GM’s EV Production Retreat Leads To A $1.6 Billion Financial Hit – CleanTechnica

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As widely reported today, GM announced in a public filing that it is taking on $1.6 billion in charges associated with scaling back US EV manufacturing capacity. The capacity reduction was justified in the filing because “the termination of certain consumer tax incentives for EV purchases and the reduction in the stringency of emissions regulations” are expected to slow US EV adoption.

The $1.6 billion was broken up into “non-cash impairment and other charges of $1.2 billion as a result of adjustments to our EV capacity. In addition, the Company has incurred charges of $0.4 billion, primarily related to contract cancellation fees and commercial settlements associated with EV-related investments, which will have a cash impact.”

In addition, the company indicated that this might not be the end of the scaling back. “The reassessment of our EV capacity and manufacturing footprint, including our investments in our battery component manufacturing, is ongoing….”

Of note, GM announced late last year that it was “variable profit positive” on EVs. This term is not used much in public, but it means that they were selling EVs for more than the variable costs (materials and labor). It does not mean that they were gross profitable when fixed costs are included (factories, machinery, etc.) or net profitable, but it does mean that they do not increase losses with higher production scale. Scale would help them to inch closer to profitability. That metric has likely changed, as it factored in subsidies. However, combined with a reduction in scale, attaining EV profitability will become more of a challenge. Unfortunately, the market seems to feel that scaling back EV production will be financially beneficial, as GM’s share price shot up 2.75% after the announcement.

It will be interesting to see what happens to the facilities that were built with government help. GM received billions in subsidies to support cancelled hydrogen development and build EV production capacity that is now being shuttered. It recently paid back loans for its Ultium plant built with partner LG, which looks like it will be underutilized, especially with the 2027 Bolt using CATL batteries. But it also received Electric Vehicle (EV) and Fuel Cell Electric Vehicle (FCEV) Manufacturing Tax Credits (48C), which covers 30% of the cost “for project investments to reequip, expand, or establish certain manufacturing facilities.” And it received grants, including a $500 million award that Trump is currently trying to revoke, and a wide range of other state, federal and local incentives to build EV factories. Now that those factories will not produce EVs, where does that public investment go? Will they just repurpose the factories to make ICE vehicles?

On a global level, GM’s joint venture with SAIC has also been losing money. This makes up the majority of EVs produced under the GM umbrella globally, but they are designed, engineered and manufactured in China. At this stage, the primary contribution GM seems to be bringing to the table is established Western brands like Chevrolet and Buick. Those brands are performing poorly in China, but still have value in export markets. The Chinese market keeps getting more competitive, and stricter regulations will be a challenge. However, the joint venture could be the best hope to keep GM relevant outside of the closed US market. This joint venture is currently under renewal renegotiations, and it will be interesting to see how that turns out.

A Challenging Domestic Situation

Overall, this development feeds into what some of us have publicly stated or privately feared: the US is increasingly in danger of becoming an EV backwater. Trade policy already had us falling behind other developed countries in EV adoption, and trade policy has gone backward this year. Some developing countries, like Nepal and Ethiopia, are leapfrogging us. Domestic policy has also gone backward, with the US becoming increasingly out of sync with the rest of the world.

And the retreat likely is not going to be restricted to GM. Stellantis recently cancelled the Ram EV and mainstream Charger EV. Ford may also scale back some models. Although, its focus on simplicity for new EV development seems like an increasingly wise approach in the US market.

However, there is still clearly some enthusiasm for EVs in Detroit. Many are excited about the launch of the affordable Bolt. We can only hope that this is a strategic, temporary retreat in production capacity, rather than a sign of outright surrender. Competition is good, and the US could use more of it in the EV market.

In addition, Ford has several global models performing well that were developed in collaboration with VW in Europe and JVs in China. Stellantis also has several European EVs and is collaborating with Leapmotor. GM will likely maintain some level of collaboration, even if the scope of its JV changes. This international collaboration has the potential to get Detroit back into the EV game when the market opens up, even though new global competitors will have advanced significantly.

EVs are the future, even if much of the US is currently looking to the past. We are going through a challenging period. However, when consumers realize they can have something better, walls tend to come down. And there are few economic forces stronger than the US consumer.