General Motors believes it will start making money on electric vehicles in 2025 as higher margin models arrive
General Motors is losing money on every electric vehicle it sells, but the company says it's on track to generate mid single-digit pretax profit margins in 2025 as it produces more higher margin EVs, works out kinks in battery manufacturing, and sees battery cost reductions.
That's what Chief Financial Officer Paul Jacobson told analysts at a Barclays conference in New York on Thursday, conceding that the company has struggled to ramp up electric vehicle manufacturing. "While the ramp has been a little bit bumpy, we have worked through that," he said.
Specifically, the company has had trouble with machinery that stacks battery cells into modules at its Ultium Cells battery plant near Warren, Ohio, a joint venture with LG Energy Solution of Korea.
The guidance on Thursday of mid single-digit profit margins in two years is a little better than the low-to-mid single digits the company has estimated in the past, Jacobson said. But the new figure includes benefits from U.S. government clean energy tax credits.
Jacobson said current margins on electric vehicles are "substantially negative" as the company builds battery plants, retools factories and then underutilizes them as EV production and demand grow.
While the rate of electric vehicle sales growth has slowed in the U.S. this year, Jacobson said demand continues to rise. The company still plans to build factory capacity to manufacture 1 million EVs per year by the end of 2025, but it won't make all of them if the demand isn't there. "I don't want to stuff vehicles into a market that doesn't want them," he said, adding that GM also doesn't want to sell EVs at big discounts.
The growth of U.S. electric vehicle sales has slowed sharply since last year. In June 2022, EV sales were growing about 90% year over year. By June of this year the 12-month growth rate had slowed to about 50%, and it remained there at the end of October. Automakers have become increasingly fearful that the pace may weaken further due to consumer concerns about high prices, a lack of charging stations and whether they will run out of juice.
GM is rolling out a series of electric SUVs including an Chevrolet Equinox with a starting price of close to $30,000, as well as a Chevy Silverado EV pickup truck, GMC Hummer EVs and some Cadillac SUVs. It also plans to come out with a new version of the Chevrolet Bolt in 2025.
The company expects to make the EVs profitable by spreading costs over more vehicles as sales increase, by selling more higher-cost/higher profit EVs, and with battery cost savings, Jacobson said.
Shares of GM, which on Wednesday announced a $10 billion stock buyback program and a 33% dividend increase, rose about 1% to $31.82 Thursday.
