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GM lowers EV production targets amid slow demand, says EVs will show 'variable profit'

General Motors is pulling back its electric vehicle production target this year and adjusting the timing on its profit targets because demand for EVs is not growing at the pace initially expected.

GM CFO Paul Jacobson said Tuesday that GM would trim its targeted production of its new EVs in 2024 from between 200,000 and 300,000 to between 200,000 and 250,000.

Jacobson said GM still believes it can be "variable profit positive" on its EVs at the "low 200,000" production range. GM promised investors earlier this year that it would show variable profit in EVs by the second half of the year. Variable profit is when the revenue GM earns from selling the vehicle exceeds the direct cost of producing it. The calculation excludes corporate or “fixed” costs, measuring only the costs that go into the car and the revenue earned from the car directly.

GM builds a GMC Hummer EV on Wednesday, Nov. 17, 2021, at its all-electric assembly plant in Detroit and Hamtramck, Michigan.
GM builds a GMC Hummer EV on Wednesday, Nov. 17, 2021, at its all-electric assembly plant in Detroit and Hamtramck, Michigan.

"We think we can still do that in, probably Q4 more than the second half," Jacobson said. "But we still think that’s an achievable goal going forward.”

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Jacobson, who spoke Tuesday during the Deutsche Bank Global Automotive Industry Conference, also said GM will invest $850 million in its self-driving car subsidiary, Cruise, starting this month to help relaunch it.

GM EV sales so far

Despite the slower-than-expected demand growth for EVs across the industry, Jacobson said GM had strong EV sales in May, selling about 9,500 EVs in the month. The adjustment to production and profit-time targets is "100% demand-driven" based on the broader industry, he said.

He said most industry analysts predict the EV market will be up to about 10% of total auto sales this year, but GM expects it to come in around 8%.

“On the supply side, we’ve overcome the (battery) module issues. We were on track to produce 300,000 vehicles this year," Jacobson said. “We’ve been very consistent about building a platform and growing EVs off that and doing it in a way that meets customer expectations. We don’t want to give out a production range and blindly produce ... and end up with a lot of inventory because the market's just not there yet … then do deep discounting."

GM's CFO Paul Jacobson.n(Credit: Courtesy General Motors)
GM's CFO Paul Jacobson.n(Credit: Courtesy General Motors)

GM's retail EV 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, coming soon, the Cadillac Escalade IQ and hand-built Cadillac Celestiq.

Morningstar auto analyst David Whiston told the Detroit Free Press, part of the USA TODAY Network, that he expects GM and other automakers to continue to adjust their EV production targets, given the fluctuation of the developing market.

"Absent production problems for any automaker, I think we should be thinking about EV demand at a plateau before its next growth phase when there are more cheaper offerings and improved infrastructure," Whiston said. "Volume targets for me are something I’d rather not hear about anymore as they are constantly getting amended while EVs are a small part of industry new auto sales each year."

GM continues to watch costs

GM's adjustment to its EV production was welcome news to Wall Street analyst Dan Ives, who was expecting far more negative news around the slowing EV demand at the moment.

"Given the headwinds in the auto sector and overall EVs, the Street was bracing for worse," 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. in a turbulent backdrop."

GM has built into its financial planning the possibility that its vehicle prices could decline by 2% to 2.5% this year, Jacobson said. But it has not seen any erosion in pricing yet. In fact, second-quarter average transaction prices are slightly higher than those in the first quarter, he said.

Jacobson said that while GM has taken $2 billion out of its costs, it continues to “strive for efficiency” to not only get EVs to profits, but also in running the 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 is having a strong second quarter, which is on track to outperform GM's first-quarter adjusted pretax profit of nearly $4 billion.

“As we are marching toward profitability in our EV portfolio, that’s got a short-term mixed impact," Jacobson said. "So as we continue to ramp up EVs, despite the fact that they’re improving in their variable profits, it’s still a drag on the mixed side of the equation. But we’re going to continue to work at it and that’s what we’re focused on doing, just executing every corner.”

Flexibility and consistency

Jacobson said GM's stock remains undervalued largely because the market doesn't understand the flexibility the automaker has across its vehicle portfolio. He said with demand softening for EVs, GM leans on its internal combustion engine, or gasoline-powered, vehicle portfolio for profit support.

“If EVs pivot, then ICE may come down, but at the same time EV profitability is going up," Jacobson said. "That’s why it is so singularly important that we get to variable profit positive and we get EBIT margin positive (on EVs) because once we do that, then we’ve got the ultimate flexibility in our levers where we’re not really hurt if at the end of the day EVs go up and we see that growth, because we can make those profits.”

GM aims to get to parity in profits between EV and gasoline vehicles by the end of the decade because it will give consumers more options. He said in the meantime, federal tax credits are helping in EV adoption.

"In the short run, EVs are more expensive," Jacobson said. "They are more expensive to build than ICE vehicles, they've got lower ownership costs overall in terms of what your monthly spend is, but you've got to help get consumers over that hump. That's where the ... tax credits are helpful for consumers in the short run, but it's not like we can build an industry that's dependent on it."

GM will bring plug-in hybrid technology to its lineup in 2027. Jacobson said if the automaker invests in that technology, which will help it meet federal emissions regulations, and finds out it's not needed because EVs take off, that's OK.

"But we can't end up in a position where we're fully dependent on credits at the end of the decade that might not be there if EV adoption isn't there," Jacobson said. "So we see plug-in hybrids as a really good tool for us to help bridge to that compliance path depending on where you see demand taking shape."

Cruise expansion on GM's dime

On Tuesday, GM's Cruise said it will expand its on-road testing of self-driving cars, taking it to Houston in the coming weeks. A safety driver will be present there to take over if needed, similar to the testing it is doing with its vehicles in Phoenix and Dallas.

"This is critical work in informing where we ultimately will resume driverless operations," said GM spokesman Pat Morrissey.

General Motors self-driving subsidiary Cruise expands its on-road testing of self-driving cars to Houston in the coming weeks. On June 11, 2024, GM CFO Paul Jacobson said GM will invest $850 million in Cruise to help it relaunch.n(Credit: Premiere Pro)
General Motors self-driving subsidiary Cruise expands its on-road testing of self-driving cars to Houston in the coming weeks. On June 11, 2024, GM CFO Paul Jacobson said GM will invest $850 million in Cruise to help it relaunch.n(Credit: Premiere Pro)

Jacobson said GM's $850 million cash infusion to Cruise is “step financing," meaning it will help to bridge Cruise funding until Cruise finds a long-term capital-efficient strategy, including possible new partnerships and external funding.

“Given a lot of the repositioning we’ve done and relaunching going forward, it’s kind of a pay-as-you-go," Jacobson said. "But this buys us time as we continue to pursue our strategic review going through how we’re going to think about Cruise’s future as they continue to make good progress getting back to autonomous and full autonomous driving."

Cruise, headquartered in San Francisco, had stopped operations about seven months ago after an incident in October. A vehicle hit a pedestrian in San Francisco, pushing her into an oncoming Cruise self-driving car, which then dragged her several feet, leaving the woman critically injured.

The fallout from that Oct. 2 accident resulted in regulators suspending Cruise from further operations in San Francisco. That was followed by Cruise opting to suspend all its operations nationwide. Cruise has since fired nine executives and cut about 24% or 900 full-time employees from its workforce.

Cruise CEO Kyle Vogt and co-founder and Chief Product Officer Dan Kan resigned. GM hired a third party to conduct a study on Cruise operations to make further tweaks. Barra said in November that GM will be making "substantially lower spending" on Cruise in 2024 than it did in 2023. But throughout it all, GM leaders remain firm that the automaker still supports Cruise's mission.

Contact Jamie L. LaReau: jlareau@freepress.com. Follow her on Twitter @jlareauan. Read more on General Motors and sign up for our autos newsletterBecome a subscriber.

This article originally appeared on Detroit Free Press: GM changes EV production targets amid slow demand