General Motors (GM) and Ford Motor Company are bracing for significant scrutiny from investors as they prepare to report their quarterly earnings. The two automotive giants are facing challenges in demonstrating continued strength in pricing for their gasoline vehicles while managing the losses incurred from their electric vehicle (EV) investments.
Scheduled to announce their third-quarter results, GM’s report is anticipated on October 22, while Ford will follow suit on October 28. GM’s CEO, Mary Barra, recently emphasized that profit margins on traditional gas-powered vehicles have not peaked and expressed optimism about the increasing sales of electric models. This optimism has been reflected in GM’s stock performance, which has surged by over 30% this year, partly due to the company raising its annual profit forecast in response to robust sales in its gasoline-powered lineup.
Conversely, Ford has faced significant obstacles, grappling with quality issues and substantial EV-related financial losses, leading to an 8% decline in its stock value during the same period. Analysts at Deutsche Bank express concerns that Ford may fail to meet expectations, particularly due to an excess of inventories that could hinder performance.
Market analysts have noted a shift in consumer behavior as they question whether buyers will continue to invest in trucks and SUVs at historically elevated price points, especially amid rising interest rates and to some extent, economic uncertainty. According to recent data from Cox Automotive, the average price of a new vehicle saw a modest 2% increase in October, reaching approximately $47,823, marking only a 1% rise compared to a year ago. This suggests a potential plateau in vehicle pricing, highlighting a stark contrast to the previous years when manufacturers could capitalize on higher prices due to supply chain disruptions.
Moreover, industry concerns about the sustainability of pricing power linger, compounded by uncertainties about the strategies for penetrating the EV market effectively. These factors are viewed by analysts as potential roadblocks in the mid to long-term for both companies, especially with the upcoming national elections, which could lead to shifts in EV policies.
In response to rising challenges, both GM and Ford are pivoting towards higher-margin gasoline-powered vehicles, such as Ford’s Maverick pickup and GM’s Chevrolet Trax compact SUV, as the anticipated growth in EV sales appears to be slowing down. Ford’s August decision to cancel the launch of a highly anticipated electric three-row SUV reflects a strategic retreat, with profitability concerns driving the decision. Meanwhile, GM is moving cautiously with its EV production plans, confirming their shared focus on more profitable gas-powered models amid the evolving market dynamics.
The situation underscores a critical point of interest for investors, who will also be examining how broader economic conditions are impacting consumer behaviors. Despite an unexpected rate cut by the Federal Reserve last month, there hasn’t been a marked improvement in auto loan rates or overall vehicle affordability, according to Jonathan Smoke, Chief Economist at Cox Automotive. As consumer preferences shift towards economical compact cars—thanks to their lower maintenance costs and better fuel efficiency—the third-quarter sales data from U.S. automakers clearly reflects these trends.
As these two iconic companies gear up for their earnings reports, the market will be closely watching GM’s expected revenue growth—estimated at about 1% to $44.5 billion and an earnings per share (EPS) of $2.46—as well as Ford’s anticipated revenue growth of approximately 2% to $42 billion with an EPS estimated at $0.48.
The overarching narrative emphasizes a landscape of challenges and transitions in the automotive industry, where traditional gasoline vehicles still grapple with competitive pricing while both GM and Ford navigate their respective paths towards electric future growth. Investors and market watchers will undoubtedly remain vigilant in analyzing the outcomes of these earnings reports, seeking clarity on the implications of consumer trends and pricing dynamics as the electric vehicle revolution continues to unfold.