General Motors to record more than $5B in charges on China operations

General Motors (NYSE:GM) expects to record two non-cash charges of more than $5B on its joint venture in China, the automaker said in a regulatory filing on Wednesday.

The Detroit automaker partners with SAIC Motors in China to build Buick, Chevrolet and Cadillac vehicles. It owns an equity interest in SAIC General Motors (SGM), a 50-50 JV with SAIC Motor, and an equity interest in SAIC-GMAC Automotive Finance Company.

SGM executes automotive operations in China through various other joint ventures with GM. The ventures have been incurring losses in the past year, losing $347M in the first nine months of this year vs. a profit of $353M in the same period of 2023.

In a recent earnings call, CEO Mary Barra said, “the operating environment in China continues to be challenging” and that a series of shareholder and joint venture board meetings were planned during the fourth quarter focused on restructuring actions to “make the business sustainable and profitable.”

On Dec 2, General Motors’ (GM) board of directors determined that the non-cash charges were necessary “in light of the finalization of a new business forecast and certain restructuring actions that SGM is finalizing that are expected to be taken to address market challenges and competitive conditions.

While GM assesses the impact of SGM’s planned restructuring actions, it expects to recognize equity losses of around $2.7B resulting from the implementation of SGM’s restructuring plan. The automaker will also record a temporary impairment of its equity interest in the China JVs in the range of $2.6B–2.9B in the three months ending December 31, 2024

The majority of these charges will be recorded in the company’s fourth-quarter earnings. The charges are expected to be non-cash in nature and treated as special for EBIT-adjusted purposes.

Shares dipped 0.86% premarket on Wednesday.