General Motors (GM) and Ford are anticipated to report declines in their quarterly profits this week, largely due to their substantial investments in electric vehicles (EVs) not yet yielding expected returns. Additionally, a recent cyberattack on a key software system used by car dealerships further exasperated the challenges, disrupting sales during a critical period for the auto industry.
In the past, GM and Ford have faced similar challenges with their EV ventures. They have consistently encountered difficulties achieving cost efficiency and profitability in this segment. Previous incidents, such as production delays and supply chain disruptions, have also adversely impacted their EV strategies. These historical issues underscore the ongoing complexity and financial strain of transitioning from traditional gas-powered vehicles to electric ones.
Projected Financial Declines
According to LSEG data, GM is expected to report a 7.7% drop in second-quarter net income, and Ford is projected to see a 10% decline in profit. GM’s financial results are set to be disclosed on Tuesday, followed by Ford’s announcement on Wednesday. The cyberattack on CDK, a crucial retail technology provider, forced the shutdown of a software system used by over 15,000 U.S. car dealerships in June, resulting in an estimated collective loss of $1 billion for dealers.
Impact of Cyberattack
The cyberattack-induced outage at CDK significantly disrupted dealership operations during a peak sales month, compounding the financial challenges faced by GM and Ford. A slowdown in the growth of EV sales has made it difficult for these automakers to achieve the production volumes necessary to reduce costs and reach profitability. This issue is exacerbated by fierce competition from Chinese EV manufacturers and Tesla (NASDAQ:TSLA), leading to a global price war.
“It can’t be expected that established vehicle manufacturers, who need to make similar investments that a start-up would in vehicle design and manufacturing facilities, could turn a profit immediately,” stated Sam Fiorani, vice president at research firm AutoForecast Solutions.
GM recently retracted its previously announced target of reaching one million units of EV production capacity in North America by the end of 2025. Similarly, Ford has decided to utilize a Canadian plant, initially intended for future EV production, to instead manufacture larger, gasoline-powered versions of its F-Series pickup truck. These strategic adjustments highlight the difficulties faced in the EV market.
Both GM and Ford have also reported slower sales growth for the quarter, signaling broader challenges within the industry. Analysts from Evercore ISI maintain a more optimistic outlook for GM compared to Ford, expecting the former to guide towards the upper end of their prior full-year forecast. Investors eagerly await further details on the automakers’ EV plans and the impact of the CDK outage on their operations.
As GM and Ford navigate these complex challenges, the future success of their EV strategies remains uncertain. The cyberattack’s repercussions have highlighted the vulnerability of digital systems in automotive sales, emphasizing the need for robust cybersecurity measures. Additionally, the intense competition from global EV manufacturers underscores the necessity for innovative solutions and strategic adjustments to remain competitive. For investors and industry stakeholders, the upcoming financial reports will provide critical insights into the evolving landscape of the automotive market.
