GM, Ford must convince investors they can profit as prices fall

General Motors and Ford are expected to report strong earnings in 2022 next week, driven by premium-priced pickup trucks and crossovers.

Now, Detroit’s rival invests that last year’s profit formula can continue to work as the cost of EV batteries rises, high interest rates erode consumer purchasing power and Tesla slashes prices. I have to convince the house.

There are already signs that Detroit automakers are cutting spending to offset competitive and economic pressures. GM and LG Energy Solutions have shelved plans to build his fourth EV battery factory in North America.

Ford is in talks with German unions about cutting thousands of jobs in its European operations and possibly selling a German car assembly plant. In October, we stopped funding Argo AI for self-driving cars.

Both GM and Ford rely on domestic sales of pickup trucks and crossovers for a large portion of their global profits. The companies plan to expand sales of low-margin EVs in North America and other markets this year.

The risks to the Detroit automaker’s profitability will be the challenge of the best of times. But now GM and Ford must take into account the prospect of a slowing US economy and even a recession.

US EV market leader Tesla is slashing prices of its best-selling Model 3 and Model Y by up to 20%, even as EV battery raw material costs rise.

The Model Y SUV will compete with Ford’s Mustang Mach E, GM’s Cadillac Lyric EV, and a combustion crossover sold by the Detroit automaker.

Morgan Stanley estimated that higher prices would add an average of $3 billion to Ford’s pre-tax earnings annually, representing more than 200% of the company’s pre-tax earnings improvement in 2022.

GM, the number one U.S. automaker by 2022 sales, said higher prices added $2.1 billion to pre-tax earnings in the third quarter compared to the same quarter in 2021. rice field. This represents almost half of the pre-tax profit for the entire period.

The company told investors it will spend $35 billion on electric and self-driving cars between 2020 and 2025.

“If we were to go into a recession, what steps could we take to keep investing and stay strong,” said Morgan Stanley analyst Adam Jonas.

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