GM Electric Car Lineup Will Be Profitable in 2025, Says CEO


General Motors has an important investors meeting coming up this week and the keystone item will be explaining how profitable its planned shift toward electric vehicles will eventually be. Details of GM’s presentation have leaked and, if the claims are true, leadership should be spending a substantial portion of November 17th explaining exactly how EVs will become money-makers for the business by 2025.

Though success, according to reporting from Bloomberg, hinges on a sales target where the automaker sells 1 million electric vehicles that same year. Unfortunately, General Motors spent last month explaining how a slower-than-expected start to battery production in Ohio (a joint venture with Korea’s LG Energy) has been delaying EV sales. The company originally anticipated selling 400,000 EVs from early 2022 through the end of next year but has expanded that time frame by several more months. That means explosive production and sales growth absolutely have to happen in 2024 if the company is to have a snowball’s chance in hell of getting to that million-unit mark the following year.

It sounds unrealistic. Especially considering the company has reportedly only sold around 44,000 electrified units so far in 2022. Not even Tesla has managed to achieve growth that would be required and it has effectively become the blueprint for all other automakers vying to capitalize on electric vehicles to copy. But GM does have more resources at its disposal and knows that profiting off electrification likely requires an entire ecosystem of satellite businesses.

CEO Mary Barra has recently said that the newly established GM Energy – the umbrella under which its home and commercial energy storage solutions will exist – will be an important part of normalizing EV adoption. Ultium Home focuses on storing residential electricity and better integrates the vehicle battery in that process by making it part of the grid. But it also sets up the consumer to use a network of hardware owned and serviced by General Motors.

This is part of those “circular economies” we’ve heard automakers discuss in the past. But the theory behind it basically involves keeping the customer invested in your products and services for as long as possible by making them interconnected. Manufacturers aren’t just selling cars anymore, they’re selling EVs that require you to use their branded repair centers, at-home charging solutions, subscription plans for an array of services, and phone applications that integrate those items together while locking you into a proprietary ecosystem (assuming they haven’t outsourced some of that to massive technology conglomerates).

Some of these items, most notably the home energy solutions, became a bit of a quagmire for Tesla and will undoubtedly be just as tricky for General Motors to navigate. Meanwhile, the profit margins for all-electric vehicles are beginning to look a lot tighter than the industry would have had you believe when the EV transition began. Don’t forget the deluge of high-value EV startups that quickly morphed into financial black holes or that former FCA CEO Sergio Marchionne (may the earth lay gently on his bones) literally begged customers not to buy the Fiat 500e because he said the business lost a fortune on every model.

Assumed EV profit margins have been undermined by staggering development costs, the elevated pricing of commodities, generalized material shortages, and ongoing supply chain issues. However, GM thinks it can fight back by standardizing EV production using its Ultium battery architecture. It’s not a terrible idea. One of the biggest hurdles for EVs has been a lack of infrastructure – and this is an issue that goes far beyond there not being enough charging stations. Automakers are attempting to build vehicles in an entirely novel fashion while partnering with other businesses and abandoning legacy suppliers. It’s a whole new ballgame, as they say.

According to Bloomberg, GM is expected to use the next investor day to proclaim that its EV program will start generating profits by 2025. But battery-powered models are still assumed to have lower margins than its internal-combustion vehicles in the years ahead. That puts a lot of pressure on combustion-reliant products General Motors says it wants to get away from. But the profits from its existing lineup have to be there to help fund its massive battery investments and the more than $2 billion GM spends on its self-driving arm every single year.

That certainly complicates things for the business. However, General Motors has fully committed itself to the cause of electrification and doesn’t seem all that interested in looking backward. Any failures here will probably be catastrophic for the manufacturer, requiring massive downsizing or another timely government bailout.

“The 2021 investor day was a really big deal and a transformative event,” Morningstar analyst David Whiston told the outlet. “It was very bold. The stock didn’t shoot up because it’s all very long term. This next event will probably keep the story arc going.”

That’s the moment when GM told the world it was going to begin building a bunch of factories that would prioritize both EV assembly and battery production.

“GM won’t sell at the prices of Teslas, so maybe they won’t match the profits,” Whiston continued. “But they should be able to show good margins. If Tesla can do it, there’s no reason GM, Ford and others can’t do it. They’re just behind on product lineup and manufacturing.”

GM President Mark Reuss, Chief Financial Officer Paul Jacobson, product development chief Doug Parks and Travis Katz, who heads GM’s BrightDrop, have already been confirmed for the upcoming investor presentation. Parks is said to be tasked with explaining how to make Ultium batteries more energy-dense and cost-effective.

The company has already stated that the Ultium batteries will be 60 percent cheaper to build than the preexisting units that were slotted into the Chevy Bolt. The second-generation Ultium battery – still a few years away from seeing daylight – has been claimed to drop costs another 40-50 percent on top of that. Packaged correctly, like in something with an MSRP below $40,000, GM could have a sales winner on its hands. But, as previously mentioned by Morningstar’s Whiston, the company likely won’t be able to ask for the kind of prices Tesla has in the past. That’s mildly concerning because the industry has been betting on pricey high-margin vehicles for years and it’s basically the only way EVs can be profitable. But tomorrow’s victories could be determined by volume if the industry manages to cut production costs by a sufficient amount.

Of course, that also assumes there will be a healthy appetite for EVs in the coming years when we’re already seeing some consumer pushback. Not everyone likes electric cars and the current batch is poorly suited for certain environments. But the real problem is the way these vehicles are being packaged (something that’s been spilling over to combustion cars) by the manufacturer. Connectivity features and digital paywalls aren’t resonating with everyone equally and the issue has only grown more contentious as the general public becomes aware of industry data harvesting practices. While companies (including GM) may still be able to bank on high-margin pickups and SUVs as they pivot to EVs, there’s a subset of consumers that don’t seem overjoyed with what the industry has been offering of late.

Regardless, GM is expecting a run on its Ultium products in a few short years and needs an enthusiastic group of buyers to be there for everything from the most pedestrian all-electric crossover to six-figure behemoths like the GMC Hummer. But finding a million of them by 2025 seems like it could be wishful thinking.

[Image: General Motors]

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