GM lowers EV production targets due to slow demand

Detroit Free Press

General Motors is pulling back its electric vehicle production target this year and adjusting the timing on its profit targets because demand for EVs is not growing at the pace initially expected.
Jacobson said GM still believes it can be “variable profit positive” on its EVs at the “low 200,000” production range.
GM promised investors earlier this year that it would show variable profit in EVs by the second half of the year.
Variable profit is when the revenue GM earns from selling the vehicle exceeds the direct cost of producing it.
GM EV sales so far Despite the slower-than-expected demand growth for EVs across the industry, Jacobson said GM had strong EV sales in May, selling about 9,500 EVs in the month.
Morningstar auto analyst David Whiston told the Free Press he expects GM and other automakers to continue to adjust their EV production targets, given the fluctuation of the developing market.
He said with demand softening for EVs, GM leans on its internal combustion engine, or gasoline-powered, vehicle portfolio for profit support.
Cruise expansion on GM’s dime On Tuesday, GM’s Cruise said it will expand its on-road testing of self-driving cars, taking it to Houston in the coming weeks.

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Because of the slower-than-expected growth in demand for electric vehicles, General Motors has decided to scale back its production target for EVs this year and reschedule its profit targets.

Paul Jacobson, the CFO of General Motors, announced on Tuesday that the automaker would reduce the number of new electric vehicles it plans to produce in 2024 from between 200,000 and 300,000 to between 200,000 and 250.000.

According to Jacobson, GM still thinks that its EVs can be produced at a “low 200,000” production range with “variable profit positive” results. Earlier this year, GM made a commitment to investors that by the second half of the year, its EV profits would vary. When General Motors’ sales revenue surpasses the vehicle’s direct cost of production, they generate variable profit. Corporate or “fixed” costs are not included in the computation; instead, only the expenses directly related to the car and its revenue are included.

Regarding reaching variable profit positive, Jacobson stated, “We think we can still do that in, probably Q4 more than the second half.”. But going forward, we still believe that to be a realistic objective. “.

At the Deutsche Bank Global Automotive Industry Conference on Tuesday, Jacobson announced that GM will invest $850 million in Cruise, its self-driving car subsidiary, beginning this month in an effort to help relaunch the company.

Sales of GM EVs thus far.

Jacobson stated that GM had good EV sales in May, selling roughly 9,500 EVs in the month, despite the industry’s demand for EVs growing more slowly than anticipated. According to him, the modification to the production and profit-time targets is “100 percent demand-driven” and is based on the larger industry.

According to him, industry analysts generally estimate that this year’s EV market will account for up to 10 percent of all auto sales; however, GM anticipates that figure to be closer to 8 percent.

“We have resolved the battery module issues on the supply side. We planned to build 300,000 cars this year,” Jacobson stated. In order to meet customer expectations, we have consistently built a platform and grown EVs off of it. Instead of producing . indiscriminately, we would prefer to disclose a production range. and, since the market isn’t there yet, you wind up with a lot of inventory. You can then apply deep discounting. ****.

This year’s models in GM’s retail EV lineup include the GMC Hummer pickup and SUV, Cadillac Lyriq, Chevrolet Blazer EV, Chevrolet Equinox EV, Chevy Silverado EV RST, and the GMC Sierra EV. The Cadillac Escalade IQ and the hand-built Cadillac Celestiq will be available soon.

The Free Press was informed by Morningstar auto analyst David Whiston that given the volatility of the emerging market, he anticipates GM and other automakers to keep modifying their EV production targets.

“Considering that no automaker is experiencing production issues, I believe we should be considering EV demand at a plateau prior to its next growth phase, when there will be more affordable options and better infrastructure,” Whiston stated. “As EVs make up a very small portion of the industry’s annual new car sales, I’d prefer not to hear about volume targets any more because they are always changing. “.”.

GM still monitors expenses.

Wall Street analyst Dan Ives was relieved to learn of GM’s decision to modify its EV production, as he had been anticipating much more dire news regarding the current slowdown in EV demand.

“The Street was bracing for worse, given the headwinds in the auto sector and overall EVs,” stated in an email Wedbush Securities managing director and senior equity analyst Ives. “2024 has proven to be a very steady year for (CEO Mary) Barra and Co. thus far. under a stormy atmosphere. “.

A 2 percent to 2.5 percent drop in car prices this year is something that General Motors has factored into its financial planning, according to Jacobson. However, price erosion has not yet been observed. He stated that, in actuality, average transaction prices for the second quarter are marginally higher than those for the first.

Despite having cut $2 billion from its expenses, according to Jacobson, GM still “strives for efficiency” in both operating the core business and turning a profit on EVs.

According to Jacobson, GM had 63 days of inventory at the end of the first quarter, which is a good supply. GM’s inventory held for fifty-nine days at the end of May. According to him, GM’s first-quarter adjusted pretax profit of almost $4 billion was surpassed by the automaker’s robust second quarter.

“Our EV portfolio is moving toward profitability, which has a mixed short-term impact,” Jacobson stated. “It’s still a drag on the mixed side of the equation as we keep ramping up EVs, even though their variable profits are improving. That’s what we’re focused on doing, though, and we’re going to keep working at it—executing every detail. “.

both adaptability and constancy.

Jacobson stated that the market’s ignorance of GM’s flexibility across its vehicle lineup is a major reason why the company’s stock is still cheap. He claimed that as demand for electric vehicles declines, General Motors depends more on its lineup of gasoline-powered and internal combustion engine vehicles to maintain profits.

“ICE may decline if EVs pivot, but EV profitability is increasing concurrently,” Jacobson stated. “For this reason, it is crucial that we reach variable profit positive and EBIT margin positive (for EVs). Once we do so, we will have the utmost flexibility with our levers, so we won’t be too hurt if EV sales eventually rise and we witness that growth. “.

By the end of the decade, GM wants to achieve profit parity between EVs and gasoline-powered vehicles because it will provide customers with more options. Federal tax credits, he claimed, are promoting the adoption of EVs in the interim.

“Electric vehicles cost more up front,” according to Jacobson. “They have lower total ownership costs in terms of monthly expenditure, but you have to help consumers get over that hump. They are more expensive to build than internal combustion engine (ICE) vehicles. There is where the . is. While consumers can benefit from tax credits in the short term, it is unlikely that an industry reliant on them can be developed. ****.

In 2027, GM will add plug-in hybrid vehicles to its lineup. According to Jacobson, it would be acceptable for the automaker to invest in that technology in order to comply with federal emissions regulations, even if it turns out that EVs outsell the need for it.

However, Jacobson added, “we can’t find ourselves in a situation where we have to rely solely on credits at the end of the decade that might not exist if EV adoption doesn’t occur.”. Hence, depending on where you see demand taking shape, we see plug-in hybrids as an extremely useful tool for helping bridge to that compliance path. “.

GM-funded cruise expansion.

Cruise by GM announced on Tuesday that it will soon be expanding its autonomous vehicle testing to include a trip to Houston. Just like it does with its cars in Phoenix and Dallas, a safety driver will be on hand to take over if necessary.

A representative for GM, Pat Morrissey, stated, “This is crucial work in determining where we ultimately will resume autonomous operations.”.

As “step financing,” Jacobson described GM’s $850 million investment in Cruise as helping to bridge the company’s funding gap until it develops a long-term capital-efficient plan that may involve new alliances and outside funding.

According to Jacobson, “it’s kind of a pay-as-you-go given a lot of the repositioning we’ve done and relaunching going forward.”. However, this buys us some time as we carry out our strategic review and consider how we will approach Cruise’s future as they make good strides toward fully autonomous and autonomous driving. “.

Following an incident in October, Cruise, with its headquarters located in San Francisco, ceased operations approximately seven months ago. The pedestrian in San Francisco was critically injured after being struck by a car and pushed into an approaching Cruise self-driving car. The woman was dragged several feet by the car.

The consequences of that October. Authorities in San Francisco suspended Cruise’s operations following two accidents. Following that, Cruise decided to halt all of its activities across the country. Since then, Cruise has let go of nine executives and reduced its workforce by roughly 24%, or 900 full-time workers.

Dan Kan, the chief product officer and co-founder of Cruise, and CEO Kyle Vogt both quit. For additional adjustments, General Motors engaged a third party to study Cruise operations. GM will spend “substantially less” on Cruise in 2024 than it did in 2023, according to Barra’s remarks from November. However, GM executives never waver in their belief that the carmaker still backs Cruise’s mission.

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