GM, Ford must persuade investors they’ll profit as prices fall

DETROIT — General Motors and Ford are expected to report strong profits for 2022 next week, powered by premium-priced pickup trucks and sports utility vehicles.

Now, the Detroit rivals must persuade investors that last yr’s profit formula can keep working when costs for EV batteries are rising, high rates of interest are cutting consumer purchasing power, and Tesla is slashing prices.

Already there are signs the Detroit automakers are scaling back spending to offset competitive and economic pressure. GM has shelved for now plans to construct a fourth EV battery plant in North America.

Ford is in talks with German unions to cut 1000’s of jobs in its European operations and possibly sell a German vehicle assembly plant. In October, it stopped funding autonomous vehicle affiliate Argo AI.

GM and Ford each depend on sales of pickup trucks and SUVs in the USA for the majority of their global profits. This yr, each automakers plan to ramp up sales of much less profitable electric vehicles in North America and other markets.

The danger to the Detroit automakers’ profitability could be a challenge in the most effective of times. But now, GM and Ford must consider forecasts for a slowdown, or perhaps a recession, within the U.S. economy.

EV battery raw material costs are rising, but U.S. EV market leader Tesla is cutting prices on its best-selling Model 3 and Model Y vehicles by as much as 20%.

The Model Y SUV competes with Ford’s Mustang Mach-E, GM’s Cadillac Lyriq EV, and with combustion SUVs the Detroit automakers sell.

Morgan Stanley estimated increased prices added a median of $3 billion a yr to Ford’s pre-tax bottom line and was the equivalent of greater than 200% of the development in the corporate’s pre-tax profits for 2022.

GM, the No. 1 U.S. automaker by sales in 2022, said higher prices added $2.1 billion to pre-tax profits within the third quarter in comparison with the identical quarter in 2021 — similar to nearly half of pre-tax profits for the period overall.

The corporate has told investors it is going to spend $35 billion on electric and automatic vehicles between 2020 and 2025. Ford has put its planned EV investments at $50 billion through 2026.

“If we’re entering a downturn,” Morgan Stanley analyst Adam Jonas said, “what steps can they take to maintain investing and remain strong?”

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