“Same industry, two different companies” That’s how prominent Morgan Stanley auto industry analyst Adam Jonas describes General Motors and Ford Motor, two rivalries for more than a century.
The two have consistently tried to outdo each other in sales, performance and new car styling. GM has gained an edge in recent years thanks to a better financial position and an early shift to electric and autonomous vehicles. And most recently, third-quarter results show they have knocked their opponents out of the game.
The investment landscape for US automakers is increasingly diversifying as companies, separated by just $1 billion in market capitalization, have different solutions around electric and autonomous vehicles.
GM has been diversifying as much as possible around its self-driving car and battery businesses, with plans to exclusively offer electric vehicles by 2035. Ford is also moving into electric vehicles, but at the same time while continuing to invest in its traditional businesses. Ford expects at least 40% of its global sales to come from electric vehicles by the end of the decade.
Meanwhile, both companies continue to rely heavily on historically profitable sales of pickup trucks and SUVs, renewing attention in this segment and leveraging billions of dollars in profits to invest in both self-driving and electric vehicles.
Wall Street analysts say they’re keeping an eye on burgeoning segments to see when or if one of the Detroit automakers could come to prominence.
“It’s a very competitive industry and they all catch up very quickly,” said Edward Jones analyst Jeff Windau. It’s hard for them to maintain the distinction for a long time.”
Ford is undergoing an extensive restructuring as part of CEO Jim Farley’s capital turnaround plan called Ford+. Meanwhile, GM cut costs years ago under CEO Mary Barra.
“GM is definitely operating at a much higher profit margin than Ford is cutting costs, because they went through that pain a few years ago,” Morningstar analyst David Whiston told CNBC.
Wall Street maintains an average rating of “overweight” on both stocks, according to analyst reports compiled by FactSet. Shares of both automakers are down more than 30% this year, as investors fear that a golden age of their profits during the Covid-19 pandemic is behind them as interest rates is rising, inflation is high and people are worried about an economic recession.
Both stocks have a market capitalization of about $54 billion and trade seemingly in tandem, even though GM is about $40 a share and Ford is closer to $14.
Invest in self-driving cars
Late last month, Ford announced it would disband its Argo AI autonomous vehicle unit, citing that it had no confidence in the project and its earning potential in the near future.
A day earlier, GM Cruise CEO Kyle Vogt had made upbeat comments about the development of his company’s robotaxi (self-driving taxi) project, with words like “open phase” scale rapidly” and promises “significant revenue” starting next year.
“We are seeing a growing disparity between companies that operate commercial drones and those that are still in the depths of disillusionment,” Vogt said “The situation now is that the companies with the best products have taken the lead and are picking up speed.”
GM Cruise recently said it was expanding its robotaxi service to cover most of San Francisco, months after the company launched a limited-time fleet of self-driving cars at night.
“GM is clearly seeing this as a long-term opportunity that they want to be in,” said Sam Abuelsamid, principal analyst at Guidehouse Insights. And Ford is saying, ‘We think they’ll eventually make it, but it’s going to be a long time and now we have other concerns.’”
The “termites” Ford has to deal with include billions of dollars in electric vehicles as well as technologies to assist those with weaker steering, such as the automaker’s BlueCruise Highway Self-Driving System.
‘Stuff’ and sell
GM was one of the first automakers to announce a billion-dollar investment in next-generation electric vehicles and aims to stop selling internal combustion-engine vehicles by 2035.
But Ford is an easy company to outsell GM in electric vehicles, while GM prioritizes luxury cars with new battery technology like the Hummers worth more than $ 100,000, or the Bolt EV with older battery technology.
“GM entered the Autonomous Vehicle market earlier,” said Abuelsamid. But if you look at it from a broader perspective than the auto industry – the technology sector, being the first to do it does not necessarily mean that you will be successful.”
Ford sold 41,236 all-electric models in the first nine months of this year, while GM sold 22,830 — the majority of which were older Bolt models.
Benefiting from the electric vehicle campaign has allowed Ford to ramp up production faster than GM and get more vehicles at dealerships. The company has turned ordinary vehicles with traditional gasoline engines into electric cars by “stuffing” the battery inside.
In contrast, GM has come up with a design specifically for electric vehicles. Ford has planned to follow that later, but for now, its short-term approach has helped it outperform sales and consumers don’t seem to mind. Ford also continues to make plug-in hybrids and plug-in hybrids, and instead of doing the same, GM has built a car that’s no different from the all-electric Corvette.
Aside from Tesla, the industry’s leading electric vehicle maker, GM is the only one to manufacture battery cases on its own, through four joint venture plants in the United States that it has planned, one of which is in Ohio, which has already started going into commercial production earlier this year.
Similarly, Ford also plans to use $5.8 billion to build dual lithium-ion battery plants in central Kentucky through a joint venture with South Korea-based SK, but production is expected not until 2026 to begin.
Jeff Windau also added, GM may be ahead of Ford in the short term, but others can still catch up in the coming years: “Being able to move forward a little faster is also an advantage, but it seems that like again, there are a lot of players that are entering the game in a similar way.”
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