GM is on the rise—but for now, EVs are holding it back, not leading the charge

Legacy automaker General Motors reported strong profits Tuesday, despite lagging sales in China and price cuts to some of its models. But beneath the surface, the automaker’s strong financial performance is powered by gas: GM’s quarterly gains were led by its popular SUVs and gas-powered car lines, while producing EVs continues to lose the company money. 

GM’s stock went on a hot streak last quarter, buoyed in part by falling raw materials prices for its EV batteries. Share prices peaked at $45 in late March, up from a low of $27 last November. Its stock surged another 6.5% following the earnings release. 

The strategy that delivered GM’s strong financials represents a departure from the “all-in” EV strategy the company has been pushing for years. GM’s earnings are a win, but underline that the company will have to solve the problem of EV profitability to keep the ball rolling—a hurdle GM representatives say they’re on the verge of clearing.

“There’s no denying it: GM had a nice quarter,” wrote Piper Sandler analyst Alex Potter in a note issued after the earnings release. “However, as always, there’s a caveat. GM’s 2024 guidance… implies significant margin degradation in [the second half of 2024], due to rising EV sales. Nobody really knows how well (or how poorly) the EV launch will go.”

GM’s EV rollout has faced a bumpy road, in line with the rest of the industry. GM has been one of the more aggressive legacy automakers when it comes to EV strategy, committing to phase out all of its gas-powered vehicles by 2035 and spending billions on new EV production capacity. But, along with its peers, it’s faced challenges: its EV production numbers have routinely fallen below expectations, and it’s yet to turn a profit on its electric models.

EVs were in the backseat Tuesday, though. GM beat analysts’ expectations and raised its profit projections by half a billion dollars, to a target range of $12.5-$14.5 billion, largely off the back of its bread-and-butter gas vehicle line. GM sold 3% more Chevrolet and GMC pickup trucks than a year prior, CEO Mary Barra told analysts in a call following the earnings release. In a SEC disclosure, GM cited strong sales of trucks and SUVs for generating increases in net sales and revenue.

GM doesn’t specifically report the financial results of its EV line, but CFO Paul Jacobson said that the company continues to lose money on its electric cars. It, along with other automakers, has struggled to solve the puzzle of making EVs affordable for average consumers and profitable at scale. CEO Barra said that “EV adoption in luxury segments is higher and more resilient than in the broader market.”

GM’s EV project does show promising signs, though. Its production costs have declined, in part because bets on in-house battery manufacturing are finally paying off: Barra said GM tripled its battery production in the last six months, and GM said in its quarterly report that it plans to spend roughly $11 billion more on battery manufacturing this year. (Falling commodity prices for lithium, a key component in EV batteries, have also provided a tailwind.)

Further, GM is bullish on EVs starting to make the company money, not lose it—potentially as soon as this year. GM spokesperson Jim Cain told Fortune the company expects its North American EV vertical to be profit positive by the end of this year, largely due to increases in battery and overall vehicle production. 

“We feel pretty good about that…When we improve the profit margins, the EV portfolio becomes less of a drag overall,” Cain said. “We’re in a process of rapidly scaling. We think we can potentially get to 200,000 to 300,000 units of EV production this year.”

Selling more affordable EVs will be a priority for GM: the current market is dominated by expensive luxury offerings that remain out of reach for many consumers. Tax credits from the Inflation Reduction Act are helping, but Barra said GM expects to start rolling out low-price models such as a new Chevy Bolt EV late next year.

“The next-generation Ultium-based Chevrolet Bolt EV is another,” Barra told analysts. “It’s a profitable and capital-efficient program that will deliver one of the most affordable electric vehicles around when it arrives in late 2025.”

To an extent, the auto industry’s EV future is a shotgun marriage: when it comes to phasing out ICE cars and producing more electric units, the industry doesn’t have a choice. New federal rules require carmakers to dramatically reduce their emissions by 2032, effectively forcing them to switch most of their production to EVs. (GM is one of multiple automakers that has made internal commitments to transition its fleet to electric as fast as or faster than what the government is requiring.) That means GM and other automakers can only coast on profits from gas-powered vehicles for so long.

“Even with the recent decline in battery raw material costs, EV profitability is challenging, particularly with new pricing pressure,” Wells Fargo analyst Colin Langan wrote in a note following GM’s earnings release. “However, US fuel economy regulations will likely force automakers to sell EVs to meet targets.”

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