U.S. automakers General Motors (GM) and Ford are facing a common challenge as they prepare to report their first-quarter results: explaining to investors how they plan to generate profit growth in the face of slowing electric vehicle (EV) demand. The two companies have had to delay investments and cut costs due to the slowdown in global EV demand, increased competition from Chinese automakers, and high borrowing costs in the U.S. Furthermore, with China’s economy slowing and U.S. inflation on the rise, it seems unlikely that there will be a macroeconomic growth boost anytime soon.
To combat these challenges, GM and Ford are now focusing on sales of their core gasoline-powered vehicles, which have traditionally been their main source of profit. GM CEO Mary Barra can take comfort in the strong demand for the company’s highly profitable Chevrolet and GMC brand pickup trucks and SUVs. In fact, Barclays recently raised its target price for GM shares by 10% to $55, citing robust sales in this segment.
According to GM Chief Financial Officer Paul Jacobson, the company has had a good start to the year and feels positive about the demand trends. Similarly, Ford CFO John Lawler reaffirmed the company’s full-year profit outlook and mentioned that vehicle prices were holding up better than expected.
Both GM and Ford heavily rely on sales of large trucks and SUVs, which have contributed to higher expenses related to electrifying their vehicle lineups. However, with the growth in EV sales slowing down, investors are now turning their attention to companies like GM, Stellantis, and Toyota, which rely less on EVs for profitability. Chris McNally, an analyst from Evercore ISI, noted that the momentum has shifted away from previous EV winners like Tesla.
For GM, the high ratio of gas-burning trucks to EVs in its North American sales mix will help offset the projected loss in China. Although first-quarter U.S. vehicle sales for GM slipped 1.5% due to lower commercial-customer deliveries, retail sales increased by 6%.
Despite these positive developments, there are still concerns about GM’s struggling Cruise robotaxi unit. After a serious accident forced the company to suspend driverless ride operations, investors are looking for an update on how GM plans to fund the unit’s relaunch and rebuilding. GM has stated that it will cut spending by $1 billion this year at Cruise, but specific plans have yet to be outlined by CEO Mary Barra. Cruise recently announced that it will resume operations in Phoenix, Arizona, with human drivers.
On the other hand, Ford is finding strength in its combustion truck business and Ford Pro commercial vehicle operations. The company has reiterated its forecast for $10 billion to $12 billion in core profit this year. Ford recently announced that it would slow down two major electric vehicle programs. According to CFO Lawler, future EV investments will only move forward if they can show a profit on their own.
In conclusion, both General Motors and Ford are navigating a challenging landscape as EV growth slows. They are shifting their focus to their core gasoline-powered vehicles to generate profit growth. Despite the difficulties faced by legacy U.S. automakers, there are still opportunities for growth in their existing truck and SUV segments. However, they must also address the concerns surrounding their EV initiatives to maintain investor confidence. With the industry evolving rapidly, it will be interesting to see how these automakers adapt and innovate in the coming months and years.