Why GM Will Drive Its EV Business Into A Wall

With gasoline prices surging, the timing could not be better for another high-end electric SUV.

General Motors
GM
(GM) announced on Tuesday that production of its Cadillac Lyriq is set to begin next week. With a price point starting below $60,000 the luxury SUV could have been a hot seller.

Yet Lyriq is not going to sell well. There will not be enough of them to make any impact.

Let’s be perfectly clear. Despite countless press releases and bravado, General Motors is not really in the electric vehicle business. At this stage, the Detroit, Mich.-based company is more focused on giving the impression it is an EV market leader. Like so many top-heavy organizations, executives are more concerned with placating investors, rather than making products customers love.

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That is not to say Lyriq is hard to look at, or short on high-end features.

Lyric’s styling is long, low and futuristic. Its 122-inch wheelbase is crafted on a skateboard platform. The big 20-inch wheels come with distinctive Cadillac six spoke alloy rims. A single electric power plant generates 340 horsepower and 324 pound-feet of torque, according release notes on the corporate website.

Inside, the EV features plenty of cabin space, a massive 33-inch diagonal infotainment display, with a 19-speaker stereo system, and the option for Super Cruise, an advanced driver assistance system that enables hands-free driving. The luxury SUV is designed to be a Tesla
TSLA
-killer.

That’s a big part of the problem.

GM wants to prove to investors that the company is capable of building EVs that can take on the best from Tesla (TSLA) and win. Lyric looks the part. On paper, the tech keeps up, too. Unfortunately, that’s all Lyric is, a press release and a skeleton production run.

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Although GM executives claim interest in Lyric is massive, the company took no reservations or deposits from actual customers. And when pressed about the size of initial production run, CNBC reports that GM spokespeople offered only vague platitudes about increasing production “fairly significantly from where the previous plan of record was”.

GM is capable of designing EVs. The company has shown no expertise in making them.

During the fourth quarter of 2021, GM delivered only 26 EVs domestically, down almost 100% year-over-year. That number consisted of 25 Chevrolet Bolts, and 1 GMC Hummer EV pickup. These puny numbers are mostly due to the Bolt getting a complete recall for faulty battery packs.

Tesla delivered 308,000 vehicles during the quarter. Deliveries in 2021 jumped to 936,172, up 83% from a year ago.

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Tesla bears make the argument that it is only a matter of time before the real automakers got into the EV business, and when that occurs they will dominate EV sales. Legacy automakers hold scale advantages with parts suppliers, and this was supposed to translate into market share gains. Except it has not worked out that way.

Tesla is vertically integrated. It makes the sheet metal, the battery packs and the software for its EVs. Its advantage, apart from having a huge backlog of actual customer orders, is having fewer parts suppliers and vendors.

This upper hand was on full display during 2021 when legacy automakers all over the world struggled under the weight of a semiconductor chip shortage. Tesla sales skyrocketed.

GM is in a tricky spot. The company is trying to get to 2030 when executives claim the company will be producing only electric vehicles. That message reads great in a press release. Getting there will be much tougher. This is because GM’s perceived strength is really a weakness. Its future is full of EV component shortages, product recalls, software glitches and unhappy customers.

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At a price of $42.13, GM shares trade at 5.8x forward earnings and 0.5x sales. Investors should use strength toward the $50 level to liquidate positions.

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