G.M.’s Profits From Trucks and S.U.V.s Fuel Its Electric Quest
Despite a pandemic that closed car factories for nearly two months and stalled auto sales, General Motors made more than $ 6 billion last year, one of the highest grossing totals ever.
The automaker will need every penny and more for years to meet its high ambition of a fully electric model range in around 15 years.
Last month, GM hoped to cease production of petroleum-powered cars and trucks by 2035. In addition, GM has set tentative targets of introducing 30 new cars and trucks over the next four years and selling one million of them annually in the U.S. states and one million more in China by 2025 – all at a time when electric vehicles are still slightly more than Make up 4 percent of global auto sales.
The price is high: GM plans to spend $ 27 billion on electric and autonomous cars by 2025, and more than $ 7 billion this year only.
For this math to work, the company needs to get as much profit as possible from its pickups and sport utility vehicles. In other words, today’s gas guzzlers will pay the bill for tomorrow’s electric cars.
“If you look at our incineration business, we are well positioned and in a place where we can invest more in electric vehicles and autonomous vehicles,” said Mary T. Barra, general manager of GM, on a conference call Wednesday. “We believe we can grow in this transition.”
GM earned $ 6.4 billion in 2020, up from $ 6.7 billion a year earlier, as brisk pickup and SUV sales in the second half of the year offset the damage from the spring pandemic. Sales fell 11 percent to $ 122 billion.
GM’s first new electric vehicle will be unveiled next week – an updated version of the Chevrolet Bolt Compact hatchback and a more spacious version called the Bolt EUV (Electric Utility Vehicle). An electric Hummer pickup truck and an electric Cadillac SUV are slated to follow later this year and in 2022.
The current Bolt has been around for several years, but sales have been lukewarm, particularly as Tesla, the luxury electric car maker, increased its global sales to 500,000 vehicles in 2020. Last year GM sold fewer than 21,000 bolts in the US. The company also sells electric cars in China.
For now, analysts are confident that GM can continue to make significant profits due to the popularity of its gas-powered trucks and SUVs
Apr. 10, 2021, 2:55 p.m. ET
But the auto industry has always been a cyclical business. It wasn’t long ago during the Great Recession under former President Barack Obama, GM filed for bankruptcy protection and received a federal bailout.
A new challenge has already arisen. A major shortage of computer chips has disrupted production in auto plants around the world and is expected to continue well into this year. GM said this week it would extend the alleged week-long shutdown at three North American factories to mid-March because of the shortage.
On Wednesday, the company announced that the shortage of chips would reduce operating profit by $ 1.5 billion to $ 2 billion this year.
Computer chips are needed for functions such as touch screens, motor controls, and gears. New cars can have dozens of semiconductors.
Ms. Barra said GM is working with suppliers to make sure it has the chips it needs and managing its supplies to avoid disruption to plants that make its most profitable and popular vehicles.
“The semiconductor shortage is not going to slow our growth plans, and without mitigation strategies we still expect a very good year for General Motors,” she said. “Right now we won’t be losing any production as they are full-size trucks and SUVs all year round.”
While the chip situation will hurt profits in the short term, GM said it is committed to its plan to develop electric cars. Ms Barra said Wednesday that the strategy is likely to be promoted by President Biden and his plans to combat climate change and increase jobs in the renewable energy and auto industries.
Mr. Barra said she and other GM executives had raised the matter with Mr. Biden, Vice President Kamala Harris, and other senior administrative officials.
“The Biden government is increasingly focused on the importance of domestic manufacturing and the need for widespread adoption of electric vehicles,” said Ms. Barra. “We look forward to working with the administration on policies that support safe transportation and zero emissions.”
Of course, GM isn’t the only automaker that spends a lot of money on electric cars. Ford Motor last week essentially doubled its electric vehicle development budget to $ 22 billion over the next five years, and Volkswagen, a much larger automaker, has allocated more than $ 80 billion over the same period.
Ford recently started sales of its Mustang Mach-E, an electric SUV similar to the company’s sports car, and has received positive reviews. Volkswagen plans to deliver an electric SUV, the ID.4, to customers from next month.