GM’s future is electric cars and self-driving cars

Mary Barra

Mary Barra

NEW YORK (CNNMoney) – G.M. Chairman and CEO Mary Barra is betting her reputation is on electric cars.

GM raised its dividend on Thursday for the second time in eight months. It also provided a capital return of as much as $7.5 billion to investors.

GM executives say their autonomous-vehicle initiative is a key component of that plan, which will culminate with the release of an electric vehicle in late 2021. They made the announcement in New York City, where Barra on Thursday was a featured speaker at the Fortune Most Powerful Women conference.

Earlier this year, GM said it would spend nearly $5 billion on the electric vehicle program, which it is betting will compete with Tesla and other companies that have built a market for battery electric vehicles.

GM spent another $7 billion in the third quarter to help finance the electric car program, raising the total sum the company has invested in new technology to nearly $14 billion.

The company aims to recoup some of those investments, of course, through higher profits and stock price. So far, it is finding some skepticism.

“Investors have got to realize that electric is not going to be profitable for the next decade,” said David Cole, the chairman of the Center for Automotive Research. “GM will still be making a loss with this.”

But Barra says GM will keep plowing billions of dollars into building these kinds of vehicles as they become more and more mainstream. The key to making this a lucrative undertaking, she said, is making money from the batteries used in the vehicles.

The major cost in building a vehicle is the gasoline engine and transmission. But the other significant cost is the lithium-ion battery pack. That’s because energy storage for most vehicles in the future will come from batteries.

That makes it harder to predict the business model for electric vehicles.

The Tesla Model 3 has raised expectations for what electric vehicles can be. Tesla made 7,750 of them in the third quarter, which beat the company’s goal of making 5,000 a week.

Analysts were skeptical that the Model 3 could stay on that pace. But so far it has. After getting off to a slow start, Tesla announced it delivered 30,000 Model 3s in the last two months of the year.

A lot of the skepticism around electric vehicles is the same for other types of vehicles. There was skepticism that fuel-efficient cars could ever sell at volumes large enough to compete with full-size trucks. And nobody believed that diesels, which produce significantly more smog than their gasoline counterparts, could ever compete with gas-powered models.

GM and Tesla are trying to take a long-term view, believing that the technologies will gain acceptance over time. Barra even admitted that there is uncertainty around the payback period for investing in electric vehicles.

“We think electric cars are going to play an important role in the future of the automobile,” she said. “The challenges are truly out there.”

In order to meet government standards, electric vehicles will likely need to carry an upfront charge, but that cost is going to fall in the next decade, she said. Barra also said that the biggest hurdle for cars with electric batteries is the charging infrastructure, which is going to get easier to overcome with new forms of power distribution.

Leave a Comment