Detroit Three distinctly positioned for EV regulation, China threat - Detroit News

Detroit Three distinctly positioned for EV regulation, China threat

Detroit Three distinctly positioned for EV regulation, growing China threat
Breana Noble

High pricing on internal combustion engine vehicles delivered strong earnings at the Detroit Three automakers in 2023, but the future is all about how to get to affordable electric vehicles.

Zero-tailpipe emission vehicles are needed to comply with government regulations but also to protect against Chinese automakers able to produce low-cost EVs and that have eyes on the U.S. market, executives say. Challenges with affordability, range anxiety and access to charging infrastructure, though, are slowing consumer EV adoption, prompting some recalibration on timelines and a relook at powertrain technology like hybrids.

"The Japanese car makers, they came to the U.S. market in the '70s (in the) previous century, and the Koreans came perhaps 20 years later in the '90s," Stellantis CEO Carlos Tavares said during a virtual roundtable with reporters. "If we look at what they have achieved between that introduction moment until now, we have to recognize that they have taken a significant share of the market.

"So, the question for us is: Do we want that story to repeat for the third time with the Chinese carmakers? That's the question. And of course, the pressure for that to happen is going to come from the consumer ... and if the regulations are pushing us toward more and more EVs, which obviously they are."

Stellantis NV on Thursday reported a record $20 billion net profit in 2023, an increase of 11% from 2022, on record net revenues of $203.4 billion, up 6%. Strong pricing in foreign markets drove earnings, as North American results saw a year-over-year decline from poor vehicle mix available and costs associated with strikes and new contracts with the United Auto Workers and Canadian labor union Unifor.

Meanwhile, General Motors Co. last month said it made $10.1 billion in net income on revenue of $171.8 billion. Ford Motor Co. last week posted a $4.3 billion net income on $176.2 billion in revenue in 2023. Both companies surpassed analyst expectations.

What's now emerged are three different stories. Stellantis, the country's plug-in hybrid sales leader, this year just now is launching its first EVs in North America. GM, one of the pioneers in the EV market, now has backtracked on its plans to go "all-in" on EVs, saying it will launch plug-in hybrid options. And Ford, which has both hybrids and EVs, has cut EV investments and elongated its expectations for the lifetime of engines.

"The competition and price war in China has caused European and U.S. automakers to think twice," said Daniel Ives, analyst at investment firm Wedbush Securities Inc. "You can’t put the genie back in the bottle. The all-in EV future does not look as rosy as it did 18 months ago."

Tesla Inc. last year slashed pricing on its vehicles. Other automakers like Ford followed with their own price reductions.

"The early adopter, technology buyers are mostly saturated," said Stephanie Brinley, principal autos analyst for the Americas at S&P Global Inc. "The people that said, 'I'll buy at whatever cost, I just think it’s cool,' we seem to have gotten through the majority of those consumers. They're going to have to take a different approach in order to get a more pragmatic or mainstream buyer."

Ford CEO Jim Farley on Thursday during the Wolfe Research Global Auto and Auto Tech Conference said those customers are doing the math on EVs versus hybrids, from fuel economy to resale value: "The math on EVs is more complicated."

But, Farley said, automakers can't rely only on hybrids to be compliant with government fuel-economy and emissions regulations. So, they have to sell EVs, and there's a looming threat from Chinese automakers like BYD that can produce a Seagull city car for roughly $11,000. The risk is 30% of an automaker's revenue, Farley said.

Ford's answer is a platform on which it's been working for the past two years that could support affordable EVs starting between $25,000 and $30,000. With a $7,500 federal subsidy, vehicles the size of an Escape compact crossover or smaller could offer an operating cost because of their smaller batteries better than that of Ford's small Maverick pickup, Farley said.

"What the customer has now said to us is: If you have anything larger than Escape," he said, "it better be really functional or be a work vehicle as an EV."

Meanwhile, GM has EVs. But to meet government regulations, it will introduce some plug-in hybrids, because demand for EVs isn't sufficient yet.

"Let me be clear: GM remains committed to eliminating tailpipe emissions from our light-duty vehicles by 2035," CEO Mary Barra said during the automaker's earnings call. "But in the interim, deploying plug-in technology in strategic segments will deliver some of the environmental benefits of EVs as the nation continues to build its charging infrastructure."

Barra also called for a "level playing field" when it comes to tariffs and the threat of Chinese automakers. She said the Detroit automaker is focused on a competitive cost base, as well.

Stellantis this year finally introduces its first eight EVs in the United States. First deliveries of the Mexico-built, all-electric Ram ProMaster commercial van have made it to Amazon.com Inc. Also on the way are the electric Wagoneer S SUV, Dodge Charger muscle car, Jeep Recon SUV and Ram 1500 REV truck. Globally, the company is growing its EV portfolio this year to 48 from 30.

"We keep it full speed on electrification," Tavares said. "There may be some bumps on the road. In some cases, it may accelerate; in other cases, it may slow down. But what I believe is that with the 1.5 degrees (Celsius increase in global average surface warming from pre-industrial temperatures) that is already here, there is urgency to act."

Stellantis' EVs in Europe are profitable, though not as profitable as gas- and diesel-powered vehicles, Tavares said. Profits from EVs in North America should be visible as volumes ramp up in 2025. Cost cutting measures are seeking to offset those diminished profits as it works toward profit parity. Executives on an earnings call emphasized discipline in pricing after its U.S. average transaction prices last year was $53,300 and U.S. sales dropped 1%.

Chief Financial Officer Natalie Knight expects moderating interest rates will help demand, and lower raw material costs are expected to deliver a similar tailwind as last year. New product could spur sales, too. Tavares said he felt there was "wasted" money last year in the way the company coordinated cash flow, manufacturing, marketing and distribution. Stellantis now has new leadership in North America and for brands like Jeep.

They will have "more breathing space in terms of communicating the emotions and the power of their brands," Tavares said. The company opted not to appear at the Chicago Auto Show or air a Super Bowl commercial this year, citing spending cuts.

Stellantis' adjusted operating income in North America fell 4.9% to $14.271 billion in 2023. It posted a 15.4% margin in North America compared to the 16.4% margin in 2022. That'll deliver a $13,860 profit-sharing payment depending on hours worker to 38,000 United Auto Workers-represented employees.

"I don't think that we were stellar in 2023," Tavares said. "And that's rather a good news, because all the things that operationally we did not do very well in '23, we have the opportunity to improve in '24."

Still, the company is projecting another double-digit adjusted operating margin year in 2024 after it was 12.8% in 2023 compared to 13% in 2022. It also predicts positive industrial free cash flow after it was up 19% last year to a record $13.797 billion.

Stellantis also reported second-half results for 2023. Its net profit fell 13% to $8.271 billion on $97.845 billion in revenue, a 0.5% decrease compared to the last six months of 2022.

In total for 2023, Stellantis is paying roughly $2 billion in profit sharing and variable bonuses globally to employees. It also will expand its share purchase plan to 242,000 employees worldwide in 2024.

Stellantis proposed a dividend to shareholders of $1.66 per share, pending their approval. The dividend that is 16% larger than last year's would be paid May 3 for owners of record as of April 23. The company also announced an open market share buyback program this year of $3.22 bullion.

Stellantis shares on the New York Stock Exchange closed up 6.6% on Thursday at $25.99, while its shares in Milan and Paris closed up 5.7% and 5.8%, respectively.

bnoble@detroitnews.com

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