General Motors, a symbol of American industrial might, is making an extraordinary financial confession. The struggling company said on Thursday that it would record an enormous $1.6 billion charge against its earnings, the consequence of its ambitious plans to build electric vehicles never quite panning out. The large amount of money involved is a strategic pivot and there’s no doubt the company is dialing back its EV offering after facing an uptake from customers far slower than initially anticipated. This will be a deep dive into what this charge is covering, why there’s a strategic pullback in EVs at this time and what it might bode for the future of EVs both at GM but across the entire industry.
The specifics of this EV pullback are instructive. Of the $1.6 billion impact, an impressive $1.2 billion is a non-cash charge. This is mostly a matter of writing down the value of its EV manufacturing capacity — investments in factories and tooling that are now considered overbuilt for demand. The other $400 million is a cash expenditure, accounting for contract termination costs and commercial settlements with partners, and it’s one of the tangible prices of winding down EV pullback efforts.
Crucially, GM said that its review of its EV capacity is “ongoing.” This language speaks loudly that this $1.6 billion charge may not be the end. Investors and industry commentators should brace themselves for the potential of more financial blows in forthcoming quarters as this strategic deprioritization of EVs plays out. This planned EV pullback underscores a new and more cautious reality for an automaker that was once one of the most bullish on an all-electric future.
The reasons for this EV pullback are manifold. GM specifically cited changes in U.S. government policy as a major reason. The end of some consumer tax breaks for electric vehicle purchases and a dialing back of emissions standards were reversing the tide. “With the recent U.S. Government policy changes… we anticipate gradual adoption of EVs to slow,” the company said. But this tectonic face-off in external policies all too conveniently served as the screen for a strategic EV retreat within.
This pullback by GM in the EV space echoes a similar shift from its crosstown rival Ford Motor Company, which announced an impact of $1.9 billion to change plans in the space over a year ago. Ford’s overhaul included killing off a large electric S.U.V. while delaying plans for a next-generation electric truck. That both of the Motor City’s giants are engaged in big EV pullbacks now underscores an industrywide recalibration away from aggressive, growth-focused investment and toward a more practical, profit-oriented stance.
That EV retreat notwithstanding, keep in mind that GM has actually increased its sales of electric vehicles this year. GM’s share of all-electric vehicles has increased from 8.7% in January to 13.8% through the third quarter, outpacing Hyundai-Kia, according to Motor Intelligence. But this growth is taking place in a niche market that remains much smaller than the breathless predictions that circulated at the dawn of the decade. The recent pullback in EVs is this gap between expectation and reality working itself through.
An EV pullback like this was foretold in industry analyst predictions. Bank of America’s John Murphy earlier this year had warned of multibillion-dollar write-downs dominating headlines as car manufacturers confront the difficult decisions that overcapacity demands. GM’s announcement is a harbinger of that prediction, a difficult and painful EV contraction, the equivalent of inducing vomiting for GM to match its financial health with the market.
All told, GM’s $1.6 billion charge is a clear sign of a big strategic EV pullback. It’s a bit of a mess, given all of the non-cash asset writedowns and cash it is spending on canceled projects and an “ongoing” re-thinking of its electric future. This hangover for EVs comes as an unexpected slow The rapidly changing policies of government adoption cycle means the market is not yet mature enough to fulfill initial high mandated and consumed expectations. Though still a player in the world of electric cars, GM’s EVIE pullback is an important moment of pragmatism that establishes a new respect for reality in its future ambitions in the changing auto business.
