GM Expects Its Electric Vehicles To Become Profitable In 2025
When GM chief financial officer Paul Jacobson spoke to analysts at a Barclays conference on November 30, he acknowledged the company hadn’t found the pace it had expected to meet original electric vehicle (EV) manufacturing goals. Instead of dwelling on recent performance that included “some mixed headwinds from the higher EV volume,” Jacobson expressed confidence that GM’s EVs would be profitable in 2025.
“While the ramp has been a little bit bumpy, we have worked through that,” Jacobson affirmed. “We need to focus on making sure that we get the vehicle that customers want, get it built profitably, and grow it from that foundation.”
For EVs to be profitable in 2025, Jacobson indicates that GM will spread costs over more vehicles as sales increase, will promote sales of higher purchase price and their profitability, and will cull battery cost savings.
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Jacobson began his remarks by noting that the commercial environment remains fairly consistent, to the point where the automotive industry has “seen a little bit of an uptick in some of the incentive pricing.” With a glass-is-half-full attitude, he stated that GM continues to hold a “strong relative position” in light of revised commercial strategizing. “I hope that you’ll be pleased with what you see on our trajectory for EVs,” Jacobson said, “because we still believe that we’ll get to a low positive margin in 2025 with our EVs, even with some of the changes to the scale ramp that we’ve announced lately.”
The goal is to “continue to drive better free cash flow performance and better margin performance for the organization as a whole.”
He reviewed last year’s projections regarding GM’s EVs:
- reaching a 400,000 unit production target by mid-2024;
- getting the North American capacity of 1 million EVs by 2025;
- maintaining 8% to 10% margins in North America through the transition;
- expecting to see low to mid-single digits before any clean energy tax credits; and,
- taking into account tax credits worth $3,500 to $5,500 per vehicle, which could add 5 to 7 points of margin.
“Since that time,” Jacobson admitted, “we’ve obviously had some challenges in the ramp. I don’t think there are fatal challenges at all,” he added immediately.
In the short term, GM will continue a strategic approach that involves “winning with simplicity” and “reducing complexity across the business.” Translation? EV profitability isn’t happening right now, and core profitability is “in the ICE business.” Jacobson restated the recent company mantra by adding, “As we all know, that’s the engine that’s driving all of the free cash flow generation right now.”
How will the shift to EVs play into GM’s future?
How will GM push “to the 8% to 10% margin consistently that we’ve said in North America while we go through this transition?”
What forward-looking steps in the EV division will the company take while “making sure that we’re being cautious?”
Expected EV sales increases: GM continues to expect to have 1 million units of capacity by 2025. “We’ve actually taken that opportunity to what I would say is be a little bit more measured in the growth and the expansion,” Jacobson said. GM is rolling out a series of electric SUVs including an Chevrolet Equinox with a starting price of close to $30,000, as well as a Chevy Silverado EV pickup truck, GMC Hummer EVs, and some Cadillac SUVs. It also plans to come out with a new version of the Chevrolet Bolt in 2025.
Higher EV purchase prices with commensurate profit: GM defines EV profitability as including EV parts and accessories as well as digital and software-enabled services. “I don’t want to stuff vehicles into a market that doesn’t want them,” he said, adding that GM also doesn’t want to sell EVs at big discounts. “So we’ll see higher variable profit Ultium vehicles, like the HUMMER and the Blazer EVs,” Jacobson explained, “and significantly fewer Bolts in 2024 as we shut that line down and then reintroduce the next-generation Bolt, which will be on a much, much lower cost Ultium LFP program as well.”
Battery cost savings: Part of GM’s plan for EVs to become profitable in 2025 is to look “for consistency in some of the free cash flow generation that we’ve had over the last few years and continue to do that through cost reduction programs.” Battery cost savings are integral to that cash flow, and Jacobson noted that “the source of it in terms of the technology to – and the machinery to be able to stack the cells into modules” have already been identified. “Importantly, we are still building cells … we are actually driving a pretty sizable increase in cell inventory because we want to realize the efficiencies and the scale efficiencies of the Lordstown plant without just kind of whipsawing production as we deal through this module issue.”
Upgrading infrastructure for EVs: Jacobson said current margins on electric vehicles are “substantially negative” as the company builds battery plants, retools factories, and then underutilizes them as EV production and demand grow. Instead of incorrect media reports that GM would use the Bolt as a proxy for Ultium, Jacobson countered, “We’re actually going to incorporate Ultium battery management system with an LFP product on a redesigned Bolt that’s going to be substantially more profitable. And by doing so, we actually were able to take about $5 billion of future program capital out of our forward projections.”
Final Thoughts about GM’s Plans to make its EVs Profitable in 2025
By 2025, GM anticipates more benefits of volume and scale, including battery cell costs, as they achieve full capacity. They expect to hit mid-single-digit margin targets in 2025, including IRA activity.
“It’s about maintaining cost discipline across the organization,” according to Jacobson. “We’ve taken out over $800 million from our marketing budget. We’ve reduced our headcount through a voluntary employee package, separation package that is going to drive about $1 billion of savings annually for us.”
The company’s confidence rests with its execution. “We’ve got a portfolio of really, really strong vehicles coming forward that meet the range and charging characteristics that customers are looking for,” Jacobson reviewed. “And we believe that with this purpose built that we can actually continue to drive demand with features and price points that customers want and be competitive going forward.”
This is a long trajectory, yet GM is firm in its belief that that is going to drive cash flow and the margin performance consistent with what they’ve highlighted over the last couple of years going forward. EVs are integral to those upcoming years of profitability.
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