General Motors' Pivotal Milestone in Electric Vehicle Profitability
Jan 29, 2025 at 9:22 PM
In a significant development for the automotive industry, General Motors has reached a critical juncture in its electric vehicle (EV) business. The company recently announced it achieved variable profit positivity, signaling an important step toward sustainable EV operations. This achievement comes amid ongoing uncertainties surrounding policy changes and market dynamics.
Achieving Profitability: GM's Strategic Leap into the Electric Future
The Road to Variable Profit Positivity
In the final quarter of 2024, General Motors made headlines by becoming variable profit positive on its electric vehicles. This means that the revenue generated from each EV sale, combined with manufacturing credits for battery cells and packs, now covers the cost of production. While this milestone does not yet encompass all fixed costs like plant maintenance and labor, it marks a crucial turning point as GM transitions to a more sustainable future.The journey to this point has been marked by strategic planning and execution. CEO Mary Barra highlighted during an earnings call that GM had doubled its market share over the past year. Analysts acknowledge this progress but emphasize the need for continued growth to achieve full profitability. David Whiston, a Morningstar U.S. equity strategist, noted that while reaching variable profit positivity is commendable, GM still faces challenges in recouping overall costs due to lower volumes.
Market Dynamics and Financial Projections
Despite these achievements, analysts caution that achieving true profitability remains a distant goal. James Picariello, a senior automotive research analyst at BNP Paribas Exane, estimated that GM incurred a $2.5 billion loss on the 189,000 electric vehicles sold last year. This stark figure underscores the financial hurdles facing GM’s EV division. In contrast, GM sold over 4 million gas-engine vehicles in the same period, highlighting the disparity in sales volumes.For 2025, GM aims to manufacture and sell approximately 300,000 electric vehicles. This target could help offset some fixed costs and potentially lead to around $2 billion in savings for the EV portfolio. However, even with these improvements, GM may still fall short of breaking even by year-end. According to Picariello’s projections, GM would be about $500 million away from covering all expenses if his 2024 loss estimates hold true.
Policy Uncertainties and Strategic Adaptations
Adding to the complexity, GM’s financial outlook is clouded by potential policy changes. The Trump Administration is expected to repeal the $7,500 consumer tax credit for EV purchases, a provision included in the Biden-era Inflation Reduction Act. There are also concerns about the possible elimination of battery manufacturing credits, which have significantly benefited automakers like GM. These policy shifts could impact both consumer demand and GM’s recent variable profit gains.Paul Jacobson, GM’s CFO, addressed these uncertainties during the earnings call. He acknowledged the numerous variables at play and emphasized that GM has prepared multiple strategies to navigate different policy scenarios. “We’ve got plans in place and we’re continuing to work proactively with the Administration and Congress,” he stated. This proactive approach reflects GM’s commitment to adapting swiftly to changing conditions.
Sustaining Growth Amid Challenges
While GM’s EV business continues to face challenges, the company can rely on its profitable gas engine vehicles to cushion any losses. Picariello believes that GM will eventually overcome these obstacles, though it may take several years before the EV division can stand on its own. The company’s resilience and strategic foresight position it well to capitalize on emerging opportunities in the evolving automotive landscape.
