As General Motors (GM) and Ford gear up to disclose their first-quarter results, they confront a shared quandary: elucidating to investors where future profit growth will stem from amid a deceleration in electric vehicle (EV) expansion. Over the past year, the slowdown in global demand for electric vehicles, heightened competition from Chinese automakers, and elevated U.S. borrowing costs have compelled both automakers to defer investments and trim costs. This strategic adjustment comes against the backdrop of a sluggish Chinese economy and heightened U.S. inflation, which dim prospects for a near-term macroeconomic boost.

In response, GM and Ford are directing their attention towards their core gasoline-powered vehicles, which remain the primary source of their profits. Scheduled to unveil their results on Tuesday and Wednesday, respectively, both companies anticipate leveraging the robust demand for their Chevrolet and GMC brand pickup trucks and SUVs. Notably, Barclays recently upped its target price for GM shares by 10%, citing the strong sales performance of the automaker’s truck and SUV lineup.

GM’s Chief Financial Officer, Paul Jacobson, expressed confidence in the company’s positive start to the year and its optimistic outlook on demand trends. Similarly, Ford’s CFO, John Lawler, reaffirmed the company’s full-year profit outlook, citing better-than-expected vehicle prices. However, both legacy automakers continue to grapple with higher expenses related to electrifying their vehicle lineups and fluctuating demand for battery-electric vehicles.

Analyst Chris McNally notes a shifting momentum away from previous winners like Tesla as EV sales growth slows. Investors are now refocusing on automakers like GM, Stellantis, and Toyota, which rely less on EVs. Particularly advantageous for GM is the high ratio of gas-powered trucks to EVs in its North American sales mix, which is expected to help offset projected losses in its Chinese operations.

Despite a 1.5% slip in first-quarter U.S. vehicle sales, GM witnessed a notable 6% jump in retail sales. Yet, challenges persist, with investors seeking updates on GM’s struggling Cruise robotaxi unit. The unit, which has incurred significant losses since its acquisition by GM in 2016, recently announced plans to reintroduce vehicles in Phoenix, Arizona, albeit with human drivers.

Meanwhile, Ford draws strength from its combustion truck business and Ford Pro commercial vehicle operations, reaffirming its forecast for $10 billion to $12 billion in core profit this year. The automaker recently announced plans to decelerate two major electric-vehicle programs, underscoring CFO Lawler’s insistence that future EV investments must demonstrate standalone profitability.

In essence, GM and Ford are banking on their gas-powered truck segments to drive profitability amid a slowdown in EV growth. While challenges persist, both companies remain optimistic about their ability to navigate the evolving automotive landscape and sustain profitability in the long run.

Source: Reuters