GM ramps up for EVs despite recession

DETROIT — General Motors has started retooling a former sedan factory here into its first electric vehicle production hub. But the automaker's ambitious goal to launch 20 EVs by 2023 will require a much bigger manufacturing footprint that's likely to include other assembly plants in Michigan and at least one in Mexico.

That means planning for costly, time-consuming renovations — in order to build vehicles with uncertain consumer demand and profit margins — as the industry works to pull itself out of a recession during a pandemic. In spite of that, GM executives say they're moving full speed ahead on a $20 billion push into EVs and autonomous vehicles.

GM must "get in the game and start the process of building the environment and conditions for success," Steve Carlisle, the Cadillac chief who will become president of GM North America on Sept. 1, told Automotive News. "Now is the time to really start moving forward on all of that."

Executives acknowledge that widespread adoption of EVs will take years, but the automaker is determined to lead the industry into the EV era. It's developing proprietary batteries through a $2.3 billion joint venture with LG Chem aimed at making EVs cheaper to build and able to drive farther between charges.

GM has said some of its upcoming battery-electric products will be built in Orion Township, Mich., where it makes its only current EV, the Chevrolet Bolt, or Detroit-Hamtramck Assembly, which went down in March for at least a year of retooling.

Vehicles expected to join the Bolt in Orion include a utility version of the car and the Cadillac Lyriq, a midsize crossover. Detroit-Hamtramck will build electric trucks, including the GMC Hummer pickup and a Hummer SUV, as well as another pickup and a large SUV.

"GM is expected to continue following the strategy of coupling like-sized vehicles in a single plant that share the same parts bin where it makes sense," said Paul Waatti, an analyst at AutoPacific.

But the two plants are unlikely to have enough space for everything else in GM's plans. So GM will have to look elsewhere.

"The word is getting louder and louder about shifts to Mexico," said Sam Fiorani, vice president of AutoForecast Solutions.

Forecasters said they expect GM to retool its plant in Ramos Arizpe, Mexico, for EV production in 2023. That plant builds the Chevy Blazer and Equinox.

GM also may shift its Chevy Camaro and Cadillac sedan plant in Lansing, Mich., to EVs around 2024. The plant's transition would have to be approved under the next UAW labor contract in 2023. Under the current contract, GM assured UAW members that they will retain the higher-skilled work associated with such technology.

With Cadillac as GM's lead EV brand, the CT4 and CT5 sedans built at the Lansing plant potentially would become battery-powered. Some analysts believe the Camaro also would go electric because it's built alongside the Cadillac sedans, though GM could instead choose to discontinue the Camaro, which is in its sixth consecutive year of declining U.S. sales.

In its 2019 Sustainability Report released this month, GM outlined plans for 12 of its upcoming EVs: the Cadillac Lyriq, Celestiq, a three-row SUV, an Escalade-like SUV and an XT4-like crossover; the GMC Hummer pickup and SUV; the Chevy Bolt utility vehicle, a pickup and a midsize SUV; and a Buick SUV and crossover.

GM has time to build out its EV manufacturing base. Industrywide, EVs will dominate sales eventually but not anytime soon, said Tyson Jominy, vice president of data and analytics at J.D. Power. "How many decades that's going to take is the question," he said.

Jominy expects market share of EVs and plug-in hybrids to rise by about a percentage point annually over the next decade. He anticipates it will take at least two decades for EVs to make up half of GM's sales volume.

Industrywide, EV product planning has been gaining traction. Vehicles in the pipeline don't just have alternative powertrains, they're more technologically advanced overall, Jominy said. And automakers are expanding EV plans beyond small crossovers and sedans.

Cadillac has shown "pretty sharp designs and is seemingly going down the road that EVs can be, dare I say, sexy and attractive," Jominy said.

By choosing Cadillac as its lead EV brand, GM is opting to start with vehicles that will be higher margin but generate relatively low sales.

"These new model launches will likely be at rationally higher price points in order for GM to earn a sufficient return on investment as it continues to invest in technology; therefore, we anticipate relatively low volumes for these models," Bank of America Merrill Lynch analyst John Murphy said in the 2020 "Car Wars" study of the automotive product pipeline.

GM is grappling with a hurdle that was unforeseen when it began plotting out its EV strategy: a recession brought on by the coronavirus pandemic.

The automaker made virtually no revenue during the two months when it and other automakers had to close their North American plants to prevent spreading the virus. Although every automaker took a significant financial hit, for GM it follows fall's 40-day UAW strike that cost more than $3 billion.

GM delayed freshenings for some of its sedans and crossovers to weather the pandemic, but it pushed forward on EV work and upgrades to its hugely profitable full-size SUVs. It has made a number of other cost- cutting moves and will provide a better look at the toll of the crisis when it reports second- quarter results Wednesday, July 29.

As much as GM intends to keep its electrification plans on track, the coronavirus crisis may slow consumer adoption of EVs.

"The best way to convert the industry and any particular automaker to EVs and plug-ins is to have [the automakers] extremely strong coming out of the COVID period and have enough cash to fund the R&D to get there profitably," Jominy said. The pandemic "probably set the industry back at least a year or two until we can get everyone back on their feet. A healthy industry will be a better industry to transition to EVs."

Despite the setbacks, GM remains committed to an electric future, even if that means making cuts elsewhere.

"We are pretty convinced that we need to be launching [EVs] sooner versus later," Carlisle said. "I think the question will be more of what does the transition look like? How long does the transition take?"