Mary Barra, CEO, GM at the NYSE, November 17, 2022.
Source: NYSE
General Motors expects its new electric vehicle profits to be in-line with cars and trucks with traditional engines by 2025 – years ahead of schedule and what many thought was possible.
GM CEO Mary Barra on Thursday said the significant increase in profits factors in federal incentives under the Biden administration’s Inflation Reduction Act, which includes money back for companies that produce EVs in North America as well as consumers and fleet customers that purchase the vehicles.
“It’s clear these credits are going to help usher in a new era of technology innovation and job creation that’s going to achieve what was intended,” Barra said during an investor day. “It will be good for the American economy. It’ll be good for American families. It’ll be good for the environment, and frankly, General Motors is well poised.”
The incentives are expected to increase profit margins on GM’s EV portfolio an additional five-to-seven basis points from the “low- to mid-single digit” margins without the federal stimulus, according to CFO Paul Jacobson.
Such profits are expected to assist in growing GM’s revenue at a 12% compound annual rate to more than $225 billion, including $50 billion from EVs, in 2025, the company said Thursday.
Near-term profitability plans for EVs as well as GM’s outlooks for the economy and business during a period of rising interest rates, surging inflation and recessionary fears were expected to be focus points for investors and analysts during the event in New York.
Shares of GM swung from red-to-black during the event but were only up as much as 1.8% during trading Thursday afternoon. The company’s stock is off roughly 35% in 2022, amid fears of an economic downturn impacting consumer demand.
Guidance change
GM on Thursday boosted its 2022 cash flow guidance to between $10 billion and $11 billion, up from $7 billion and $9 billion. It also tightened the adjusted earnings range to between $13.5 billion and $14.5 billion, compared to its previous guidance of $13 billion and $15 billion.
GM said total capital spending is expected to be between $11 billion and $13 billion per year through 2025, funded by ongoing cash flows.
The company did not give formal guidance for next year, but Jacobson and Barra, among others, outlined continued overall growth for the company in the years ahead – targeting adjusted margins of 8% to 10% in North America through its growth investment period.
Those margins are on the way to achieving operating profit margins of 12% to 14% and annual revenue of $280 billion by 2030 – a goal GM announced last year.
“We are on track to hitting those goals,” Jacobson told investors Thursday. “We are fully committed to those 2030 goals .. Make no mistake, we intend to lead the industry in this EV transition.”
More than $80 billion of that expected revenue was expected to be from newer businesses.
GM on Thursday singled out its electric commercial vehicle business BrightDrop, which will launch full production of electric delivery vans next year. The automaker said the business is on track to reach $1 billion in revenue in 2023. The company expects to be capable of producing 50,000 vans annually by 2025.
Another profit-booster GM expects in the coming years is a new digital retail platform with its U.S. dealers. The automaker expects the new system to reduce costs to GM by an estimated $2,000 per vehicle.
EV profits
GM is bullish on its profits and plans regarding EVs largely thanks to its investments in recent years on a new vehicle platform called Ultium as well as ongoing construction of domestic plants through a joint venture called Ultium Cells LLC with LG Energy Solution.
Wells Fargo analyst Colin M. Langan was skeptical before the event that GM’s electric vehicles can be sustainably profitable by 2025, even with incentives in the Inflation Reduction Act. He said pricing and raw material assumptions will be key.
“At the last Investor Day, GM promised ICE-like EV margins by 2030. Since then, battery raw material costs have dramatically spiked; therefore, it would be surprising if GM can still see EV profitability by 2025,” Langan wrote Tuesday.
The Detroit automaker said Thursday that it plans to reduce the cell costs for its next-generation Ultium batteries to under $70/kWh by mid- to late-decade. That would be a substantial decline compared to today’s expected costs, which GM declined to release.
Tesla holds a sizable lead over competitors when it comes to paying less for lithium battery cells and having the lowest cost EV battery packs, according to a report last year from Cairn Energy Research Advisors.
The joint venture is expected to be operating plants in Ohio, Tennessee and Michigan by the end of 2024, which would make the company a leader in domestic cell production; a fourth U.S. cell plant is planned.
GM previously said it secured binding commitments for all the battery raw material it needs to deliver its 2025 electric vehicle capacity target of 1 million vehicles. The company also has plans for capacity of 1 million EVs in China by then as well.
New product plans
GM President Mark Reuss on Thursday detailed a litany of new EVs and redesigned vehicles with internal combustion engines, also known as ICE, which will assist in funding the company’s plans to proliferate electric cars and trucks.
The company’s product plans through 2025 will include several EVs the company has already announced, such as all-electric versions of the GMC Sierra and Chevrolet Silverado pickups, and Chevy Blazer and Equinox SUVs. Those are in addition to updates to popular gas-powered models such as the Chevrolet Travers and GMC Acadia SUVs as well as an “electrified” Corvette, Reuss said.
“Our ICE vehicle portfolio is in incredibly high demand and helping us generate record profits to invest in an all-electric future,” Reuss said on the company’s plans to exclusively offer consumer EVs by 2035.
In 2020, GM said it would release at least 30 new EVs globally by 2025, including more than 20 just for North America. It’s unclear whether the company still plans to achieve that goal, as it has shifted to focus more on its EV capacity rather than the number of models being released.