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GM guarantees worthwhile EVs, with a lift from Washington

© Reuters. FILE PHOTO: The new GM logo is seen on the facade of the General Motors headquarters in Detroit, Michigan, U.S., March 16, 2021. REUTERS/Rebecca Cook/File Photo

By Joseph White

DETROIT (Reuters) -General Motors Co expects its electric vehicles will make money in 2025, with recently enacted federal subsidies plugging the profitability gap between EVs and GM’s combustion fleet, Chief Executive Mary Barra said Thursday.

Barra did not specify what GM’s electric vehicle profit margins would be as she began a presentation to investors in New York City.

Barra has driven a long-running effort to convince investors that the Detroit automaker can be a growth company, reversing years of market share decline and retreat from unprofitable businesses.

So far, Wall Street has not gotten on board. GM shares trade at 6.5 times earnings, only slightly ahead of Detroit rival Ford Motor (NYSE:) Co’s multiple. EV leader Tesla (NASDAQ:) trades at nearly 60 times earnings, even through its share price is down 47% for the year.

The automaker’s shares were flat in New York trading as executives outlined the company’s strategy and showed investors images of future cars and trucks, including an electric large Cadillac SUV similar to the current Escalade.

GM pickup trucks and SUVs with internal combustion engines – referred to as “ICE (NYSE:)” by industry executives – earn double-digit profit margins.

Barra said GM’s new electric vehicles could be profitable by 2025, and that federal subsidies offered by the Inflation Reduction Act could boost EV profit margins toward “ICE-like margins.”

GM is also accelerating EV production in China, the world’s largest market. By 2025, Barra said GM could produce up to 2 million electric vehicles globally.

GM’s profitability has lag the benchmark set by Tesla. The electric vehicle company reported 17% pre-tax margins for the third quarter.

One way GM will try to narrow the profit gap is to use digital retailing and a revamped retail distribution system to cut $2,000 a vehicle from the costs of delivering vehicles to customers, GM President Mark Reuss said.

“Do not bet against this company,” Reuss told investors after outlining a lengthy list of new electric and combustion models planned for the next two years.

GM’s investments in domestic battery raw materials and cell production should make more of the Detroit automaker’s EVs eligible for federal subsidies.

GM trails Tesla, Ford and Hyundai Motor Co in U.S. EV sales this year. The company plans to accelerate EV production in North America and China from 2023 to 2025. From 2022 through the first half of 2024, GM said it will build 400,000 EVs for North America – a slower timetable than previously forecast.

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