U.S. automakers General Motors and Ford are preparing to address a common challenge when they report first-quarter results next week: explaining to investors how they plan to drive profit growth in the face of slowing electric vehicle (EV) demand.
The slowdown in global EV demand, coupled with intense competition from Chinese automakers and high U.S. borrowing costs, has prompted both companies to delay investments and reduce costs over the past year. With China’s economy slowing and U.S. inflation on the rise, a significant macroeconomic growth boost seems distant.
As a result, GM and Ford are turning their attention to sales of their core gasoline-powered vehicles, which remain the primary source of profit. GM and Ford are scheduled to report their results on Tuesday and Wednesday, respectively.
GM CEO Mary Barra is expected to benefit from strong demand for the automaker’s highly profitable Chevrolet and GMC brand pickup trucks and SUVs. Barclays recently raised its target price for GM shares by 10% to $55, citing robust sales for GM’s truck and SUV lineup.
GM Chief Financial Officer Paul Jacobson expressed optimism about the company’s performance, stating that the year was off to a good start and that demand was trending positively. Ford CFO John Lawler also reaffirmed the company’s full-year profit outlook, noting that vehicle prices were holding up better than expected.
Legacy U.S. automakers, which rely heavily on sales of large trucks and SUVs, have faced challenges related to higher expenses associated with electrifying their vehicle lineups and fluctuating demand for battery-electric vehicles.
Evercore ISI analyst Chris McNally noted in a research note that the momentum has shifted away from previous winners like Tesla as EV sales growth slows. Investors are now focusing more on companies like GM, Stellantis, and Toyota that rely less on EVs.
GM’s high ratio of gas-burning trucks to EVs in its North American sales mix is expected to help offset a projected loss in the automaker’s operations in China. While GM’s first-quarter U.S. vehicle sales dipped 1.5% due to lower commercial-customer deliveries, retail sales saw a 6% increase.
Barra has yet to outline specific plans for restructuring GM’s China business, which delivered 2.1 million vehicles last year, down from 4.04 million in 2017.
Investors are also eager for an update on GM’s struggling Cruise robotaxi unit. Cruise recently announced plans to resume driverless ride operations in Phoenix, Arizona, following a serious accident that halted operations.
Ford, on the other hand, is finding success in its combustion truck business and Ford Pro commercial vehicle operations. The automaker has reaffirmed its forecast for $10 billion to $12 billion in core profit this year.
Ford recently announced plans to slow two major electric vehicle programs, with CFO Lawler stating that future EV investments will only proceed if they can “stand on their own” to show a profit.
