General Motors (GM) EV push will soon pay off. GM investors are gearing up for an update from CEO Mary Barra this week that includes a mention of the automaker turning a profit on its electric vehicles in 2025.
As the race to claim EV market share heats up, many automakers are taking significant losses to scale production. For example, Rivian posted a negative gross profit of nearly $1 billion in the third quarter as the young EV maker builds its manufacturing capabilities.
Meanwhile, the company made a comment in its Q3 letter to shareholders that resonates across the industry with the electric vehicle transition underway, stating:
As we produce vehicles at low volumes on production lines designed for higher volumes, we have and will continue to experience negative gross profit related to labor, depreciation, and overhead costs.
Start-ups and legacy automakers look to mirror the success Tesla is having with pure EV models. Tesla’s automotive gross profit (percent of profit of each new vehicle sale) was 27.9% in Q3.
Meanwhile, although GM’s revenue reached a record $41.9 billion in Q3, its margins were much lower, and even more so with its electric vehicles.
GM posted automotive revenue of $38.7 billion, yet the cost to make and sell these vehicles reached $35.6 billion, for a gross profit of $3.1 billion or just over 8%.
As GM scales EV production, the company expects to continue taking a loss in that segment. However, by 2025, the automaker expects this to change – this is the same year Mary Barra is confident GM will catch Tesla, when the company is set to turn a profit on its electric vehicles.
GM to earn a profit on electric vehicles in 2025
According to a report from Bloomberg, sources familiar with the matter claim GM is planning to update investors on November 17 (GM Investor Day) that the company expects its electric vehicles will turn a profit in 2025.
Mary Barra will discuss the automaker’s battery investments and how it plans to build the program. However, with GM’s plans to provide an “EV for everyone” on its way to becoming one of the largest electric vehicle makers, investors are eagerly awaiting how GM will do so profitably.
Well, according to sources who did not want to be named because the presentation is not yet public, 2025 will likely be the year GM will make electric vehicles for a profit.
After several years of building its production capabilities and supporting supply chains, GM is ready to start earning a profit on its EVs. GM, together with LG, have four battery plants coming online in the US, with at least three by 2024.
With several highly anticipated EV models coming from GM next year, including the $30,000 Chevy Equinox EV and electric Silverado pickup, the automaker expects to significantly ramp production volume.
At the same time, GM still expects its electric vehicles to generate lower margins than their ICE counterparts as supply chains and production ability transitions over. David Whiston, a Morningstar analyst, commented, stating:
GM won’t sell at the prices of Teslas, so maybe they won’t match the profits. 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.
Mary Barra said on the company’s Q3 earnings call this week’s investor update will “go deeper into the second phase of our EV growth strategy.” Stay tuned for updates!
November 17 Update: General Motors CEO Mary Barra told investors today she expects the automaker’s EV portfolio to turn a profit in 2025 as it scales production capacity to over 1 million units annually. Barra stated:
GM’s ability to grow EV sales is the payoff for many years of investment in R&D, design, engineering, manufacturing, our supply chain and a new EV customer experience that is designed to be the best in the industry. Our multi-brand, multi-segment, multi price point EV strategy gives us incredible leverage to grow revenue and market share, and we believe our Ultium Platform and vertical integration will allow us to continuously improve battery performance and costs.
A few noteworthy takeaways from GM’s investor day regarding its EV rollout include:
- GM is launching a new digital platform with US dealers to help lower costs by up to about $2,00 per vehicle.
- Five GM assembly plants across North America are now building EVs.
- Brightdrop, GM’s tech startup producing EVs, is on track to hit $1 billion in revenue next year.
Paul Jacobson, GM’s EVP and CFO, updated the automaker’s guidance for 2022, claiming:
Our Ultium Platform and battery technology will only get better and less expensive over time, and we have enterprise-wide momentum in EVs, Cruise, software-defined vehicles and new businesses like BrightDrop that will help us achieve our revenue and margin targets by the end of the decade.
For this reason, GM’s CFO gave the following updates:
- FY 2022 automotive free cash flow increases to $10 to $11 billion from $7 to $9 billion previously.
- 2022 EBIT-adjusted in the range of $13.5 to $14.5 billion.
- Revenue is expected to grow at a 12% compound annual growth rate, with EV sales expected to reach over $50 billion in 2025.
- Battery cell production in the US is expected to reach over 160 GWh and 1.2 million cells per day also by 2025.
- Expected EBIT-adjusted margins of 8% to 10% during the growth phase.
Electrek’s Take
Top comment by Barry Alternative Fact Covfefe
40% annual ROI is a pretty standard plan in industry.
Expecting profitability in the same timeframe is not a stretch.
That said the biggest issues here are supply chain (including but not limited to microchips) and battery supply. If the starts align and supply chains iron out, production rate scales and battery prices continue to fall, and reach well below $100/kWh by 2025 then EVs will certainly be profitable.
I would expect GM to start generating a profit on its electric vehicles by 2025, with the company going all in on electric. However – and this is big – it will also be costly for GM to wind down sales and operations of its ICE vehicles.
New and used gas-powered vehicles will likely continue seeing their prices drop as electric vehicles gain market share. As electric vehicles and the supporting infrastructure becomes cheaper and more accessible, ICE values will likely fall.
Many automakers, like GM, have financial divisions that rely heavily on the residual value of their vehicles. If auto prices continue slipping, GM won’t be able to sell its cars near what it valued them, which could result in substantial losses.
What does everyone think? Will GM make EVs profitably in 2025? Let us know in the comments.
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