By General Motors (GM) has encountered a series of obstacles that have impacted its performance in 2023. A slowing economy, rising labor costs, and slower-than-expected sales of electric vehicles have all contributed to the decline.
As of early trading Friday, GM stock has experienced a significant decrease of 21% over the past 12 months. Additionally, it has fallen behind the S&P 500 index by approximately 20 percentage points since July, when labor issues began to affect investor confidence.
In response to these concerns, CFO Paul Jacobson spoke in New York on Thursday to address the situation. While acknowledging a slowdown in the growth of demand, he clarified that it is not a full-blown slowdown but rather a decrease in the rate of increase. Jacobson stated, “I fully expected that to happen.”
Despite these challenges, Jacobson remains optimistic about GM’s ability to generate profitable revenue from electric vehicles. He confidently stated, “We’ll have positive variable profit, or contribution margin, by the end of 2024.”
The term “contribution margin” refers to the difference between price and variable cost in accounting. Achieving a positive contribution margin means that selling more units will lead to increased profits.
GM still intends to achieve its mid-single-digit operating profit goal by 2025, demonstrating the company’s determination to overcome these difficulties.
Although some may view this goal as ambitious, there are compelling reasons to believe that electric vehicles can be manufactured profitably. Companies like Li Auto, Tesla, and BYD have consistently achieved profitability. Notably, BYD does not mainly produce high-priced cars, yet it remains profitable. Even Tesla managed to maintain profitability despite reducing prices by over $10,000 per unit in 2023.
EV Sales: A Comparison
The electric vehicle (EV) industry is booming, with several key players dominating the market. Li is at the forefront, delivering an impressive 40,000 EVs every month. BYD follows closely behind, delivering around 300,000 units monthly, including plug-in hybrid models. Tesla, a well-known name in the industry, delivers approximately 150,000 cars per month.
In stark contrast, GM has struggled to keep up, delivering less than 7,000 EVs per month in the U.S. during the third quarter. However, GM and other U.S. auto manufacturers are determined to increase sales. To achieve this, the industry needs a comprehensive approach that includes expanding their model range, reducing battery costs, and enhancing the charging infrastructure.
GM is already taking steps towards offering more models to meet consumer demands. The company has plans to launch or ramp up electric versions of popular vehicles like Equinox, Blazer, and Silverado by 2024. Additionally, the Cadillac LYRIQ and Chevy Bolt are currently GM’s top-selling EVs.
It’s worth noting that labor costs are not a significant barrier for either conventional or electric car manufacturers. Despite the new UAW labor contract increasing costs by approximately $1.5 billion in 2024, this was expected, and the company has plans in place to offset these expenses.
Interestingly, Jacobson, an industry insider, remains optimistic about GM’s future despite the concerns of some investors. In fact, GM recently increased its quarterly dividend from nine cents to 12 cents per share and carried out stock buybacks worth $6.8 billion. Jacobson acknowledges that while he isn’t pleased with the current share price, he plans to stay focused on what he can control.
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