General Motors reported its Q4 and full-year earnings, and the numbers are good, generally. The company lost money in China and on A/V, but it also made a ton in North America selling trucks and electric cars. That last little bit is what I’m most interested in right now.
More automakers will be reporting over the next week or so, meaning we can get a better sense of where automakers were before the new administration possibly changes everything. A big one I’m looking forward to writing about in The Morning Dump is the report from Tesla. Given that the company’s sales slid and incentives rose overall, is there any chance that Tesla will improve its revenue or margins? The company is well-known for defying gravity when it comes to Wall Street expectations so it’s a real possibility.
One thing that was entirely expected is that the Biden-era regulations designed to protect consumers from dealer fees, et cetera, would get struck down by the 5th Circuit. Will they be appealed?
And, finally, it’s the Year of the Hybrid in Malaysia, too.
Variable Profitability For EVs Is A Good Thing While It Lasts
How do I want to read GM’s Q4/2024 earnings report? Here’s the full presentation if you want to look at numbers and cool pictures of trucks. You can come up with your own headlines. If you’re in a cranky mood this morning you might point out that the company reported a Q4 loss of $2.9 billion and that, for the whole year, the company’s net income fell a whole bunch to $6 billion (after some write-downs, which I’ll get to in a minute).
If you’re feeling better this morning — if you had a good morning dump of your own — maybe you’ll see that the company had a record pre-tax profit of $14.9 billion. That’s pretty good. No one is going to get mad at that. Even better, here’s what CEO Mary Barra had to say in her investor letter:
We doubled our EV market share over the course of the year as we scaled production, and our portfolio became variable profit positive in the fourth quarter.
Neat! GM’s long been saying the company’s goal was to become “variable profit positive in 2024″ and that did finally happen in Q4. What does becoming “variable profit positive” mean in real words? Variable profit or variable margin is, simply, what you sell something for minus the cost of making it. It doesn’t cover all the initial investment costs (building a plant, design, et cetera), but it’s still an important milestone and it shows GM is doing better than any other domestic automaker that isn’t Tesla.
It’s not quite apples-to-apples, but Rivian lost about $40k for every truck it built last quarter and Lucid probably loses more. At one point, Ford was projecting that it was losing about $100,000 per EV it sold at one point, though that total number isn’t variable profit/loss (which means it probably does include investment costs) and will likely come down some when everything is accounted for at the end of the year.
GM, which is now far into the product cycle of its 2nd gen (3rd if you count EV1) electric cars, is showing that it can make a real business out of this. At the same time, this is somewhat premised on being able to sell cars at a price $7,500 below what they’re charging, because GM is the company other than Tesla that benefits most from EV tax credits that President Trump is trying to kill.
Barra also addresses this in her letter:
Of course, there is uncertainty over trade, tax, and environmental regulations and we have been proactive with Congress and the administration. In our conversations, we have stressed the importance of a strong manufacturing sector and American leadership in advanced technologies. It’s clear that we share a lot of common ground, and we appreciate the dialogue.
I guess we’ll see how far that dialogue has gotten when Republicans unveil their big bill (or, two big bills, or whatever they do).
What’s more important for GM, I think, is that the way it’s making most of its money is still going to be safe going forward. A big part of GM’s losses this year stem from China and Cruise. With Cruise getting shelved, the company will save about $1 billion next year and the company took a write-down this year to restructure its Chinese business to remove capacity.
It’s making money in the United States on trucks, SUVs, and crossovers, and a new Trump White House has said that it wants to roll back Corporate Average Fuel Economy (CAFE) requirements, which is good for a truckmaker.
With all that put together, GM expects it’ll make around $13.7-$15.7 billion in EBIT-adjusted income, even with higher labor costs and more price competition in the United States. Back in 2023, I was critical of GM for shoveling more money into dividends and buybacks at the expense of investment. I even used a photo of Rick Wagoneer to drive the point home (if I was being a real ass I’d have used a picture of Ed Whitacre, I suppose).
GM’s goal was to drive investor value and improve its share price, which it’s done over the last year. At the same time, beating Wall Street expectations has thus far resulted in a drop in stock price as investors are overall unenthused about a carmaker that’s just making cars.
Is Tesla Going To Pull Its 900th Rabbit Out Of The Hat?
There is a non-zero number of journalists, automotive or otherwise, who may always be skeptical of Tesla because its CEO is its CEO. Elon Musk is, to put it very lightly, a polarizing figure. Just check out the comments at the bottom of this post in like an hour. Making this more difficult is that, for the most part, Elon Musk’s Tesla has been wildly successful.
This lack of exuberance by some is a weird outcome given that it is, abstractly, super cool that one of the most valuable companies in the world is an American EV startup. After the company reports its Q4 and full-year earnings, it’s likely that Tesla will still be one of the most valuable companies in the world, but the market is a little mixed on what the company will report.
One analyst, Ron Jewsikow from Guggenheim Securities, thinks that it’ll be bad news. Here’s what he said, via Yahoo! Finance:
Jewsikow says he expects Tesla to fall short of Wall Street expectations on auto gross margins, excluding regulatory credits: “Tesla was quite promotional in the fourth quarter to try and hit their volume growth targets for the year, and as a result, the revenue per vehicle essentially is going to be quite a bit weaker than the Street is forecasting.”
Despite the jump in Tesla’s stock price driven by Trump’s 2024 election win, the analyst, who holds a Sell rating on Tesla, says the company likely still faces regulatory hurdles:
“We would push back that the vast majority of the bottlenecks on Tesla’s kind of pathway to robotaxis and self-driving vehicles is going to come in the form of state and local regulators that have the ability really to control what goes on the road in their jurisdictions, as well as just technological progress.”
This is somewhat where my mind is as well. The big sales in Q4 had to come at some cost and that should be reflected here. Tesla also faces a few challenges going forward, both from a potential loss of tax credits and from the lack of an affordable car.
For whatever reason, when the news seems bad at Tesla the stock price seems to curiously go up. This also happens when the news is good. Will it happen this time? It’s possible that Musk, in his call with investors, will say something that makes the market happy. More curious to me, though, is how the news of China’s Deepseek R1 artificial intelligence tool will impact the company’s value.
Musk has touted Tesla as an AI company and has reportedly tried to steer Nvidia chips from X/Twitter to Tesla. The premise has long been that the moat around the AI business is the ability to build massive data centers. What if the solution is, to some degree, Chinese firm Deepseek’s, uh, middle-out approach to optimization? Then the value of data centers and chips is, well, not as high. Or maybe it is? Blah, blah, blah Jevons Paradox.
Just kidding, he appeared (virtually) at a rally for Germany’s far-right “AfD” party and has been telling Germany not to feel too guilty about the past. This being the week of both Holocaust Remembrance Day and the 80th anniversary of the liberation of Auschwitz the timing is not ideal, and it’s already making some in Europe call for a boycott of the automaker.
The 5th Circuit Just Tossed Biden’s Dealership Rules
Well, that was fun while it lasted. The Biden-era rules that required dealers to bank junk fees and require upfront prices have been temporarily tossed by the 5th Circuit Court of Appeals in a 2-1 decision. Here’s the report from Reuters:
A U.S. appeals court on Monday threw out consumer protection rules adopted by the Biden administration to ban bait-and-switch tactics and prohibit auto dealers charging for add-on costs that do not benefit new car buyers.
In response to legal challenges brought by the National Automobile Dealers Association (NADA) and a Texas dealer group, the 5th Circuit Court of Appeals said in a 2-1 decision that the Federal Trade Commission (FTC) had violated procedural rules in writing the regulation without giving advance notice of the planned regulation.
The dissenting judge pointed out that Congress gave the FTC this power and that the rules only came about after “a decade of roundtables, comments, and over 100,000 consumer complaints, many leading to federal and state law enforcement actions against unfair and deceptive motor vehicle dealer practices.”
It’s here that I feel obligated to point out that this is the very conservative 5th Circuit Court of Appeals. You know how everyone has that one shop they go to when they need a car to pass inspection but aren’t quite sure it’s going to pass at any other licensed shop? That’s the 5th Circuit for Republicans (Democrats go to the 9th Circuit for similar reasons).
The FTC could appeal, of course.
Year Of The Hybrid In Malaysia
The Malaysian and Thai car markets are ones I think about all the time, being a huge Proton fan and all. It’s been rough there lately, though. The country’s auto sales dropped by 26%, which is a 15-year-low. At the same time, neighboring Malaysia saw big growth.
Mohd Shamsor Mohd Zain, president of the Malaysian Automotive Association (MAA), on Jan. 21 said the country’s economy remained resilient, driven mostly by private consumption and a stable socio-political environment.
“There has been robust investment in the country’s employment market, as the unemployment rate hit a decade low of 3.2%,” he said. “The overnight policy rate, which has remained at 3% since May 2023, provided a conducive environment for vehicle loans.”
Better lending is helping Malaysia while restricted lending in Thailand is clearly hurting the market. Hybrids are also helping out on the Malaysian side of the border with 30,796 hybrids sold there last year versus just 14,766 EVs.
What I’m Listening To While Writing TMD
Continuing our theme of the week, here’s Patrick Swayze explaining how great his lady is. In fact, “She’s Like The Wind.” For all the romantic sax and ’80s Piano, there’s a touch of Morrissey in this. Is that just me?
The Big Question
It’s the day before Tesla’s earnings call. The stock is at $387.86. GM is at $49.52. You’ve got $10,000 to buy stock in either of the companies and you can’t sell for a year (and no shorting). How do you split up your money?
A government that desperately needs us all to be consumers to keep the economy going shouldn’t be so anti-consumer.
Seriously, what behavior that was banned by those guidelines wasn’t just abusive towards car buyers?
Unfortunately i think Musk has earned himself more followers with the shitty things he has done the last couple weeks. Because people are, for the most part, pretty shitty.
I would put that money in Tesla.
That’s not an endorsement of anything about the company, but the market is entirely irrational when it comes to this stock.
Considering he’s managed to secure himself a seat at the head of the scammer table and the loyalty of people who will buy Trump meme coins, there’s no reason to think the stock will tank even in the face of the entire AI ‘industry’ being recently turned on its head.
The ceo can do Nazi salutes at his political rallies in Germany and the stock will still go up because he dresses three guys in robot suits and makes them prepare cocktails. The stock has nothing to do with the real value or viability of the company. It’s all bullshit, so I’ll put the money with the best bullshitter (at least temporarily).
I wonder how much of GM’s EV success is through Honda Prologues. (I lease one, myself.)
As for Tesla, I didn’t consider one and won’t as long as Musk is associated with it – but I hope that one day Musk leaves the company in more capable hands and it survives. It pre-dates him – it should post-date him.
Well, if somebody giving me that imaginary 10k and it is coming with the string attached of “must buy sone combination of one or the other or both or you don’t get it” I’m putting it all on GM as my dear old grandpas would be spinning in their graves if I put it on Tesla now.
Mary 10
Elon 0
0% Tesla, 100% GM. I don’t want to be affiliated with anything Elon is tied to.
I am going 90% GM and 10% Tesla. Diversification is a good investment strategy I hear.
I’m sorry, I love you guys and don’t want to be nit picky but variable margin is NOT gross margin (aka sales less COGS). Gross margin does include all fixed costs, which you did state for the plant to be built, but it’s all the ongoing costs as well. Automotive is a terribly capital intensive industry.
Rivian reported figures are gross margin, accounting for all fixed overhead. Fixed overhead isn’t the same as capital/depreciation. Capital assets including all the lines themselves are not part of fixed overhead. Fixed overhead also includes indirect labor, aka all salary employees at the plant.
So yes, GM is not losing money at the plant/gross level, except for:
1. All the people in the plant except for those directly building the car (line leaders, quality personnel, supply chain, logistics, plant management)
2. All the cost of the lines and depreciable assets
3. The building that the car is actually built inside of and associated utilities (disclaimer, electricity can be a VOH)
To GM’s full credit, this is key. As it’s now a volume issue, ostensibly, as their fixed costs will compress to a manageable percent of total cost given fully capacitized lines (that’s the case for all cars irrespective of propulsion). That being said, with even 6% operating margin (aka EBIT aka profit before interest and tax), you’d have call it 8% SG&A (aka corporate overhead and R&D), then say another 10% of FOH+CapEx costs. FOH/CapEx current burden percent would be pure speculation on my part (or at least beyond this messages napkin math or my time towards it). Let’s say they have a negative 20% gross margin ($9K on a 45K vehicle). That puts them at $54K COGS, tacking on 14% for SGA+Profit they’re at ~$61.5K total price to make 6%…
Now to be fair the SGAP will compress with the sales price (% of sales) and the FOH, but still when they get FOH+CapEx down to 10% of sales they’d still have an approx sales price of ~$56K for a vehicle that’s currently sitting at $45K sticker and $45K “non negative variable profit”
TLDR, they may have $10K to go to at volume to make 6% or $7.5K to go for zero operating margin.
YMMV
This is why I hire an accountant
lol, love the response (note, the above is finance, not accounting).
Variable Margin is a made-up metric that may be different depending on who is assembling it – which is why you need to read the footnotes. Matt tried to indicate this in his wording. Gross Margin is a bit more standardized, but typically what it includes differs by industry and company- for instance it is not unusual for distribution businesses to only put their purchase price of the goods they sold into gross margin and not include their warehouse operating costs – but some do include the labor, machinery, etc. costs in their Cost of Goods sold which is what gross margin is calculated from. You need to ask questions when doing comparisons – which can be a huge pain if you are trying to benchmark the competition and there are not enough footprints.
I’m sure Messerschmitt was a source of pride for some in Germany once.
Hopefully the next rabbit Musk will pull out of his ass will be a Pookah, which will please have the lemmings who follow him recognize the sham that he is.
Meme stocks only stay up for so long.* At some point, the reality of Tesla being massively overpriced for a car company will have its emperor’s new clothes moment and things will come crashing down. Whether that happens in the year, I don’t know. But still, the $10k goes to GM.
* I really can’t explain the whole crypto coin thing either, but I suspect it will follow NFTs into the dust bin of history – the only question is when.
except crypto would be a useful independent exchange medium if people would stop trying to treat it like an investment
Using block chain as an exchange medium is like taking a Winnebago two blocks to the 7-Eleven to buy a Slurpee. Way too much overhead for the task at hand.
Block chain could be useful for certain governmental functions, like tracking deeds and titled property, but here again that’s a problem that’s been largely solved for a long, long time, and there’s no just compelling need to reinvent the process.
I’m in the minority that thinks block chain is a solution in search of a problem.
Have I missed out on making some $$ along the way? Yes, absolutely. Will I be left holding a bag of worthless crypto at some point down the road? Nope.
For those who made (and make) money on crypto, more power to you. My risk tolerance keeps me out of that particular game.
Try to pay for something in another currency that is not your home currency – it is a huge pain in the ass and has ridiculous fees. Which always amazes me – you can buy euros or GBP all day for your brokerage account, but god help you if you want to actually use this currency as currency and not just sell it through the brokerage. Something like 99% of foreign currency exchange is just used as investments. In theory a blockchain currency could solve this problem, but I don’t think it ever will so we are stuck with wise.com and ofx.com.
Before we went to the UK, we ordered some pounds from the bank to have some cash on hand. It arrived at the house via certified mail, so we didn’t even have to go to the bank. Everything else was paid with regular credit cards. Yes, there were some garbage currency conversion fees in the mix, but the transactions themselves were pretty painless.
This probably varies by country/currency. A trip to India about 10 years ago was a pain because we didn’t get the rupees before the trip, and they charged a 6% conversion fee when we got there, and wanted another 6% to convert the leftover cash back into dollars. Yeah, that one sucked.
I think the world is fed up of Musk, and the brand image is really not good at the moment. I believe TeSSla is gonna lose big. The CT is becoming a Flop, and musk is alienating his clientele. At this point everyone who wanted a Tesla already bought it, and the one who didn’t don’t want the stigma that comes with them at the moment.
My money is on GM
Stealerships gonna keep doin what they know they shouldn’t be doin anyway…”How bout that TruCoat?”
Also, fuck Tesla
Just can’t see giving Tesla any money, even funny money, so all the virtual $$ to GM.
I will starve before giving one single dime to Tesla.
Same. I’ve been driving electrified cars since 2012. I’ve owned 5 GM Voltecs and two Volvo BEVs and my wife is on her first BEV (BMW IX).
I haven’t even bothered to get the NACS adapter as I don’t plan on ever using a Supercharger on purpose. I might just have to get one for use strictly as an emergency backup.
I bought my 2024 Ev6 at the end of may. Musk was crazy but not yet maga crazy. I didn’t want a Tesla for many reasons and Musk was a big one even then.
I don’t ever plan to charge on his TeSSla superchargers especially now. But like you I might eventually need an adapter for emergencies. Not anytime soon, since the closest one is about a 6-7 hour drive away from me
I spent so many hours on the Tesla configurator for my future order, until St. Elon showed his true self.
Now I wouldn’t have one of those things in my driveway, even if it’s free. Seriously.
100% GM. Easiest bet ever.
Tesla all the way for that $10k, the market seems to agree today, it’s up to right around $400 as of this moment. GM is down 10% so far today. Over the next year Musk may very well fall out with Trump, but if that happens he’ll change his spots again, push more units worldwide instead of in the U.S. and start spending all kinds of money explaining to all and sundry how Trump and his people are morons. GM is stuck being pretty much US-centric these days, they’ll do something to turn people off their EVs again, and I don’t see Trump doing much if anything to make gasoline, diesel and anything else cost of living related actually come down, certainly not with tariffs coming and cheap(er) labor being booted from the country.
PS – GM may now be making money per incremental unit of EVs but the $40k Rivian loss number quoted that it’s being compared to in this post I believe DOES include their other fixed/sunk costs as well, I do not believe Rivian is losing $40k per unit on a per unit production cost basis.
I’d buy GM if those were my only two choices right now. In 6 months Tesla stock might fall a good amount and that could be a que to buy that one.
All I can say is the Right and Wrong still matter to me. Fuck Tesla. I half expect their next move to be massive electric ovens.
Maybe electric chairs
Emotionally, I want to root against Tesla. However, there are 120K people who work there and I think the world is a better place if they are employed. People seem to like the cars Tesla builds, so good for them. The stock price is untethered from reality. so I can’t see myself investing in it. As far as buying a Tesla, I think they’re ugly, so they’re not for me. We say we don’t want to enrich Musk, and I agree with that, but what difference does it make? He’s not going broke because I (or anyone else who’s so inclined) won’t buy a Tesla.
In short, cars and employment = good; Musk = bad, but what can you do?
NADA decision made by 2 Republicans (One from the damn Ford administration!) vs 1 Democrat. What a surprise.
Swayze would have been a great Actor Host/Musical Guest for SNL!
Not sure if joking, but he was at least a good actor on SNL: https://www.youtube.com/watch?v=stqG2ihMvP0
I knew he was on the show–I assume you’ve linked to Chippendale’s, an all-time classic–but the other night Tim Chalamet was on as the first-ever actor to pull double-duty (as opposed to singers who frequently host and sing)…and it seems like Swayze should have been similarly tasked thirty-something years sooner.
I don’t think that’s correct. I’m not going to try to prove it, but I thought there have been other dual actor hosts in the past. Didn’t Busey sing Holly or something?
Yeah, Chalamet alluded to it, but I looked it up and there was an actual musical guest, and Busey/Holly was its own thing.
https://watch.plex.tv/show/saturday-night-live/season/4/episode/14
Tesla isn’t getting a goddamn dollar.
10k to GM. Even though I’m not a huge fan. Goddamn Saab killers that they are.
GM: 9
TESLA: 2
Make that 10-2.
Obligatory RIP Saab.