Strong profits for 2022 are anticipated from General Motors and Ford next week, fueled by high-end pickup trucks and SUVs.
Now that costs for EV batteries are rising, high interest rates are reducing consumer purchasing power, and Tesla is slashing prices, the Detroit rivals must demonstrate to investors that the profit formula from last year can continue to work.
Detroit automakers appear to be cutting back on spending in an effort to withstand competition and economic pressure. GM has put off constructing a fourth EV battery plant in North America for the time being.
Ford is discussing the possibility of selling a German vehicle assembly plant and eliminating thousands of jobs in its European operations with German labor unions. It stopped funding Argo AI, a company that makes autonomous vehicles, in October.
The majority of their global profits come from sales of SUVs and pickup trucks in the United States, according to GM and Ford. In North America and other markets, both automakers intend to increase sales of much less profitable electric vehicles this year.
In the best of times, dealing with the risk to the profitability of the Detroit automakers would be difficult. However, GM and Ford must now take into account economic forecasts for a slowdown or even a recession in the United States.
EV battery raw material costs are going up, but Tesla, the leader in the EV market in the United States, is cutting the prices of its Model 3 and Model Y vehicles, which are currently the most popular, by as much as 20%.
The Model Y SUV faces competition from Ford’s Mustang Mach-E, GM’s Cadillac Lyriq EV, and Detroit automakers’ combustion-powered SUVs.
Morgan Stanley estimated that Ford’s pre-tax profits would rise by more than 200% in 2022 as a result of higher prices, which would add an average of $3 billion per year.
The No. 1 According to the number one automaker in the United States by sales in 2022, higher prices contributed $2.1 billion to pre-tax profits in the third quarter compared to the same period in 2021, or nearly half of pre-tax profits for the entire period.
Between 2020 and 2025, the company has informed investors that it will invest $35 billion in electric and automated vehicles. Through 2026, Ford intends to invest $50 billion in EVs.
“If we are entering a downturn,” Morgan Stanley analyst Adam Jonas said, “what steps can they take to keep investing and remain strong?”
Five projects will mark the beginning of the Renault-Nissan alliance reboot. This article first appeared on Autoblog on January 28, 2023, at 07:00:00 EST.