Dive Brief:
- General Motors’ Q3 net income tumbled 57% year-over-year fueled by tariffs, which cost the company $1.1 billion during the quarter, the automaker reported Tuesday.
- Profits also were affected by the automaker’s revised electric vehicle strategy to scale back production amid cooling demand, according to CEO Mary Barra.
- However, GM’s quarterly setback could prove temporary because Barra expects company actions to address manufacturing capacity and architectural improvements with EV battery production will lead the company back to historic EBIT margins of between 8% and 10%.
Dive Insight:
GM’s strategy to boost profits is focused on numerous fronts, including reducing exposure to tariffs, improving EV profitability and growing software services, Barra said. The automaker’s confidence in its strategy was reflected though boosting its guidance to between $12 billion and $13 billion, up from between $10 billion and $12.5 billion.
Regarding software services, which includes GM’s OnStar and Super Cruise platform, Barra said the technologies represented nearly $2 billion in revenue so far this year. OnStar subscribers are up 34% YoY, she said, adding that Super Cruise customers have “nearly doubled year over year.”
“We expect robust double-digit revenue growth through the end of the decade with growth margins of about 70%,” Barra said.
Though new revenue streams aren’t GM’s only focus to drive profits. Increasing domestic production will not only mitigate the impact of tariffs, it allows the company to build more full-sized gas-powered trucks and SUVs for the U.S. market, Barra said. GM and other automakers have been rethinking their EV strategies, especially for the U.S. market, since the EPA said it was reconsidering emissions standards.
“It is clear that ICE volumes will remain higher for longer,” Barra said. She said when the company retools its Lake Orion, Michigan, plant and brings it back online in early 2027, it will produce a new Cadillac Escalade as well as new full-size and light-duty pickup trucks.
While short-term production growth will mean more gas-fueled SUVs and trucks for GM, the automaker isn’t turning away from electric vehicles, according to CFO Paul Jacobson.
“The customers want EVs,” he said during Tuesday’s call with analysts. “Let’s remember that there was EV adoption before the $7,500 tax credit and there will be EV adoption afterwards.”
Jacobson said he wasn’t surprised that EV demand softened in October after government incentives ended Sept. 30. However, the loss of the tax credit will give GM a clearer picture of natural demand for EVs.
“You can be assured that we will build the demand and continue to focus on improving EV profitability, including material cost reductions by leveraging larger module sizes and new battery chemistries,” he said.
