The company’s EV pretax margins are expected to improve significantly around the middle of the decade.
Amid an automotive landscape undergoing a radical transformation towards electric vehicles, General Motors is facing the formidable challenge of steering its business into the new era while grappling with financial setbacks. GM’s top finance executive, Paul Jacobson, acknowledged earlier this week that the company’s current electric vehicle lineup is operating at a financial loss. However, he remains optimistic, asserting that the tide will turn by the second half of next year, with EVs projected to generate profits surpassing their production costs.
Speaking at a recent Barclays investor conference, Jacobson outlined GM’s expectations for a notable improvement in pretax EV margins in 2024 compared to the present year. This anticipated upturn is attributed primarily to an increase in production volume, coupled with a more attractive vehicle range and reductions in battery costs. The finance executive emphasized that these factors are poised to propel GM into positive variable profit territory, excluding fixed costs, by the latter part of 2024.
“It’s no secret that at the end of the day, our EBIT [EV] margins are substantially negative,” Jacobson said “We’re building for the future. So as we continue to ramp up, we’re going to see pretty significant benefits going forward.”
Looking further ahead, GM has set its sights on achieving mid-single-digit EV margins by 2025, a goal that incorporates the benefits of federal Inflation Reduction Act tax credits. This revised projection surpasses the company’s earlier forecast of low- to mid-single-digit margins before factoring in the tax incentives. Jacobson underlined the company’s strategic investments in battery cell plants and infrastructure as essential preparations for scaling up production, emphasizing that these endeavors are essential for GM’s future success.
GM’s EV Strategy:
While Jacobson did not disclose specific EV volume targets for 2024, he affirmed that production would witness a “meaningful step up” from the current year. GM, despite discontinuing the disclosure of precise production goals for EVs, maintains its commitment to having the capacity to manufacture 1 million EVs in North America by the close of 2025.
“While our execution has been somewhat challenged to date, we believe we’ve identified those challenges and we’ve got a portfolio of really, really strong vehicles coming forward that meet the range and charging characteristics that customers are looking for,” Jacobson concluded