Electric Vehicle Updates
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Investors are pushing for plans by General Motors and Ford to spend tens of billions of dollars on electric vehicles, while automakers take advantage of booming revenues from cars and trucks with traditional engines.
GM posted a record $4.1 billion in adjusted earnings before interest and taxes in the second quarter, with low inventory leading to higher prices for popular — and more profitable — trucks and SUVs. Chief executive Mary Barra said that with strong customer demand, low inventory could last into early next year.
Ford surprised investors last week when it reported a $561 million profit in the second quarter on rising demand for trucks and SUVs.
The companies will need all the profits they can earn to meet their new goals of building factories and hiring more software and electrical engineers as they transition into electric vehicle production. In June, GM again increased its planned spending on electric and autonomous vehicles, to $35 billion by 2025, while Ford pledged $30 billion over the same period.
While the investments are smaller than they appear — some dollars are simply reallocated to automakers’ annual budgets for the production of traditional vehicles — they still represent significant new money. But far from worrying about the impact on future earnings, analysts say investors would like to see more and faster spending.
“The Street wants to see an accelerated EV vision with more investment in the next two, three, four years rather than waiting until the end of the decade,” said Dan Ives, an analyst at Wedbush Securities. “It’s an arms race now.” . . There is a fear that if they are not aggressive enough in the coming years, they will be left in the dust by the likes of Tesla.”
The enthusiasm was new, Morningstar analyst David Whiston noted. A few years ago, investors would have penalized automakers’ stock prices if they embraced EVs, which make up just 2 percent of the US market.
Now GM and Ford are “both investing for the future while also developing the… [internal combustion engine] while they can,” said Whiston. That’s their advantage over Tesla: While neither Detroit company can claim a famous CEO or a private investor base to skyrocket their valuations, Tesla only started making money recently. GM and Ford are taking profits from traditional cars to plow into battery-powered cars.
About one-third of GM’s $35 billion goes to engineering and two-thirds to capital expenditures. The company is expanding assembly capacity at three plants in Michigan, Tennessee and Ontario, Canada, with more to be announced at a later date. EVs are built with different tools than traditional vehicles, which must be purchased and installed.
Ford is also expanding its capacity, with $700 million to equip its River Rouge complex in Michigan.
GM is building four battery cell plants in the US, with plants already under construction in Lordstown, Ohio and Spring Hill, Tennessee. Battery factories are more expensive than assembly factories. They require huge amounts of electricity to operate, as batteries must be charged and drained to “cure” them before they can be placed in cars and trucks.
Barra said Tuesday that the US government should use tax credits to encourage companies to manufacture electric vehicles and their parts in the US. She advocated expanding the EV tax credit for used car buyers and building new charging stations that can recharge the batteries in 20 minutes instead of hours. Currently, the US infrastructure bill has $7.5 billion allocated to charging stations.
“We want to see investment in fast charging infrastructure, especially in urban areas and along highway corridors, because that gives customers the confidence to buy an EV,” she said.
GM and Ford will also have to spend money to change their workforce composition, said Gartner analyst Michael Ramsey. They still need mechanical engineers, but less, while software and electrical engineers are in demand.
The companies undoubtedly “double counted” some of the dollars in their EV investments, including dollars for capex and research that were already included in the company’s total costs, Ramsey said.
In 2019, GM’s spending was $132 billion, but it won’t automatically increase to $138 billion per year over the six-year period covered by its $35 billion spending commitment. Instead, some of the dollars allocated to gasoline-powered vehicles will be funneled into electric vehicles.
The investments “are significant and they’re probably going to spend extra money,” Ramsey said, but “these companies aren’t going to take $30 billion in debt to invest in electric vehicles. They’re going to take their existing pot of money and reallocate it a little bit.” .