How will GM fund its EVs? By launching bigger, gas-guzzling SUVs

GM controls about 70% of the large sport utility market in North America. Profit margins on large fuel-thirsty SUVs can be as high as 30%, or more than $15,000 a vehicle. The company yesterday unveiled bigger-than-ever new Chevrolet Tahoe and Suburban models, claiming that profits from the SUVs will fund its investment in electric cars.

GM revealed the 2021 Chevrolet Tahoe and Suburban yesterday in Detroit. The most fuel-efficient of the outgoing 2020 models gets 18 miles per gallon. The 2021 Tahoe will grow by 6.7 inches, and the Suburban will gain 1.3 inches. The Tahoe gets almost 30% more cargo volume behind the third row and 10-inches of added legroom. The vehicles will be offered with three engine choices: 5.3-liter and 6.2-liter V8s, as well as a 3.0-liter V6 diesel engine.

Reuters reported that Mark Reuss, president of General Motors, justified the new, super-sized SUVs by connecting their sales to EVs:

As the industry moves toward electric vehicles, profits from large SUVs will help pay for investments, Reuss said. Those include GM’s plans to build a new battery plant and offer an electric pickup truck.

Last week, GM announced a $2.3 billion investment in EV battery joint venture with LG Chem. It’s expected to come online in about a year. Four years ago, GM added $1.4 billion of upgrades to its Arlington, Tex. plant producing large SUVs. Yesterday’s unveilings of the new Tahoe and Suburban are chief products from the investment.

As Reuters reported, Barclays estimates that large pickup trucks and SUVs accounted for 72% of GM’s North American profit in 2018. GM’s sales of big utilities remain solid this year.

Last month, the International Energy Agency (IEA) released its annual report. The Paris-based intergovernmental organization pointed to electric vehicles as instrumental in curbing global emissions. But the IEA said the dramatic rise in SUVs is fundamentally undercutting those gains.

Fatih Birol, executive director of the IEA:

Our report shows that the star of the transformation in the automotive industry was not electric cars. It was the SUV.

SUVs, according to our numbers, were the second biggest reason for the global emissions quote in the last 10 years, following the power sector ­– and much more than all the industrial sectors put together.

General Motors is not alone in pushing high volumes of gas-guzzlers today even as it prepares to introduce EVs slowly over the coming years. Ford’s sales of the Expedition and Lincoln Navigator large utilities have grown by 45% this year.

Electrek’s Take

We applaud what appears to be legitimate efforts by GM and other legacy automakers to invest in EVs. But production and sales are moving at a slow pace. Meanwhile, it’s disheartening to be reminded that their core business model is selling profitable gas-guzzlers at volumes that will dwarf EV sales for many years.

The impact on carbon emissions and low pollutants is immediate and tangible. Every gallon of gasoline burned contributes 20 or more pounds of carbon dioxide in the atmosphere.

The reality of GM’s business helps explain why the company sided with the Trump Administration, and against California, in committing to clean-air laws.

GM’s stance on climate legislation, combined with the increased girth of its gas-guzzlers, is a one-two punch. As a current Chevy Bolt driver, knowing these things, and how the company funds EV production, makes it hard to plunk down cash on another GM electric car.