General Motors (GM) faces challenges with rising costs and the production of electric vehicles (EVs) as it reported a decline in adjusted pre-tax profit and margins in its key North American market despite increased revenue and transaction prices per vehicle, Reuters reports.
GM plans to reduce investments in new products and cut operating costs by an additional $1bn by the end of next year. The automaker also raised its full-year profit guidance. CEO Mary Barra revealed the reversal of plans to discontinue the cheapest EV, the Chevrolet Bolt, and will instead introduce an updated model with a newer Ultium battery pack.
However, specific details remain undisclosed. A joint venture plant in Ohio, responsible for battery production, experienced delivery issues with automation equipment, affecting production.
In the second quarter, adjusted pre-tax profit and margins declined despite higher revenue and per-vehicle transaction prices. GM's net income for the quarter increased by 52% on a year-to-year basis to $2.6bn, attributed to improved revenue. The company expects full-year net income to be between $9.3bn and $10.7bn.
GM's more optimistic outlook is driven by robust revenues and profits over the last six months, leading to increased demand and higher pricing. However, the automaker is also cutting new product investments and operating costs to manage profit margins that are under pressure. GM aims to simplify its product line, reduce feature combinations, and cut capital spending.
GM's focus on profitability contrasts with Tesla's approach of reducing prices to boost demand. Instead, GM raised average transaction prices in North America by $1,600 to around $52,000. The automaker is committed to building around 100,000 EVs in the second half of the year, targeting 400,000 EVs from 2022 through the first half of 2024.
A Reuters analysis warned that the slow ramp-up of GM battery plants may limit annual EV production to less than 600,000 by mid-decade. Some analysts remain cautious about GM's ability to execute an aggressive production ramp and ensure sufficient demand for its EV models. GM's strategy revolves around simplicity, profitability, and growing EV production to capitalize on the increasing popularity of electric vehicles.
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