Supply chain and demand destruction problems continue to be problems for the iconic American automaker
Summary:-
- General Motors enters earnings season in a positive space however, Ford having a tough time in comparison.
- The biggest issue for automakers is the rise in prices because consumers put off major purchases because of their lower purchasing power.
- It is unlikely that the situation will change anytime soon.
General Motors (GM, Financial) has been involved in a war between itself and Ford (F, Financial) since the time both firms have existed. Their squabble is shifting to the electric vehicle sector as they strive to develop new ideas to meet the needs of the future. Recent results suggest that General Motors is outpacing Ford in the present. But that does not mean that the company isn’t in trouble. General Motors has been hit with a heavy blow by the increasing cost of raw materials which has impacted profits and forced the business to raise the prices of its automobiles. General Motors will need to figure out a solution for these issues to stay competitive in the future.
The inflation rate for the next year is expected to impact UBS’s financial results. UBS Group ( UBS, Financial) used this as a reason why it downgraded the auto giant down to “Neutral” and slashed its price target to $38 instead of $56. UBS forecasts recession warning that General Motors will feel the impacts of the storm, especially in Europe.
General Motors, for its part, is looking great heading into earnings season. The automaker reported an increase of 24% in its third-quarter sales, which grew up to 555,580 vehicles, as purchasing was driven by a sluggish demand, and the supply of semiconductors has stabilized. This marked a dramatic contrast from the previous quarter in which General Motors reported a 15 percentage decline of U.S. sales.
It is clear that the market is downright bearish right now and this is not likely to change any time in the near future. Given this the short-term outlook for General Motors remains stressed, even though the outlook for the future appears to be positive.
How rising inflation and interest rates put the pressure upon General Motors
General Motors has been on an upswing lately, with profit and sales that were impressive during the last quarter. However General Motors is currently facing significant headwinds that could impact its financial viability. The first is that General Motors is still dealing issues with supply chain disruptions resulting due to the worldwide chip shortage. This has resulted in delays in production and shortages of components, which lead to lower sales and increased cost. Although the supply of semiconductors has stabilized somewhat however, it’s not enough to resolve past problems, and new rules issued by authorities from U.S. government could throw the supply chain of semiconductors into chaos time.
The pressure of inflation is further reducing margins. General Motors is responding by cutting costs and focussing on its top-performing vehicles. If this will be enough to face the challenges ahead isn’t known at the present moment. General Motors is a company which has survived many storms however, not without hefty losses, which is typical of any cycle business.
And lastly, U.S. interest rates are increasing, thereby increasing prices of financing for General Motors and buyers of its automobiles. The Fed has raised its benchmark rate five times in the past year. The experts predict that the rate will remain at 4.4 percent by the end of the year. Then, in 2023, the expectation is for it to increase to 4.6 percent. Although General Motors has navigated these difficulties up to this point however, they could be more difficult in the months ahead. This means that General Motors’ profitability may be impacted in the near future.
General Motors’ electric vehicle plans will keep bulls engaged
General Motors plans to sell 30 different electric vehicles by 2025. A 35 billion dollar investment signifies the company’s intention of making investments in electric cars. Most likely, others auto makers will make significant investments in this field that will result in breakthroughs in this field as well as a high competition. There is a lot of competition in the EV marketplace is tiny, however it is expanding rapidly as people become aware of the advantages of electric vehicles.
General Motors is planning on moving to all-electric vehicles and Ford showcases a different approach using different kinds of electric vehicles as well as hybrid models. General Motors offers the Chevrolet Bolt EV and Chevrolet Spark EV, as in addition to its Cadillac CT6 PHEV. Ford might be more reluctant to accept EVs however it does offer some fantastic alternatives like Ford’s Mustang Mach-E, F-150 Lightning, E-Transit Van, etc. The different approaches of General Motors and Ford underscore the various approaches automakers are employing in order to satisfy the demand of consumers for fuel efficient and green vehicles.
General Motors’ pure-play approach is more appealing in the long run I believe. General Motors is making a large bet on electric cars and is aiming to put all its eggs in the same basket. The company has stated that it will end production of gasoline-powered vehicles until 2035 and only offer cars that have zero tailpipe emissions after that. However, Ford is taking a more cautious approach and says it will continue to make electric vehicles and gas-powered cars. General Motors’ approach looks uncertain, but it could be profitable over the long term. If the demand for electric vehicles continues to grow in the manner General Motors expects, the company is well placed to be the leader in the field.
Takeaway
General Motors is an icon in the American auto industry. The firm has been operating for more than a century and continually innovates to stay relevant. But, General Motors is facing numerous challenges in the near long term.
The first and most important thing is that automobile demand is expected to decrease dramatically as the rate of inflation rises and consumers increase their spending. Additionally, General Motors is facing an acute shortage of supplies due to the crisis in semiconductors. This has resulted in reductions in production that are likely to impact the financial performance of the business during the last quarter.
In the long run The investment thesis of General Motors looks strong in my opinion, particularly when as compared to Ford that is dragging its feet. Anyone hoping for a quick turnaround are likely to be disappointed.
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