developed in the United States and products from China, especially at some price points to meet more price-sensitive developing markets. I think we've found the right recipe: a strong product at the right price point to participate in those markets. We'll continue to pursue those opportunities and refresh the portfolio with products sourced from multiple locations. That's a strength for us.

Operator, Operator

I'd now like to turn the call over to Mary Barra for her closing comments.

Mary Barra, Chair and Chief Executive Officer

Well, thank you, and thanks to everybody for your questions. I hope you see that we're clearly operating in a very dynamic environment, but that's not unusual for the industry, and that's why we have a multiyear focus to ensure we have the right products the right team and a strong balance sheet supported by healthy cash flows to achieve our long-term goals and execute on our capital allocation strategy, regardless of the short-term volatility or longer-term cyclicality. To sum it up, we're executing well against our plan, and we've shown quarter after quarter that we have durable earnings, we're growing our software revenue. We're disciplined with our capital allocation, and we have multiple paths to profitable growth. We have strong momentum in the core business, thanks to our broad and deep portfolio of vehicles. We remain focused on delivering 8% to 10% North American margins this year. Our OnStar Digital business, which includes Super Cruise is contributing to high-margin revenue growth. And I'll remind everyone that it's not cyclical. And we're advancing automated driving technology in a way that separates GM from other companies. Finally, we're addressing the near-term cost impacts of higher costs, and we're prepared to respond quickly and strategically as the market continues to develop. So once again, thank you for joining us, and I hope everyone has a good day.

Operator, Operator

That concludes the conference call for today. Thank you for joining.