General Motors (GM) and Ford Motor Company face a difficult challenge when they report their third-quarter 2024 results, as investors eagerly await whether Detroit’s traditional cash cows—gasoline-powered trucks and SUVs—are still going strong have pricing power and whether losses from their electric vehicle (EV) ventures are finally shrinking.
As GM prepares to announce its earnings on October 22nd and Ford follows suit on October 28th, both automakers are grappling with significant EV challenges while navigating a turbulent market for their traditional gasoline-powered cars. Wall Street remains skeptical, particularly given broader economic pressures and high interest rates that could dampen consumer demand for big-ticket items like vehicles.
GM’s Confidence vs. Ford’s Struggles
GM CEO Mary Barra remains optimistic, recently stating that profit margins on its traditional gasoline-powered vehicles have not yet peaked. She also highlighted that her EV sales are finally picking up after years of significant investment. Reflecting that optimism, GM shares have risen over 30% this year thanks to two upward revisions to annual profit forecasts, supported by robust sales of gasoline-powered trucks and SUVs.
In stark contrast, Ford has struggled with quality issues and mounting losses in its electric vehicle business, which has caused its stock price to fall 8% this year. Analysts at Deutsche Bank have warned that Ford may fall short of expectations for the third quarter, especially as the company struggles with an oversupply of inventory – a sign that its pricing power could be waning. Ford is also struggling with a multibillion-dollar loss in its EV division, further denting investor confidence.
A changing market for gasoline-powered vehicles
For years, automakers have enjoyed the ability to charge high prices for their gasoline-powered trucks and SUVs. But with interest rates at multi-decade highs and concerns about the broader economy, Wall Street is questioning whether consumers will continue to be willing to spend big on these vehicles.
Current data suggests that pricing power for traditional vehicles may be reaching its limits. According to a report from Cox Automotive, the average list price for a new vehicle rose just 2% in October compared to the previous month to $47,823, up just 1% compared to the same time last year. The slowdown in price growth suggests that automakers may have reached a cap on how much they can charge customers without experiencing a significant decline in demand.
EV ventures remain a gamble
Both GM and Ford have made bold bets on electric vehicles (EVs) but are still waiting for those investments to pay off. GM is showing some early signs of progress, with Barra confident about EV expansion. Ford, on the other hand, has seen its EV efforts weigh on profitability as losses mount as it tries to catch up with rivals like Tesla and expand its electric vehicle lineup.
Analysts at Deutsche Bank remain cautious, highlighting that uncertainties surrounding EV strategies, market penetration and profitability could continue to weigh on both automakers, at least for the foreseeable future.
Pricing power at a crossroads
The real question for GM and Ford is whether their gasoline-powered vehicles can continue to sell at premium prices in a market increasingly marked by economic uncertainty and cautious consumers. Automakers are starting to cut prices on some models as buyers shy away from major purchases, marking a significant shift from the pricing power they had just a few years ago when supply chain problems kept inventories low and demand high.
“Concerns over premium pricing as well as uncertainties around EV strategies and penetration represent medium- to long-term drags,” Deutsche Bank Research noted.
As GM and Ford prepare to report their results, they must convince investors that their gasoline-powered vehicles can maintain profitability while also showing real progress in electric vehicles to ensure they stay ahead in the industry’s ongoing transformation not be left behind.
