General Motors (GM) is reportedly struggling with costs as it feverishly works to unleash more EVs while still maintaining some kind of profit.
According to reports, GM's adjusted pre-tax profit and margins in its key North American market fell from the first quarter despite an increase in revenue and per-vehicle transaction prices, resulting in shares declining by 1.7 percent in early trading.
GM's promise to shareholders and customers is that it will invest an additional $1 billion in new products through the end of the year while cutting operating costs, which the company says will uplift its full-year profit guidance.
There is a lot of trouble in EV paradise, however, as GM is having trouble getting enough batteries for its new updated Chevrolet Bolt line, which will contain a newer Ultium battery pack.
Battery production at the Ultium joint venture plant in Lordstown, Ohio, is not going so well because "our automation equipment supplier is struggling with delivery issues," to quote CEO Mary Barra.
According to Barra, the issue should be resolved by the end of 2023. In the meantime, workers are building the batteries by hand on manual assembly lines.
(Related: Amid growing concern over the safety of their metal components, Clarios, the world's largest lead battery company, has come forward to declare that its lead-based EV batteries are "safe" for consumers.)
EVs and "green" technology are bankrupting the auto industry
Because GM's profit margins are under intense pressure with this green push, the company is having to cut new product investment and operating costs everywhere it can in the hopes of keeping everything afloat.
For the first six months of 2023, GM's pre-tax margins fell to just 8.3 percent of revenue, down from 8.9 percent a year ago. And instead of spending $12 billion this year on capital investments, GM will instead spend just $11 billion, down from the proposed $13 billion that was previously on the table.
"There's a lot of focus on winning with simplicity," said CFO Paul Jacobson.
By simplifying its product line, GM hopes to keep up with competitors like Tesla, which only produces EVs and has no legacy gas-powered vehicles in its product line.
GM also plans to cut the number of features and color trim combinations available on its vehicles by half, which the company hopes will further cut costs and keep things afloat.
While GM is gradually trying to increase the sale prices on its vehicles, Tesla is taking the opposite approach by cutting prices and trying to make its vehicles more affordable to boost demand.
In the last quarter, GM pushed up its average transaction price by $1,600 to around $52,000, which again is the opposite of what Tesla is trying to do by cutting prices.
"We're focused on profitability," Jacobson added. "Our recent results demonstrate that we're not sacrificing margin for volume."
In a letter to shareholders, Barra said that GM is aiming to build "roughly 100,000 EVs in the second half of this year and we'll grow from there."
So far this year, GM has produced about 50,000 EVs, most of them the older Bolt model, GM's cheapest EV, that the company was previously going to get rid of but is now planning to keep.
In a note to investors, CFRA analyst Garrett Nelson said he remains "cautious due to the near-term earnings drag from GM's EV transition and its ability to execute an aggressive production ramp, as well as ultimate demand for its EV models."
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