Electric vehicle (EV) pioneer Tesla (TSLA -1.11%) has been sacrificing profits this year by lowering prices, but the automaker is still producing plenty of cash. Tesla generated over $800 million of free cash flow in the third quarter. That's down significantly from last year, a trade-off that Tesla has been willing to make as it focuses on increasing volumes.
Tesla has been piling up cash on its balance sheet, a smart move given the current economic environment. Downturns for automakers can be brutal. Tesla had $26 billion in cash and just $4.4 billion in debt and finance leases at the end of Q3, giving the company a large cash cushion in case demand tumbles.
Tesla isn't the only automaker focused on fortifying its balance sheet. General Motors (GM 0.48%) has enjoyed a highly profitable few years marked by high demand and rising prices. Even as GM invests heavily in scaling its EV operations and its autonomous vehicle technology, the company has been churning out cash. As GM copes with a United Auto Workers strike, uncertain demand for its EVs, and a potential downturn, that cash will come in handy.
Strong results and plenty of cash
GM's Q3 was only impacted by the UAW strike for a couple of weeks, so the company's results were minimally affected. GM grew its Q3 revenue by 5.4% year over year to $44.1 billion, boosted its adjusted earnings per share by 1.3% to $2.28, and drove its adjusted automotive free cash flow 6.9% higher to $4.9 billion.
GM gained 0.7 percentage points of market share in the U.S. during Q3, helped by strong sales of full-size pickups. Chevrolet Silverado and GMC Sierra's combined sales grew by 29% year over year, while GMC Sierra sales soared 46%. GM claims a market share of 60% in large SUVs and 46% in small SUVs. Notably, more than half of buyers of the Chevrolet Trax came from non-GM brands.
These strong profits came even as GM is burning cash scaling up its EV operations. The company produced 32,000 EVs in Q3, with about 40% using the new Ultium Platform. GM expects to be producing 1 million EV units annually in North America by the end of 2025 with a low-to-mid-single-digit earnings before interest and taxes (EBIT) profit margin. However, the company is slowing down a bit amid an uncertain demand environment. GM recently pushed back the opening of an electric pickup truck factory by a year.
This slowdown will help GM preserve cash and keep its balance sheet healthy if overall demand for automobiles sinks. The company has maintained a rock-solid balance sheet over the past few years, keeping plenty of cash on hand. Cash, cash equivalents, and short-term investments totaled $29 billion for the automotive business at the end of Q3, paired with $16.4 billion of automotive debt. The company also had $13.5 billion in available credit lines, and it added an additional $6 billion credit facility in October to further bolster its liquidity.
Battening down the hatches
The UAW strike is now hurting GM's bottom line, costing the company around $200 million per week. Thankfully, GM has plenty of cash to absorb these costs as the company navigates a difficult environment.
Given the ongoing UAW strike, an unprofitable and uncertain EV business, and the potential for a broad economic downturn, GM is rightfully hunkering down. The company is slowing its EV production growth to better match demand, and it's looking to reduce fixed costs by $2 billion by the end of 2024. GM is sticking with its targets for EV profitability by 2025, although CEO Mary Barra now says that the company has "work to do" to hit that goal.
GM is going into this situation with a fortress balance sheet. In an industry known for unforgiving downturns, that's a hugely valuable asset.
