13 Mar 2020
Posted in Business Fundamentals
General Motors’ sentiments driven by its transformation strategy
General Motors’ (GM) optimism around its electric vehicles (EV) program and its strategy to increase profitability is fueling growth in sentiments, says GlobalData, a leading data and analytics company.
GlobalData found that GM’s overall sentiment score rose 22% in the fourth quarter (Q4) of 2019.
Aurojyoti Bose, Lead Analyst at GlobalData, says: “The increase is attributed to GM’s restructuring plan and its strategy to remain profitable in future by focusing on growth segments such as SUVs, crossovers, EVs and autonomous driving. GM has a vision to transform itself into a key player in the EV and autonomous driving space.”
GM registered decline in revenue for two straight quarters through Q4 2019 and also incurred loss during the quarter. However, with increasing profitability as the current objective, GM has been working on a strategy towards cost savings and increasing sales in profitable growth segments.
Bose adds: “In this direction, the company is highly focused on and remains confident about its SUVs and crossovers sales. Mentions pertaining to SUVs and crossovers in earnings transcripts grew significantly in Q4 2019 compared to Q3 2019. Interestingly, GM registered growth in sales of SUVs and crossovers in 2019 compared to 2018 while sales of other cars declined.”
GM is continuing its regional restructuring plan aimed at improving margins. The company underwent a restructuring in South America and, according to GM, the move will help the company improve margins by US$1bn in the region. It is also reorganizing the APAC region, with the company exiting businesses in Australia, New Zealand and Thailand, while shifting its investment focus towards North America, Latin America, China and South Korea. GM has also largely withdrawn from Japan, Russia, Europe and India in an effort to generate the best returns from its invested capital.
Moreover, GM is quite optimistic about its EV programs. Transcript mentions pertaining to EVs and autonomous driving also grew significantly in Q4 2019 compared to Q3 2019.
The company’s subsidiary, Cruise, launched an all-electric driverless vehicle service in San Francisco in January 2020. GM also expects to launch its third generation of electric vehicles during 2020 and 2021. Furthermore, the company announced an investment of US$2.2bn in its Detroit-Hamtramck plant for the rollout of electric trucks and SUVs. GM’s Hummer EV truck is likely to compete with Tesla’s Cybertruck.
GM is also driving in Tesla’s lane as it focuses on expanding its semi-autonomous driver-assist system ‘Super Cruise’ across 22 vehicle models by 2023. Despite being slow in the space compared to Tesla, GM has an edge. Due to the slow launch of Super Cruise, GM has not been under scrutiny, while Tesla is facing questions following Autopilot’s part in three fatal crashes. Currently, the Cadillac CT6 is the only exclusive model equipped with Super Cruise.
GM also has EV investments in China via a joint venture with SAIC and considers China as a vital market for its future EVs. However, the company expects a near term impact on sales volume due to the coronavirus outbreak. Nevertheless, GM sees long-term opportunity in the country and has been working on contingency plans to mitigate the risks.
Bose concludes: “Initial restructuring and EV transitions may affect margins for GM in the near term, although, in the long-term it will be benefiting.”