Happy Friday! And a Friday before a holiday weekend here in the United States, too. How about that? Before I send you off to enjoy your Presidents’ Day weekend (How do you even do that? Buy sheets, I guess? It’s February, so it’s not great for barbecue weather or anything) I’ll bring you The News, because I know of no other way to live my life.
On today’s docket: General Motors seeks higher profit margins in the EV game, Tesla beats BMW, Mercedes flirts with more direct-to-consumer sales in Europe, and the feds are already looking into this week’s Ford F-150 Lightning battery fire. Let’s check in before we all check out.
GM Needs EV Costs Down, Profits Up
The car business is a game of profit margins. In theory, it shouldn’t cost that much more to build a Lexus than it does a Corolla. Same with the big, expensive pickup trucks that keep the lights on at the American automakers. Similarly, in theory, EVs should be a godsend in this regard. By needing far fewer parts to build than conventional cars, automakers should be able to keep costs way down as the market that way. This is part of why Tesla’s profit margins are so ridiculously high compared to other OEMs.
But that last point all depends on being able to develop things like new platforms, batteries and software operations at scale, which is the goal automakers are currently still working toward. That will take a ton of R&D investment, and it’s also partially why so many EVs are so damn expensive.
General Motors knows it’s got to win on profit margins with EVs, same as everybody else. And CEO Mary Barra was remarkably candid about all of this at a virtual event recently, the Detroit Free Press reports. As the story says, she “admits that GM is nowhere near to getting battery costs down enough to make electric vehicles as profitable as their gasoline-powered counterparts.” When asked if EVs can ever be a profitable business, Barra said yes, probably, but eventually:
For GM to win widespread adoption of EVs, the automaker has to offer them at prices of $30,000 to $40,000, Barra has said. GM will start production of the 2024 Chevrolet Equinox EV and Blazer EV this year. The Equinox EV will start around $30,000 and the Blazer EV at $44,995, pushing it upmarket from where its gasoline-powered counterpart starts now at $34,800. That’s largely due to the high cost of the raw materials to make the battery.
So when asked whether GM could make a 20% profit margin off the sale of a $40,000 EV, Barra said, “We aren’t anywhere near where we think we can get the cost of the battery cell down. So we’re going to keep driving that.”
Barra said GM aims to have industry-leading margins as it continues to invest in partnerships.
“We’re maintaining, we’ve said in the 8% to 10% range (profit margins), while we make this accelerated investment and transformation to EVs and once we get everything ramped up, we’re just going to continue to work battery costs down, drive the efficiencies, leverage Ultium,” Barra said. “Is it going to be 20? I don’t know. But we’re not going to stop until we lead from a margin perspective.”
All of this speaks to the moment the auto industry’s in right now: one of probably gradual transition, not overnight transformation. Also, she was remarkably candid about getting her car dealers in line with all of this, and we know they’re a group that’s often been historically resistant to EV sales. Emphasis mine down below:
“I sat in a dealer meeting — which I was not the most super popular person that day — I said, ‘Look, our customer is changing, our business is changing, we think you’re a competitive advantage, but you’ve got to change with us. If you try to cling to business the way it was five to 10 years ago, it’s not going to turn out very well,’ ” Barra said. “A lot of our dealers are coming along. The dealers who are saying, ‘Hey I just don’t want to be in this business.’ There’s an offering for them.”
This is a tough challenge for dealers who make most of their money on aftersales, maintenance and finance and insurance, and EVs will (again, in theory) need less in the way of repairs. But it’s interesting to see more and more auto industry CEOs be upfront about this than sugarcoat things to keep their dealers happy.
Mercedes Expands Direct Sales, Quietly
The dealer franchise model has a much tighter hold on things than in other places around the world. In some markets, you see a mix of dealers and direct-to-consumer stores for cars. Mercedes-Benz’s CEO is the latest car boss to admit things are changing, according to Reuters:
The carmaker is “quietly” turning to a direct sales model in various European markets including Britain and intended to do so in Germany as well, Chief Executive Ola Kaellenius said, adding: “You turn yourself from a wholesaler into a retailer. It changes your whole attitude in how you run the business.”
Selling directly saves costs for the company and removes concerns for customers that they could get a better price at another dealer, he added.
That last part’s notable because it’s one of the talking points car dealers use to defend their existence here in America: by having lots of them, customers can shop around for the best price. (Now, that also often means haggling and picking which dealer you want to take a $50,000 markup on a GR Corolla from, but still.)
Will Mercedes try and bring the direct model to America? The franchise laws make that tough here, but you know a lot of these automakers wish they could do internet-based sales the way Tesla and Rivian and Lucid do. Or they want a mix of that plus franchised, brick-and-mortar retailers. Polestar has a hybrid direct sales model that makes a lot of sense in modern times, and I could see more automakers trying things like that in the coming years.
Tesla Beats BMW
Speaking of Tesla, it just kind of did the unthinkable: it took the “luxury” auto sales crown from BMW here in the U.S. in 2022. Here’s Yahoo! Finance on the numbers:
Experian data shows among all luxury brands regardless of powertrain, Tesla had 484,351 new vehicle registrations last year, versus 2nd place BMW at 327,929 new registrations. That Tesla figure represents a 41% increase versus a 2021, with BMW registrations falling 4% in the same period.
Since Tesla does not break out sales data by region for its cars, registration data is the next best measure to track its vehicle sales in the U.S.
Feds Check Into Lightning Fire
That didn’t take long. The federal National Highway Traffic Safety Administration is already poking around into the F-150 Lightning battery fire that’s led to a production line shutdown, reports Reuters:
Ford said Wednesday it believes it has identified the root cause of the fire and expects to conclude an investigation by the end of next week and apply findings to the truck’s battery production process, which could take a few weeks.
The automaker said it will continue to hold “already-produced vehicles while we work through engineering and process updates.” The automaker said it was “not aware of any incidents of this issue in the field and do not believe F-150 Lightnings already in customers’ hands are affected by this issue.”
Support our mission of championing car culture by becoming an Official Autopian Member.