General motors

General Motors (NYSE: GM) stock is higher in premarkets today. Yesterday the company raised its 2022 guidance and forecast EV (electric vehicle) profitability by 2025.

GM predicted that US EV adoption would rise to 20% by 2025 and said that it is taking steps to be a leader in the market. Notably, legacy automakers are investing billions of dollars in building their EV capacity as the world transitions towards zero-emission cars. Last year, General Motors said that it would not sell ICE (internal combustion engine) cars after 2035.

At its investor day yesterday, General Motors CEO Mary Barra said, “GM’s ability to grow EV sales is the payoff for many years of investment in R&D, design, engineering, manufacturing, our supply chain and a new EV customer experience that is designed to be the best in the industry.”

It also said that it has secured the raw materials to reach its 2025 EV production capacity of 1 million and is working to secure raw materials even beyond 2025. Notably, as the EV competition heats up, automakers have been scrambling to secure the materials to build car batteries.

Tesla was reportedly in talks with Glencore for a stake but the talks did not make much headway. Glencore is also a major producer of copper. Copper demand is expected to soar in the next decade as the copper intensity is much higher in electric cars as compared to ICE cars.

General Motors Outlines Aggressive EV Plans

Ford also partnered with CATL “on strategic cooperation for global battery supply.” The company is also looking to localize battery production in the US. We have a guide on how to buy Ford stock in 2022.

In order to hasten the EV pivot in the US, President Biden has signed the Inflation Reduction Act of 2022. Among others, it has increased the outlay towards the EV tax credit. The Act also has battery sourcing requirements beginning in 2024, and by 2029 the battery would need to be built in North America to be eligible for the tax credit.

Barra was all praise for the Act. She said, “It will be good for the American economy. It’ll be good for American families. It’ll be good for the environment, and frankly, General Motors is well poised.”

General Motors cars stopped qualifying for the $7,500 EV tax credit. The company said that beginning next year its cars would be eligible for a $3,750 tax credit. It is working to localize battery production to be eligible for the full credit.

It also announced a partnership to secure nickel from Vale in Canada which would help it meet the sourcing requirements. Toyota also announced an investment in battery production in the US.

GM Raises 2022 Cash Flow Guidance

GM also raised its 2022 free cash flow guidance and now expects to generate free cash flows of between $10-$11 billion, which is higher than the previous guidance of $7-$9 billion. It also narrowed the 2022 EBIT guidance and now expects it to be between $13.5-$14.5 billion. Previously, it had guided for adjusted EBIT between $13-$15 billion.

GM also said that it expects its EV portfolio to generate a positive EBIT margin in the low to mid-single digits by 2025, before the impact of tax credits. It also predicted that its sales would rise 12% annually until 2025 led by higher EV sales. In 2025, it expects EV sales of $50 billion and total revenues of $225 billion.

General Motors is Not Backing Out from Autonomous Driving

General Motors said that it is continuing with its investments in the autonomous driving segment. Barra said, “We are the only AV company that is out there ready to launch in three markets and bringing in revenue.”

The comments come shortly after autonomous driving start-up Argo AI, which is backed by Ford and Volkswagen shut down. Even Alphabet is under pressure to cut losses at Waymo, its self-driving unit.

Barra meanwhile is upbeat about GM’s autonomous business. She said, “When we think about the strength of the business and what we have built, we feel we can reinvest in the business because we see these great opportunities.”

Analysts are bullish on green energy companies amid the pivot to a low-carbon future. Pure play EV companies like Tesla and NIO command a valuation premium over legacy automakers.

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