The electric-vehicle (EV) future is coming faster than you might think. At the end of 2021, EVs in the U.S. accounted for 5% of new car sales.
Why is that important, you ask? Because if the U.S. is similar to the previous 18 markets that crossed that threshold, EV sales could spike to 25% of new car sales by the end of 2025.
That rapid rise in sales makes it even more important for long-term investors to fully understand how each Detroit automaker is evolving to tackle the current boom in EV sales. You might be surprised just how far General Motors (GM -0.04%) and Ford (F 0.08%) are going to secure a highly profitable future.
The lithium game
One thing the past year has taught the automotive industry, during the semiconductor shortage that crippled supply chains and hindered sales, is that controlling more supply of key materials and parts can be immensely important to the bottom line.
That's exactly why GM announced it would invest with Lithium Americas (LAC) to develop the Thacker Pass mine in Nevada, the largest known source of lithium in the U.S.
As GM prepares to launch several EVs in 2023, and roughly 30 models through 2025, it has already secured much the battery material it needs to manufacture more than 1 million EVs annually in North America in 2025. Its future production will be partly secured through its partnership with Lithium Americas.
The year of Ultium
Beyond securing battery materials, GM has taken large steps with its Ultium platform, which is poised for a breakout year in 2023 powering seven vehicle launches. Already, eyes are set on its second-generation platform, which is expected to increase range and lower costs up to 60% compared to GM's Chevrolet Bolt EV.
By the end of 2025, roughly 40% of GM's U.S. vehicle models will be EVs, and the automaker has committed $35 billion to develop EVs and autonomous vehicles, from 2020 through 2025, to make this a reality. For investors, since it's often all about the bottom line, these investments should pay off sooner rather than later.
Profits and growth
In a press release, Doug Parks, GM's head of global product development, purchasing, and supply chain, said, "GM's EV development times are speeding up and costs are going down rapidly, so we expect our Ultium EV programs to be profitable from the first generation on."
GM has already made strides with current EVs; during the first quarter, it delivered more than 20,000, securing the No. 2 spot in the U.S. market and increasing EV market share by 8 percentage points.
Expect that figure to rise: GM projects to produce roughly 50,000 EVs in North America during the first half of 2023 and double that during the second half. The automaker is targeting over 1 million in annual EV sales globally by 2025.
Not only is GM launching a long list of vehicles over the next two years, it's also securing battery material, developing a universal platform for EVs to drive costs down, and has announced its EV program would be profitable in 2025. That's not too shabby for a company once considered a dinosaur incapable of evolving quickly.
Ford: the crosstown rival
One clue to how important EVs are to the folks at the Blue Oval is the company's restructuring of reporting. In years prior, Ford released earnings by region, which often showed important North America results followed by a handful of vastly less-relevant markets.
Now, Ford primarily reports in these sections: Ford Blue (iconic gasoline nameplates and hybrids), Ford Model e (breakthrough EVs), and Ford Pro (commercial vehicles). These segments will give a much more detailed and transparent look into key segments such as its EV program.
Like its crosstown rival, Ford is ramping up production quickly to drive down costs -- great news, considering Ford Model e posted a roughly 40% negative margin in 2022, and losses are expected to move higher in 2023.
Ford is investing more than $50 billion in EVs globally through 2026 while targeting an annual run rate of 600,000 EVs globally by late 2023 and 2 million by 2026. Again, similar to GM, Ford has secured roughly 70% of annual battery cell capacity to support its 2026 target.
Its initial focus with EVs was on home-run nameplates: the F-150, Mustang, and Transit van. Those three EV versions drove Ford to becoming the No. 2 EV brand in sales for 2022, before being overtaken by GM during the first quarter of 2023.
Currently, Ford Model e is projecting to move from about 40% negative margins in earnings before interest and taxes to roughly positive 8% by the end of 2026. The driving forces will be roughly 20 percentage points through scale, 15 points through design and engineering efficiency and simplification, 10 points through reduced battery costs, with a few percentage points scattered among raw material improvements and other sources.
The bottom line
EVs are the future, and the race to turn these programs into profit makers is on -- and it's going to define which company becomes worthy of long-term investment. It would be wise to watch the developments of these EV programs through 2025.
