GM rejects lack of investor confidence in EV strategy

The firm believes markets have punished it for being too conservative in its forecasts, not because of its positioning for future electrification

GM rejects lack of investor confidence in EV strategy
Jacobson does not believe investors are spooked by weakness in GM's EV business

US automotive heavyweight GM has seen share price dips even after beating earnings projections in both Q1 and Q2. Ryan Brinkman, equity analyst at JP Morgan, put it to the firm’s CFO Paul Jacobson at the bank's auto conference in New York that concerns about relative underperformance in its EV business, given the sector’s likely increasing importance in future years, could be a drag on the share price.

The interviewer probed on whether it was "very strange" that GM had delivered high eight-figures over consensus earnings estimates, yet the markets had reacted as they had.

"I suspect, based on my conversations, investors might... doubt GM’s ability to sustain the strong profits beyond this year, perhaps as the industry changes and electrifies," Brinkman suggests.

Jacobson disagrees, arguing that it was the firm’s own forecasts that had underwhelmed investors. In short, they had already factored in a big beat, so did not afford GM credit for delivering it.

“We were careful not classify those as expectations, but only as projections”, says Jacobson. “When we are in the type of cycle that we are in right now with heavy investment, we want to proceed cautiously with projections, but it has played out much as we thought, where we have seen significant outperformance in Q1 and Q2 and that has what has allowed us to raise our guidance.”

He does admit that GM has not moved as fast as some others on EVs, but feels that is at least as much of a strength as a weakness. “The supply side is taking hold; it has been slower than we wanted, but any type of start-up has growing pains and we certainly have not been immune to that,” Jacobson confesses.

“This has been very deliberate from our standpoint. And that is because it is the right way to build EVs,” he continues. “While it’s been slower than some of our competitors, certainly I think we have the foundations to be able to hit that targets that we have identified and ultimately get to low to mid-single digits [profitability] by 2025.”

And the slower ramp-up has certain advantages. “We have been able to rise above a lot of the price discussions and the price actions that are going on because we feel very, very strongly that production is matched to demand for the vehicle,” Jacobson says.

But he does admit that GM’s communication could potentially have been clearer on what its value over volume strategy was.

“This is an area where the market maybe misinterpreted what we were doing, thinking we were backing off EVs or slowing down,” the finance chief suggests.

Instead the focus was on efficiency on a unit-by-unit basis before ramp-up. “We found efficiencies to be able to do and to reprioritise, so our commitment [is] to driving that cash flow in the business,” says Jacobson.

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