GM deepens EV bet again, boosts spending 30% to $35 billion

General Motors Co. is raising the stakes in the electric-vehicle race, boosting its investment in future technology for a second time in eight months with plans to spend $35 billion on more than 30 plug-in vehicles by 2025 and a total of four battery plants.

The automaker said the stepped-up investment reflects stronger-than-expected financial results for the year. Higher revenue and earnings growth from its GM Financial lending unit will lift first-half adjusted earnings before interest and taxes from an earlier estimate of $5.5 billion to as much as $9.5 billion, the company said Wednesday.

With more cash coming in and with consumer demand for electric vehicles rising – even for lower-priced, slower-selling models like the battery-powered Chevrolet Bolt – the automaker is upping its ante on next-generation technology bets. The company said it will expand on its plans for 30 EVs globally by 2025 but wouldn’t put a number on exactly how many more just yet.

“We see some good success with the Bolt and Bolt EUV,” GM Chief Financial Officer Paul Jacobson on a conference call. “So beyond just higher-priced entries. This is really no-regrets capital. We know we will need those battery plants.”

GM shares pared a gain of as much as 3.8% to trade up 2.2% to $62.13 as of 9:51 a.m. in New York. The stock is up about 49% this year.

4 battery plants

GM had initially planned to spend $20 billion by 2025 and raised that to $27 billion in November. The company has announced it will build two battery plants, one in Tennessee and another in northeastern Ohio near the Lordstown assembly factory it closed and sold to troubled startup Lordstown Motors Corp. The automaker will now add two more plants beyond that but didn’t disclose locations.

Investors have been rewarding EV investments at both startups and established carmakers, and sales of plug-in vheicles have been growing, especially among luxury buyers. GM’s big bet on EVs risks allowing its internal-combustion lineup to age, which means the company could cede market share in the next three years, Bank of America analyst John Murphy said in a report in June.

The Detroit automaker’s EV plans will accelerate starting later this year as a Hummer pickup truck and Cadillac Lyriq sport utility vehicle begin rolling off its production lines. An electric Chevy Silverado pickup also is on the way.

“We are investing aggressively in a comprehensive and highly integrated plan to make sure that GM leads in all aspects of the transformation to a more sustainable future,” GM Chief Executive Officer Mary Barra said in a statement.

“GM is targeting annual global EV sales of more than 1 million by 2025, and we are increasing our investment to scale faster because we see momentum building in the United States for electrification, along with customer demand for our product portfolio.”

China Mini EV

GM has big plans for EVs in the US but may see more growth in China, where Cadillac has been growing and demand for lower-priced EVs is taking off. The automaker has a hit with the Hongguang Mini EV, which sells for $4,500 and appeals to urban drivers.

To reduce the risk of the industrywide bet on EVs, GM and other carmakers have been pushing the Biden administration to help by building more charging stations and funding consumer credits for those who buy electric cars. GM and Tesla Inc. have both sold enough EVs to exhaust their $7,500-per-vehicle consumer credits and want the government to add funding to expand the program.

Jacobson said GM has seen better sales than expected despite a global semiconductor shortage that has snarled supply chains. The company said it was able to boost truck production in the face of the chip shortfall. The result is the projection of stronger financial results.

China factor

China already is by far the world’s largest car market, accounting for a third of global sales. It is bigger than the U.S. and Japanese auto markets combined. GM and Volkswagen both sell more cars through joint ventures in China than in their home markets.

But China’s sway also extends to the business of making electric cars. Worried about its own pollution problems and keen to stay competitive in the technologies of the future, Beijing has long lavished subsidies on its electric car industry. During the global financial crisis a dozen years ago, China was already offering its taxi fleets and local government agencies up to $8,800 per car to choose electric models.

Today, China is the leading maker of big battery packs for electric cars, producing considerably more than the rest of the world combined. Chinese regulations required until a year ago the use of Chinese battery suppliers, instead of their mostly Japanese and South Korean rivals, for electric cars sold with Chinese subsidies. That forced multinationals to place huge orders with CATL, the main Chinese producer.

Chinese companies dominate the world’s production of electric motors. China has even gained control of much of the world’s production of key raw materials needed for electric cars, including lithium, cobalt and minerals known as rare earth metals.

Major global automakers are already developing electric cars in China. Daimler and Toyota have jumped into extensive joint ventures with Chinese manufacturers to build electric cars. Ford Motor announced Thursday that its new Ford Mustang Mach-E, the most head-turning car at the Beijing auto show in autumn, will be made in China as well as Mexico.

So far, no Chinese company has produced an electric car that can rival Tesla in capturing the world’s imagination, although one, NIO, is trying. But China has completed many of the steps along that road. Notably, Tesla began making vehicles in a factory in Shanghai a year ago.

The world’s shift to electric cars “is based on the Chinese technological road map,” said Yunshi Wang, director of the China Center for Energy and Transportation at the University of California, Davis.

China is not trying to set global standards just for electric cars. It is also moving quickly to commercialize large numbers of self-driving cars, a technology developed in California. China is also trying to take the lead on how cars connect to the internet, through its planned nationwide deployment of 5G mobile communications.

Chinese government mandates require widespread installation of these technologies by 2025. That has pushed Chinese and Western companies alike to adapt.

“From this we can see autonomous driving and intelligent connected vehicles are no longer a mere vision; they are a close reality,” Stephan Wollenstein, chief executive of Volkswagen China, said last week.

GM’s Thursday announcement validates China’s long bet on electric cars. Just a few years ago, American carmakers were committed to gasoline engines. German automakers were pushing diesels. Japanese companies were emphasizing gasoline-electric hybrids.

China chose battery-powered electric cars. It announced in 2017 that it was phasing out fossil fuels for cars by a then-unspecified date. Many in the industry were skeptical.

Mary Barra, chief executive of GM, flew to Shanghai two weeks later and declared that while GM planned to put more electric cars on the road, the company believed that consumers, not governments, should decide when to stop buying gasoline- and diesel-powered models.

“I think it works best when, instead of mandating, customers are choosing the technology that meets their needs,” she said at the time.

China has taken a different approach. Given the cost and complexity of developing electric cars, the government has set big targets and offered the support to help its companies meet them.

When it comes to the car industry, “the most important thing is what the government does,” said Liu Jing, a professor at the Cheung Kong Graduate School of Business in Beijing.

The big obstacle right now to selling electric cars is cost.

Making the battery pack costs as little as $1,500 for the simplest Chinese-brand electric subcompacts, which are not really suitable for highway driving because of their slowness and modest range. But the cost is as much as $12,000 for a high-performance car, like a Tesla. Gasoline engines in each category of car size and performance typically cost less than half as much.

Yet battery costs around the world are tumbling by nearly one-fifth each year. Chinese companies with lavish government backing have built immense battery factories deep in western China, notably in Qinghai province, where much of the lithium for the batteries is mined. Mass production has yielded formidable economies of scale.

China is also the world’s main producer of electric motors and a wide range of other electronics.

China’s drive for dominance in electric cars began in 2007. That was when Wen Jiabao, then China’s premier, unexpectedly selected a former Audi engineer, Wan Gang, to become the minister of science and technology. Wan, who had also served as president and as director of the Center of Automotive Engineering at Tongji University in Shanghai, was a passionate advocate of electric cars. He had strong support from China’s military and intelligence community, which had long seen the country’s oil imports as a strategic vulnerability.

In 2008, Wan’s first full year in office, China made only 2,100 electric cars. But production has soared since then, reaching 931,000 last year, according to LMC Automotive, a London data firm.

China also got help from Western companies that were getting little support at home. GM agreed in 2011 to transfer battery technology and other electric car technology to a joint venture in China with the country’s largest state-owned automaker, Shanghai Automotive Industry Corp.

At the time, the Chinese government was putting heavy pressure on foreign automakers to transfer electric car technology to joint ventures in China. Such technology transfers – which foreign companies sometimes complain they are forced to make to gain access to the big Chinese market – have become a major issue between Washington and Beijing. The transfers were cited by officials under Donald Trump, the former president, as one reason for launching a trade war against China.

Now many Chinese companies are joining the electric car push. Zhejiang Geely, a Chinese carmaker, announced Friday that it and Foxconn, the contract manufacturer of Apple iPhones and laptop computers in huge factories in China, were in talks to help Faraday Future in the United States make electric cars.

By this autumn, said Liu of the Cheung Kong Graduate School of Business, “you’re going to see a flood of electric vehicles all over the place, going into the market.”