General Motors pushed the pedal to the metal this week as it accelerated its already ambitious Electric Vehicle and battery plans.
Buried in this week’s flood of stories about the Fed, inflation, Chinese trade and crackdowns, Covid, commodities and various other news odds and sods was a story that again confirms how far and how quickly Australia is being left behind in the renewables and electric vehicles (EVs) sector.
In an update from General Motors – which confirmed a surge in earnings for the 2021 December financial year, and the continuing and costly impact from the computer chip shortage – was the astounding news that the car giant plans a 75% boost in spending on EVs and self-driving cars between now and 2025.
It’s the second major announcement about GM’s ambitions in EVs this year – in late January it stunned the industry globally by committing to completely phase out vehicles using internal combustion engines by 2035 and going completely carbon neutral at all its facilities worldwide by 2035.
On Wednesday of this week GM revealed plans to boost spending on electric and autonomous vehicles, brought forward plans to build two battery plants in the US and forecast stronger-than-expected second-quarter profits.
The automaker said it will now spend $US35 billion through 2025 on EVs, an increase of 75% from its March 2020 estimate before the COVID-19 pandemic shut down the industry.
Wednesday’s announcement is the second time the carmaker has increased its EV budget since outlining its goals early last year. In November, the budget increased to $US27 billion from $US20 billion.
GM’s news came less than a month after US rival, Ford lifted its EV spending plans by more than a third to over $US30 billion by 2030.
Toyota already has revealed equally ambitious plans to have 80% of its annual vehicle production made up of EVs and similar vehicles by 2030. Toyota currently makes more than 10 million vehicles a year and in the year to March 31, sold 2.155 million EVs, including battery EVs and hybrids up 12.3% year-over-year and nearly 28% of total sales for 2020-21.
Reuters reported this week that consulting firm AlixPartners estimated this week that investments in electric vehicles by 2025 could total $US330 billion, a 41% increase from the firm’s comparable five-year investment outlook a year ago.
China’s sales of New Energy Vehicles is running at an annual rate of 2.6 million – China will sell more than 30 million vehicles in 2021 – but the rise this year is more than double after five months.
The challenge for GM and other automakers will be that over the next several years demand from consumers and businesses for electric vehicles won’t be on track to grow fast enough to sustain all the new entries to the market, AlixPartners warned in its forecast.
EVs make about 2% of total global vehicle sales, and will be about 24% of total sales by 2030, the AlixPartners report estimated. But EV sales would need to be 35% of total global sales by 2030 to absorb the expected increase in production.
Electric vehicle investments are “well ahead of natural sales demand and neutral total cost of ownership or industry profitability,” AlixPartners cautioned in its annual outlook on the global car industry released on Wednesday.
While Tesla grabs the headlines for its production of EVs in the US and China (and for the antics of founder Elon Musk) its the charge by conventional car makers led by GM and Toyota that is going to cause the most disruption, according to analysts.
GM previously had previously said it would introduce 30 new EVs globally by 2025. On Wednesday it said that number will now rise with the higher spending, including additional electric commercial trucks.
It also said additional American plant capacity would be used to build electric SUVs.
As part of the spending, GM said it will build two additional US battery plants by the middle of the decade, joining two existing plants. GM said details on where those plants will be built will be announced later, but those plants will account for more than half of the latest $US8 billion increase in spending.
Normally the earnings upgrade from GM would have been enough to grab the headlines as especially as it and most other carmakers continue to battle the computer chip shortage that looks like persisting well into 2022.
GM said it now expects first-half operating earnings will be between $US8.5 billion and $US9.5 billion due to strong GM Financial results and higher vehicle production (and better pricing).
GM had previously said it would significantly beat its previous forecast for a first-half profit of $US5.5 billion. The new forecast could have been significantly higher but the for the huge cost from the chip shortage of up to $US2 billion.
The company didn’t provide an update on its full-year earnings but said the forecast factored in the potential impact of the chip shortage, including a hit of $US1.5 billion to $US2 billion to earnings.
Ford issued an update on Thursday where it forecast higher June quarter earnings.
Ford said that adjusted earnings before interest and taxes for the quarter will also be better than the previous year despite the continuing semiconductor crunch that has made automakers forecast billions in losses.
Lower-than-anticipated costs and favourable market factors drove an improvement in the automotive business, Ford’s financial arm is doing better financing strong sales of vehicles (like GMs). But Ford warned that its net income for the quarter is expected to be significantly lower, as the 2020 figures included a $US3.5 billion gain on investment in self-driving startup Argo AI.
It seems the car giants want to wean themselves off the internal combustion engine, but not now when there is still a lot of money to be made.
A bit like St Augustine and his prayer, ‘Lord make me chaste, but not yet.”
