Detroit automakers General Motors and Ford Motors are set to release their first-quarter earnings this week and are expected to reassure Wall Street that they won’t engage in a price war with electric vehicle giant Tesla. However, investors have remained skeptical, as GM shares have dropped over 20% since their peak in February 2023 and are trading close to their IPO price of $33 a share in 2010. Meanwhile, Ford shares have also decreased by 13% since February due to Tesla CEO Elon Musk’s strategy of sacrificing profit margins to increase sales volume, putting pressure on competitors.
GM recently reported upbeat sales results, with its first-quarter U.S. sales rising 18% from the previous year, thanks to the high-margin trucks and SUVs driving the growth. However, GM’s CEO Mary Barra is pushing to cut operating costs by $2 billion by the end of the year, and the company recently announced that 5,000 employees have accepted severance deals as part of this drive to reduce costs.
While GM has been slow to ramp up the production of its latest electric vehicles, it might benefit the company in the near term, as it could dodge the impact of Tesla’s aggressive price cuts. In the first quarter of 2023, GM only delivered 968 Cadillac Lyriq EVs, which could make it less vulnerable to the effects of Tesla’s price cuts. However, this could also mean that GM is falling behind in the electric vehicle race, which could have long-term implications for the company’s competitiveness.
Strong sales
In a note on Monday, J.P. Morgan analyst Ryan Brinkman suggested that General Motors (GM) and Ford Motor Co. (Ford) may not be as affected by Tesla’s price cuts, with the Detroit automakers expected to see better trends in pricing and margins compared to Tesla in the first quarter. However, investors remain concerned that EV pricing weakness could spread beyond Tesla to other automakers’ EVs and impact the broader market for new vehicles generally.
GM is set to report its first-quarter results on Wednesday after signaling an upbeat outlook with its first-quarter U.S. sales report titled “Off to a Great Start.” GM’s first-quarter U.S. sales rose 18% from a year ago, with sales of high-margin trucks and SUVs leading the way. Meanwhile, GM CEO Mary Barra is reportedly aiming to cut operating costs by $2 billion by the end of the year, with 5,000 employees already accepting severance deals. Ford, which is scheduled to report its first-quarter results on May 2, also had strong first-quarter truck sales in the U.S. However, the semiconductor shortage had an impact on the delivery of F-150 pickup trucks, which were up 21% from year-ago levels. This quarter’s report will be the debut of Ford’s new financial reporting approach reflecting its broader restructuring.
Investments
Ford’s new financial reporting approach, which debuts with the first-quarter results, reflects its broader restructuring. The company will break down its results for investors across three segments: the Model e electric vehicle business, the Ford Blue combustion vehicle operations, and the Ford Pro commercial vehicle unit. This move aligns with Ford’s previously announced strategy to invest $22 billion in electric vehicles and $7 billion in self-driving technology through 2025.
However, despite this significant investment in EVs, Ford’s EV unit is expected to lose $3 billion before taxes this year, according to a briefing the company held last month. This is a reflection of the significant costs associated with ramping up the production of electric vehicles and building out charging infrastructure, which is a major obstacle for many automakers. Despite these challenges, Ford did report strong first-quarter truck sales in the U.S., with deliveries of F-150 pickup trucks jumping 21% from year-ago levels, despite semiconductor shortages. The success of the F-150 is critical for Ford, as it is one of the company’s most profitable vehicles and a top seller in the highly competitive U.S. truck market.
