GM bows to shareholders with PHEV stopgap
Move will ensure compliance with tailpipe emissions regulations and prioritise shareholder returns
Detroit legacy OEM GM has announced it will resort to plug-in hybrids (PHEVS) to comply with tailpipe emissions regulations by 2035, in a move that it says will ensure regulatory compliance and prioritise shareholder returns.
GM already uses PHEV technology in other markets, allowing it to transfer the technology to its North American models at relatively low cost.
"Our forward plans include bringing our plug-in hybrid technology to select vehicles in North America," says CEO Mary Barra. "We plan to deliver the program in a capital and cost-efficient way because the technology is already in production in other markets."
This suggests that GM will implement elements of the hybrid platform of its Wuling Starlight sedan PHEV, made and sold in China through GM's JV with Chinese automaker SAIC.
GM's familiarity with the technology will give it the flexibility to adjust production volumes easily, according to Barra.
"We will adjust the capacity because, again, we have the technology. We know the targeted segments that we're going to apply it to. So we will have the ability to flex and do what we need to from a hybrid perspective," the CEO says.
Barra was quick to admit that the new PHEVs will be ad hoc compliance vehicles, and GM's reluctance to commit to timeframe or production volumes for the PHEV suggest the new range could simply be a stopgap means of meeting regulatory requirements which can be discontinued as quickly as it is deployed.
"We are going to be bringing those in at a time where we need them from a compliance perspective," she notes.
The volume shift towards hybrids, likely to come at the expense of a portion of EV volumes, will unlock free cash flow and reward shareholders.
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And while Barra disputes that she "would not necessarily call it a change in strategy," she acknowledges that it is a matter of prioritisation between emissions compliance and compensating shareholders.
"We are prioritising, continuing to return cash to our shareholders as we go through this transformation, because we think the strength of our business, especially our ICE business, allows us to do that," she says.
Rod Lache, an analyst with Wolfe Research notes that with the strategy on the surface looks "like the pendulum has moved a little bit from growth to cash flow."
However Barra still believes that GM's EV division is still fundamentally positioned for a strong 2024 and that she expects to "continue our track record of market share gains, primarily from higher EV volumes."
GM still sees a path towards EV profitability with an estimated EBIT margin improvement of more than 60 percentage points and lower overall EV losses in 2024 compared to 2023, according to Barra.
"This will largely be driven by higher EV volumes and fixed cost leverage from both EV and battery cell manufacturing, along with the benefit of all of our North America volume being on the Ultium platform," she says.