General Motors Announces Plans to Invest Even More Capital in Electric Vehicles; Market Shrugs

In its 4Q 2021 earnings report and the CEO’s letter to shareholders on February 1, General Motors Company (NYSE: GM) disclosed that it plans to spend more through 2025 on its electric vehicle (EV) initiative than its previous US$35 billion estimates, and to spend these funds on an even more accelerated basis. 

The company emphasized that its technology investments will take precedence over corporate profits in 2022. The company projects that its adjusted EBIT will total US$13 – US$15 billion in 2022, the midpoint of which is down slightly from US$14.3 billion in 2021.

GM’s willingness to commit giant sums and to spend the money even more quickly than originally forecasted is hardly unusual. Many EV OEMs are making similar commitments. For example, less than a week ago, several media sources reported that Ford Motor Company (NYSE: F) plans to spend US$10 – US$20 billion over the next decade to convert its manufacturing facilities for EV production. 

These outlays would be incremental to the US$30 billion the company has committed to spend through 2025 on EV technology development. The likely reason for all this: Tesla Inc. (NASDAQ: TSLA) has such an enormous head start in the business that if a company really wants to compete with Elon Musk’s juggernaut, money must be invested and spent quickly.  

(in millions of US $, except for EPS and shares outstanding)4Q 20213Q 20212Q 20211Q 20214Q 2020
Automotive Revenue$30,349$23,424$30,744$29,067$34,093
Operating Income($1,898)$1,645 $2,882 $3,277 $2,767 
Diluted EPS$1.35$1.62 $1.90 $2.03 $1.93 
Operating Cash Flow$6,809($49)$7,162 $1,266 $6,693 
Cash – Period End$28,676$23,940 $29,131 $29,380 $29,038 
Automotive Debt – Period End$16,818$17,022 $17,318 $17,552 $17,469 
Shares Outstanding (billions)

Increasingly, participating in the EV catch-up game against Tesla feels like a poker bet which almost all players seem inclined to make. Most EV manufacturers have decided to go “all in,” in effect betting their companies in a game which not all can win.

GM has ambitious EV production and delivery plans. CEO Mary Barra said the company intends to deliver 400,000 EVs in North America between now and year-end 2023, and to have EV manufacturing capacity of one million units per year in place by December 31, 2025. This compares with just 24,828 vehicles (the Bolt EV model) delivered in the U.S. in 2021. To accomplish this, GM expects to release 20 new EV models in the U.S. through 2025. (No wonder the US$35 billion of EV spending projection is rising.) Details on a few of these models are noted below.

GM has received an impressive 110,000 (refundable) reservations for its new Silverado EV pickup truck. This figure includes bookings from more than 240 fleet customers. The Silverado, which has a reported range of 400 miles and will begin to roll off production lines in 2023, has a base price of US$39,900. A fully-loaded, four-wheel-steering edition could cost more than US$100,000.

GM’s new Silverado EV pickup truck

Combined reservations for the GMC Hummer pickup truck and SUV are nearing 60,000 units.  =The Hummer pickup truck EV (which carries a US$100,000 price tag) will be available this fall. The Hummer SUV EV is scheduled to begin production in 1Q 2023.

Fleet customers such as Federal Express and Walmart have placed reservations for more than 25,000 of GM’s BrightDrop electric vans.   

General Motors shares, which trades at a P/E ratio of only 7.3x (based on estimated 2022 earnings), looks inexpensive. In addition, the stock shares have declined ~20% from an intermediate term peak in early January. However, EV investors seem to be displaying some degree of fear that carmakers are risking too much money in a crowded EV space. If that attitude persists, GM shares may not bounce significantly — even if the market does.

General Motors Company last traded at US$51.29 on the NYSE.

Information for this briefing was found via Edgar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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