GM Targets EV Profitability By 2025

Despite continuing challenges with supply chains and an incredibly slow production ramp-up of new electric vehicles, General Motors is having a very good year financially and expects that to continue. During an investor day presentation in New York, CFO Paul Jacobson announced higher guidance for 2022 free cash flow and profits. GM also reconfirmed that it expects its EV lineup to be profitable by 2025.

One key step toward achieving the latter is by reducing lithium-ion cell costs to $87/kWh in 2025 and below $70/kWh by the end of the decade. GM is planning on capital expenditures of $11 billion to $13 billion annually through 2025 as it puts in place the manufacturing infrastructure to build 1 million EVs annually in North America by that time.

To achieve this, GM is retooling assembly plants in Detroit and Orion, Michigan; Spring Hill, Tennessee; Ramos Arizpe, Mexico and Ingersoll, Ontario. The automaker is also investing in 160 GWh per year of cell production through its Ultium Cells LLC joint venture. The cell JV will have four plants in Lordstown, Ohio, which is now in production; Spring Hill in 2023; Lansing, Michigan, in 2024 and a fourth location expected to be announced soon. Several component plants are also being reworked to produce EV parts.

So far, Orion is building the Chevrolet Bolt, Detroit is building Hummers and Spring Hill is building the Cadillac Lyriq. However, production of the Hummer and Lyriq are still very limited. A previously stated target of producing 400,000 EVs by the end of 2023 has now been pushed back to mid-2024 due to supply constraints, especially for batteries and labor at the cell plants.

In addition to core manufacturing, GM like a number of other major automakers is making substantial investments in the EV supply chain. During a media roundtable, Jacobson reiterated GM’s investments in battery mineral extraction and processing capacity. This includes the joint venture with Posco Chemical for a cathode material plant and a partnership with Controlled Thermal Resources to extract lithium from geothermal brine below the Salton Sea.

GM already has locked in contracts for the battery materials it needs for that 1 million EV production rate in 2025. Despite most of the material in that time frame not being North American produced, GM still expects to meet the content requirements of the new clean vehicle credits through US free trade partners by 2025. Domestically sourced materials will likely come on stream in the later 2020s.

Funding all of this capital investment without taking on enormous amounts of new debt requires a healthy business in traditional internal combustion vehicles. Like other automakers that have prioritized production of the most profitable model lines, GM is building and selling every pickup truck and large SUV it can. As a result it has raised its expected profit for 2022 to $13.5-14.5 billion with free cash flow of $10-11 billion.

“We expect the EV portfolio EBIT to improve to low to mid single digit margins by 2025,” said Jacobson. “This is going to be really driven by the scaling not only of our Ultium produced cells, but in our assembly factories as well.”

One of the contributors to EV profitability is expected to be Brightdrop. GM announced the creation of the Brightdrop business unit in January 2021 and delivered the first handful of electric delivery vans by the end of the same year. While early examples were largely handbuilt in a facility near Detroit, during 2023, the CAMI assembly plant in Ingersoll, Ontario will begin regular production of the Zevo 600 and Zevo 400 vans with a planned production rate of 50,000 annually by 2025. By the end of 2023, Brightdrop expects to hit $1 billion in revenue from vehicle sales as well as related fleet management services.

A new digital retail platform (DRP) will also be rolled out by GM and its dealers that is expected to streamline the vehicle purchasing process. Customers will be able to select the nature of the experience they want from completely online ordering and purchase with the dealer only involved for delivery to a more traditional process of visiting a dealer to check out and test drive vehicles. According to GM, they expect to cut up to $2,000 from the retailing cost per vehicle.

As part of the DRP, GM will operate regional fulfillment centers where the automaker will maintain a company owned inventory of electric vehicles. Three of these centers are already operational. Dealers will maintain a smaller inventory for test drives and customer evaluation. The fulfillment centers will have a wider variety of configurations than dealers would normally stock. Once a customer orders a new GM EV online, it can be delivered within four days.

Achieving all of this won’t be easy and it certainly won’t be possible if GM can’t keep selling high margin gasoline fueled vehicles for the remainder of this decade. However, GM does seem to be positioning itself to be well positioned to sell a lot of EVs in the latter half of this decade in a way that can sustain the business.