GM expects EV profits to be comparable to gas vehicles by 2025, years ahead of schedule
- General Motors expects its new electric vehicles to be in-line with traditional cars and trucks with internal combustion engines by mid-decade.
- GM CEO Mary Barra on Thursday said the significant increase in profits factors in federal incentives under the Biden administration's Inflation Reduction Act.
- GM also boosted its 2022 cash flow guidance to between $10 billion and $11 billion and tightened its adjusted earnings range.
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 updated forecast 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 for 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 by then without the federal stimulus, according to CFO Paul Jacobson. He said GM expects to be among the first, if not the first, to be eligible for the full $7,500 consumer tax credits that will take into account stricter sourcing of EV battery materials.
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.
Ahead of the event in New York, investors and analysts had expected GM to shed light on its near-term profitability plans for EVs as well as its outlook for the business during a period of rising interest rates, surging inflation and recessionary fears.
Shares of GM swung from red-to-black during the event but closed Thursday up by less than half a percent to $38.64 per share. The company's stock is off 34% in 2022, amid fears of an economic downturn impacting consumer demand.
Guidance change
For 2022, the company also boosted its cash flow guidance and tightened the range of its profit forecast. It boosted its 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. Jacobson said the increase is a result of pulling investments ahead from later in the decade.
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 revenue is expected to be from newer growth businesses involving Cruise autonomous vehicles, OnStar connectivity and BrightDrop electric commercial vehicle unit, among others.
GM on Thursday singled out 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 federal incentives. 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 its Ultium cell costs to $87/kWh in 2025 and below $70/kWh by later in the decade. That would be a substantial decline compared to today's expected costs, which GM declined to release.
Jacobson on Thursday said building its own cells through the joint venture will unlock substantial cost savings compared to purchasing them today.
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 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.
Reuss outlined how future vehicles on GM's Ultium platform will be able to ramp up more quickly than today's first models such as the GMC Hummer EV and Cadillac Lyriq. He also noted the company plans to be able to transition traditional plants to EVs faster than it has been.
"Do not bet against this company," Reuss said. "We have been preparing for this for three-plus years. We put this plan in place, and we haven't changed our strategy. We've only accelerated, as you've seen."