GM Shifts Electric Vehicle Production Targets Amid Slow Demand

General Motors is pushing back its electric vehicle production target this year and adjusting the timing of its profit targets as demand for electric vehicles is not growing at the rate initially expected.

GM Chief Financial Officer Paul Jacobson said Tuesday that GM will reduce its 2024 production target for its new electric vehicles from between 200,000 and 300,000 to between 200,000 and 250,000.

Jacobson said GM still believes it can make a “positive variable profit” on its electric vehicles in the “low 200,000” production range. GM promised investors earlier this year that it would post a variable profit in electric vehicles by the second half of the year. We speak of variable profit when the revenue that GM earns from the sale of the vehicle exceeds the direct cost of its production. The calculation excludes business or “fixed” costs, measuring only the costs that go into the car and the revenue earned directly from the car.

“We think we can still do it in the fourth quarter, probably more than in the second half,” Jacobson said of achieving positive variable profit. “But we still think it’s an achievable goal going forward.”

Jacobson, speaking Tuesday at Deutsche Bank’s Global Auto Industry Conference, also said GM would invest $850 million in its self-driving car subsidiary, Cruise, starting this month for the help revive it.

GM electric vehicle sales so far

Despite slower-than-expected growth in electric vehicle demand across the industry, Jacobson said GM had strong electric vehicle sales in May, selling about 9,500 electric vehicles during the month. The adjustment of production and profit targets is “100% demand-driven” and based on the entire sector, he said.

He said most industry analysts expect the electric vehicle market to account for about 10% of total auto sales this year, but GM expects it to account for about 8%.

“On the supply side, we overcame the issues with the (battery) modules. We were on track to produce 300,000 vehicles this year,” Jacobson said. “We’ve been very consistent in building a platform and developing electric vehicles off of that, and in doing so in a way that meets customer expectations. We don’t want to give away a production line and produce blindly…and end up with a lot of inventory because the market just isn’t there yet…so discount heavily.

GM’s retail electric vehicle portfolio this year includes the GMC Hummer pickup and SUV, Cadillac Lyriq, Chevrolet Blazer EV, Chevrolet Equinox EV, Chevy Silverado EV RST, GMC Sierra EV and, soon, the hand-built Cadillac Escalade IQ and Cadillac Celestiq.

Morningstar auto analyst David Whiston told the Free Press that he expects GM and other automakers to continue to adjust their electric vehicle production targets, given market fluctuations in development.

“Absent production issues for an automaker, I think we should think about plateauing demand for electric vehicles ahead of its next phase of growth, when there will be more affordable offerings and improved infrastructure” , Whiston said. “For me, volume targets are something I’d rather not hear about anymore, because they’re constantly being changed while electric vehicles only make up a small portion of the industry’s new car sales each year.”

GM continues to monitor costs

GM’s adjustment to its electric vehicle production was good news for Wall Street analyst Dan Ives, who was currently expecting much more negative news about slowing demand for electric vehicles.

“Given the headwinds in the auto sector and overall electric vehicles, the Street was bracing for the worst,” Ives, managing director and senior equity analyst at Wedbush Securities, said in an email. “So far, 2024 has been a very stable year for (CEO Mary) Barra & Co. amid turbulent circumstances.”

GM has factored into its financial planning the possibility that its vehicle prices will fall 2 to 2.5 percent this year, Jacobson said. But there has not yet been any price erosion. In fact, average transaction prices in the second quarter are slightly higher than in the first quarter, he said.

Jacobson said that even though GM has cut costs by $2 billion, the company continues to “pursue efficiencies” to not only make electric vehicles profitable, but also to run its core business.

Jacobson said GM ended the first quarter with 63 days of inventory, which is a healthy supply. At the end of May, GM had 59 days of inventory. He said the automaker was having a strong second quarter, which was on track to surpass GM’s first-quarter adjusted pretax profit by nearly $4 billion.

“As we move towards profitability in our electric vehicle portfolio, this has a mixed impact in the near term,” Jacobson said. “As we continue to develop electric vehicles, despite the fact that they improve their variable benefits, it’s still a drag on the mixed side of the equation. But we’re going to continue to work on it and that’s what we concentrate, executing each turn.

Flexibility and consistency

Jacobson said GM shares remain undervalued largely because the market doesn’t understand the flexibility the automaker has in its vehicle portfolio. He said that with demand for electric vehicles slowing, GM is leaning on its portfolio of vehicles with internal combustion or gasoline engines to support its profits.

“If electric vehicles pivot, then the ICE might go down, but at the same time the profitability of electric vehicles will increase,” Jacobson said. “That’s why it’s so singularly important that we get positive variable profit and positive EBIT margin (on electric vehicles) because once we do that, then we have ultimate flexibility in our levers and we’re not really hurt if ultimately electric vehicles increase and we see that growth because we can make those profits.

GM aims to achieve profit parity between electric and gasoline vehicles by the end of the decade, as this will provide more options for consumers. He added that in the meantime, federal tax credits are helping with electric vehicle adoption.

“In the short term, electric vehicles are more expensive,” Jacobson said. “They’re more expensive to build than ICE vehicles, they have lower ownership costs overall in terms of monthly expenses, but you have to help consumers get over that hurdle. That’s where the tax credits are. “useful for consumers in the short term, but it’s not like we can build an industry that depends on it.”

GM will bring plug-in hybrid technology to its lineup in 2027. Jacobson said that if the automaker invests in the technology, which will help it meet federal emissions regulations, and discovers that it is not necessary because electric vehicles are taking off, it doesn’t matter.

“But we can’t find ourselves in a position where we’re completely reliant on credits at the end of the decade that might not exist if electric vehicle adoption isn’t there,” Jacobson said. “So we see plug-in hybrids as a really good tool to help us get to that compliance path depending on where the demand is taking shape.”

Cruise expansion at GM’s expense

On Tuesday, GM Cruise announced it would expand its road tests of self-driving cars, bringing them to Houston in the coming weeks. A safety driver will be present on site to take over if necessary, similar to the tests carried out with its vehicles in Phoenix and Dallas.

“This is critical work in determining where we ultimately resume driverless operations,” GM spokesman Pat Morrissey said.

Jacobson said GM’s $850 million injection into Cruise constitutes “stage financing,” meaning it will help bridge Cruise’s funding until Cruise finds an effective long-term strategy. in terms of capital, including possible new partnerships and external financing.

“Given a lot of the repositioning that we’ve done and the stimulus that’s coming, it’s kind of pay as you go,” Jacobson said. “But it buys us time as we continue our strategic review looking at how we’ll be thinking about the future of Cruise as they continue to make good progress moving back to autonomous and fully autonomous driving.”

Cruise, headquartered in San Francisco, shut down operations about seven months ago after an incident in October. A vehicle struck a pedestrian in San Francisco, pushing her into an oncoming Cruise self-driving car, which then dragged her several meters, leaving the woman seriously injured.

The fallout from that October 2 accident led regulators to suspend Cruise from all of its operations in San Francisco. This was followed by Cruise choosing to suspend all operations nationwide. Cruise has since laid off nine executives and cut about 24%, or 900 full-time employees, of its workforce.

Cruise CEO Kyle Vogt and co-founder and chief product officer Dan Kan have resigned. GM hired a third party to conduct a study of cruise operations to make additional changes. Barra said in November that GM would spend “significantly less” on Cruise in 2024 than in 2023. But through it all, GM executives remain steadfast that the automaker still supports Cruise’s mission .

Contact Jamie L. LaReau: jlareau@freepress.com. Follow her on Twitter @jlareauan. Learn more about General Motors and sign up for our automotive newsletter. Become a subscriber.

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