Historical automobile manufacturer General engines reported strong profits on Tuesday, despite lagging sales in China and price drops to some of its models. But beneath the surface, the automaker’s strong financial performance is fueled by gas: GM’s quarterly gains were driven by its popular SUVs and gasoline-powered car lines, while electric vehicle production continues to lose money. money to the company.
GM shares had a hot streak last quarter, supported in part by falling raw material prices for its EV batteries. Share prices peaked at $45 in late March, up from $27 last November. Its stock jumped another 6.5% after the publication of the results.
The strategy that has enabled GM to achieve strong financial results represents a departure from “All-in-one” EV strategy the company has been lobbying for years. GM’s earnings are a victory, but underscore that the company will need to resolve the issue of electric vehicle profitability to stay the course — a hurdle GM officials say they are close to clearing.
“It’s undeniable: GM had a good quarter,” wrote Piper Sandler analyst Alex Potter in a note published after the results were released. “However, as always, there is a caveat. GM’s forecast for 2024… implies a significant margin deterioration during the second half of 2024, due to increased sales of electric vehicles. No one really knows how well (or how well) the electric vehicle launch will go.
GM’s electric vehicle rollout has faced a bumpy road, like the rest of the industry. GM has been one of the most aggressive legacy automakers when it comes to an EV strategy, commit to phasing out all gasoline-powered vehicles by 2035 And spend billions on new electric vehicle production capacity. But, like its peers, it faces challenges: Its electric vehicle production figures have regularly fallen below expectations and it has yet to turn a profit on its electric models.
Electric vehicles, however, were in the backseat on Tuesday. GM beat analysts’ expectations and raised its profit forecast by half a billion dollars to a target range of $12.5 billion to $14.5 billion, largely thanks to its lineup of vehicles. essence. GM sold 3% more Chevrolet and GMC pickup trucks than a year earlier, CEO Mary Barra told analysts in a call after the results were released. In a SEC DisclosureGM cited strong sales of trucks and SUVs to drive increased net sales and revenue.
GM doesn’t specifically release financial results for its electric vehicle lineup, but Chief Financial Officer Paul Jacobson said the company continues to lose money on its electric cars. It and other automakers have struggled to solve the problem of making electric vehicles affordable for the average consumer and profitable at scale. CEO Barra said that “electric vehicle adoption in luxury segments is higher and more resilient than in the broader market.”
GM’s EV project is showing promising signs, however. Its production costs have fallen, in part because bets on internal battery manufacturing are finally paying off: Barra said GM has tripled its battery production in the past six months, and GM said in its report. quarterly report that it plans to spend about $11 billion more on battery manufacturing this year. (Fall in raw material prices for lithiuma key component of electric vehicle batteries, also provided a tailwind.)
Additionally, GM is optimistic that electric vehicles will start making money for the company, without losing money – potentially as early as this year. GM spokesman Jim Cain said Fortune The company expects its North American electric vehicle sector to post positive profits by the end of this year, largely driven by increased overall battery and vehicle production.
“We’re pretty happy with that… When we improve profit margins, the EV portfolio becomes less punishing overall,” Cain said. “We are in a process of rapid evolution. We believe we can potentially produce between 200,000 and 300,000 units of electric vehicles this year.
Selling more affordable electric vehicles will be a priority for GM: the current market is dominated by expensive luxury offerings that remain out of reach for many consumers. The Inflation Reduction Act tax credits help, but Barra said GM plans to begin rolling out lower-cost models such as a new Chevrolet Bolt EV late next year .
“The next-generation Ultium-based Chevrolet Bolt EV is another one,” Barra told analysts. “This is a cost-effective, capital-efficient program that will produce one of the most affordable electric vehicles on the market when it arrives in late 2025.”
To some extent, the auto industry’s future of electric vehicles is a forced marriage: when it comes to phasing out combustion engine cars and producing more electric units, the industry is not has no choice. New federal rules require automakers to significantly reduce emissions by 2032, effectively forcing them to shift most of their production to electric vehicles. (GM is one of several automakers to have made internal commitments to transition its fleet to electric as fast, or faster, than the government requires.) That means GM and other automakers can only enjoy the profits generated by gas-powered vehicles for so long.
“Even with the recent decline in battery raw material costs, the profitability of electric vehicles remains a challenge, especially with new pricing pressure. » Wells Fargo » wrote analyst Colin Langan in a note following GM’s earnings release. “However, U.S. fuel economy regulations will likely force automakers to sell electric vehicles to meet their goals.”
