GM CEO Barra's plan for automaker to lead the industry in EV profits
General Motors CEO Mary Barra said Thursday that GM will stand apart from other traditional car companies this year as it completes its transformation to a technology company. But she admits that GM is nowhere near to getting battery costs down enough to make electric vehicles as profitable as their gasoline-powered counterparts.
In fact, Barra expressed some uncertainty as to when or whether EVs might hit high-profit margins, but she said GM will not stop working to trim battery costs and streamline the business, "until we lead from a margin perspective."
Barra and CFO Paul Jacobson spoke at the Wolfe Global Auto, Auto Tech, and Auto Consumer Conference, a virtual event. The two said by year-end, GM will have seven EVs for sale in the United States on its proprietary EV propulsion system called Ultium. GM also sells the Chevrolet Bolt and Bolt EUV, which are on a different EV platform.
The automaker is funding its move to EV and autonomous driving with sales of gasoline-burning pickups and large SUVs, which carry profit margins that currently dwarf those of EVs, prompting some to wonder whether EVs are a profitable business.
"(Are) EVs a good business? The answer is yes," Barra said. "But we see it as growth in the interim. The fact that we have the highest customer loyalty, we think getting these customers early will put us in an advantageous position to maintain stronger share as we go to all EVs."
Need to get costs down for profits to go up
Barra and Jacobson also said 2023 will continue to see robust demand for new cars even amid economic worries. But they said the ongoing COVID-19 problem in China will likely impact GM's first-quarter results.
For GM to win widespread adoption of EVs, the automaker has to offer them at prices of $30,000 to $40,000, Barra has said. GM will start production of the 2024 Chevrolet Equinox EV and Blazer EV this year. The Equinox EV will start around $30,000 and the Blazer EV at $44,995, pushing it upmarket from where its gasoline-powered counterpart starts now at $34,800. That's largely due to the high cost of the raw materials to make the battery.
Most business experts consider a 20% profit margin to be rich. A profit margin percentage figure indicates how many cents of profit a business generates for each dollar of sale. So a 20% profit margin means that it had a net income of 20 cents for each dollar of sales generated.
So when asked whether GM could make a 20% profit margin off the sale of a $40,000 EV, Barra said, "We aren’t anywhere near where we think we can get the cost of the battery cell down. So we’re going to keep driving that."
Barra said GM has been able to trim some of its costs by partnering with such suppliers as LG Energy Solution to help it manufacture its own batteries and other supplier deals to secure raw materials for batteries such as lithium, nickel and cobalt.
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Barra said GM aims to have industry leading margins as it continues to invest in partnerships.
"We’re maintaining, we’ve said in the 8% to 10% range (profit margins), while we make this accelerated investment and transformation to EVs and once we get everything ramped up, we’re just going to continue to work battery costs down, drive the efficiencies, leverage Ultium," Barra said. "Is it going to be 20? I don’t know. But we’re not going to stop until we lead from a margin perspective.”
Barra said GM's in-house development of battery technology gives it an advantage to finding efficiencies to reduce costs.
Barra's tough talk with the dealers
Three years ago, Barra took the company's transition to dealers in an effort to streamline costs and create a more efficient consumer experience as GM moved into selling more EVs. She said it was initially a difficult discussion.
"I sat in a dealer meeting — which I was not the most super popular person that day — I said, 'Look, our customer is changing, our business is changing, we think you’re a competitive advantage, but you’ve got to change with us. If you try to cling to business the way it was five to 10 years ago, it’s not going to turn out very well,' " Barra said. "A lot of our dealers are coming along. The dealers who are saying, 'Hey I just don’t want to be in this business.' There’s an offering for them."
Since then, GM has given its dealers software to tell them which vehicles in a dealer's area will sell the fastest so that they do not need to carry high levels of inventory, which she said saves dealers money on the interest they pay lenders to keep cars on the dealership lot until the car sells.
Also, GM will have regional distribution centers in the future that will hold inventory and distribute it to dealers as customers order it. She said dealers will still have cars for customers to “kick the tires," and delivering EVs more quickly than it does gasoline-powered cars, will cut costs.
"The way we transformed that part of business, the way we’re transforming everything, will be a competitive advantage for us and as we get to the latter part of this year and into next year, those changes will be more prevalent," Barra said.
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Contact Jamie L. LaReau: email@example.com. Follow her on Twitter @jlareauan. Read more on General Motors and sign up for our autos newsletter.