What happened
Shares of General Motors (GM -1.85%) closed higher on Wednesday, after the U.S. Department of Health and Human Services (HHS) said that it awarded the automaker a contract to produce hospital ventilators for the national stockpile.
After moving up for much of the day, GM's shares closed at $23.13 on Wednesday, up 8.6% from Tuesday's closing price.
So what
In an early-morning announcement, HHS said that GM will build 30,000 ventilators for the U.S. Strategic National Stockpile by the end of August, with the first 6,132 units to be delivered by June 1. GM will receive $489.4 million for the ventilators, or about $16,300 per unit. At retail prices, hospital ventilators can cost as much as $50,000, depending on features.
CEO Mary Barra inspected GM's improvised mask factory last week. The factory, which has since begun production, will make 1.5 million masks a month for health-care workers, first responders, and essential employees. Image source: General Motors.
Since closing its auto and parts factories throughout North America in mid-March, GM has been looking for ways to use its supply chains and idled manufacturing capacity to support healthcare workers and first responders. Hospitals and first responders have been overwhelmed by patients with serious cases of the COVID-19 virus, and protective equipment and ventilators have been in critically short supply. GM has been working with privately held Ventec Life Systems to develop mass-production plans for Ventec's VOCSN portable ventilator.
In addition to the ventilators, which will be made at an idled plant in Kokomo, Indiana, GM has begun producing face masks at a separate facility in Michigan. That facility will produce 1.5 million masks per month once it's up to full speed; GM expects to ship its first batch of 20,000 masks this week.
Now what
I don't expect GM to make any profit from the ventilators; at best, that $489.4 million will be enough to pay suppliers and cover most of GM's own costs. Auto investors should keep in mind that while its factories are closed, GM is almost certainly burning cash at a very high rate; this remains a serious crisis.
But that said, GM is winning some goodwill (and doing the right thing) by pitching in to make ventilators and protective gear during this time of crisis. As for GM's finances, I expect we'll get a detailed update when the company reports its first-quarter earnings on May 6.
