Catch Up With Tesla: GM'S "Big Bet" $20 Billion Transformation

2020-2025 years and six dollars in the next six years. In March 4th, at Mary Warren technology center in Michigan, Mary Bora (Barra) finally called out GM's investment plan for the future.

Bora is chairman and chief executive of GM, and has been pushing the company transformation since taking office in 2014. She runs well, has the reputation of "Iron Lady" in the industry, but does not seem to like "flag". When other traditional car companies are promoting huge amounts of electrification investment, GM has not been able to make its own plans.

General Motors is the first company to embrace electrification in traditional car companies. It launched a market-oriented electric vehicle as early as 1996, but it slowed down in this round of global automotive electrification. The new product is lower than expected, and in the offensive of the new local brand Tesla, the general advantage is lost.

"In terms of electric transformation, GM feels that it has invested a lot in the outside world and has done a lot, but it seems that there has never been a breakthrough point." Some media commented. In the window period of the rapid development of China's new energy vehicle market, such "Absence" is even more regrettable.

GM is still at its own pace, which seems to have accelerated the pace of transformation in recent years. In 2018, GM has repeatedly said that investment in electrification and automatic driving in the next two years should be doubled. With this determination, the company established a joint venture with LG chemical and continued investment in its acquisition of autopilot.

Electrification and automation will become an irreversible trend of car development. Tesla, though not yet profitable, has been well received in the capital market. This fact has made it clear to traditional car companies that the transformation from auto manufacturers to technology companies is imperative.

But the transformation will take a toll. The huge investment in the frontier field is not a small number for any car company. Therefore, in recent years, there has been a frequent case of multinational car companies taking part in cooperation in the industry. Therefore, GM has to rearrange traditional businesses to provide sufficient funds for future investment and economize.

Over the past few years, GM has been shrinking at an unprecedented rate. From cutting off non core brands to leaving unprofitable regional markets, GM has shut down factories and laid off workers, or even too radical has triggered last year's global strike.

This is a big gamble. Obviously, investment electrification and automatic driving are beyond reproach, but from the business level, the timing and rhythm of general investment are not necessarily the best solution.

"It is faster than any car manufacturer in transformation, but it may well cost money, but it hasn't paid off in years." Some commentaries worry that business contraction will increase the profit risk of general traditional business, and worse still, radical investment may allow it to "give up" the profits accumulated over the years.

Electrification and automation will become an irreversible trend of automobile development. Gan Jun photo

The late third generation platform

Bora announced the future investment plan on GM's EV Day.

Since March 4th, GM has been opening its activities for a week to demonstrate its electrification strategy and related technical paths to its employees, distributors, investors, analysts, media and government officials.

In fact, the important content of the EV day is to release the core of the general electrification strategy -- the modular driving system and the third generation global electric vehicle platform (BEV3). It is said that the platform is highly flexible and can cover all kinds of vehicles.

This new platform is highly regarded, and its position in general is similar to that of MEB platform to the public. It is described as a counterweight to Tesla's "weight". With the support of the platform, Bola has made a big goal: by 2025, it will sell 1 million electric cars annually in the US and China.

"The third generation of electric vehicle platform will use advanced electric drive and core technology, the mileage will be further enhanced, the battery cost will also be effectively reduced, and there will be great advantages in terms of economy." In March 3rd, General Motors global executive vice president and General Motors China President Qian Huikang (Matt Tsien) in an interview with twenty-first Century economic report reporter said.

Qian Huikang was excited about this week's EV Day. He realized that there was not much information in the field of electrification before, and this EV Day, GM, "at last can tell the story of a new strategy of electrification that has lasted for a long time."

Indeed, since the launch of Chevrolet Bolt pure electric vehicle, GM has been in the field of electrification despite its layout, but substantial progress in products has rarely appeared. Bolt is based on the development of the general-purpose second generation electric vehicle platform. Now it has been four years.

The slow release of the new platform is partly due to the high degree of modularity of the drive system, and at the same time, the battery should also achieve sufficient endurance and control costs. GM's information shows that under the flexible and modular development mode, GM expects the first generation of products to be profitable.

At present, the product planning based on the new platform has been preliminarily enacted. It is reported that the Cruise Origin pure electric automatic driving sharing vehicle launched in San Francisco in January this year will be the first product to carry the new platform, and the Cadillac brand will also take the lead in launching the SUV (Lyriq) based on the platform. In addition, the electric pickup GMC Hummer equipped with a new Ultium battery will be in the 5 moon phase and is scheduled to be put into operation in the autumn of 2021.

Transformation of "pain but necessity"

The cost of electrification transformation is expensive. Bola expects that in the next six years, GM will invest $20 billion to develop and produce electrification and autopilot. From then on, the investment quota of a single project can also be seen that transformation is not easy.

Recently, GM announced that it will transform the Detroit-Hamtramck factory in Detroit, Michigan into a pure electric vehicle production plant and invest $2 billion 200 million. In December last year, general motors and LG chemical announced a joint venture to build a battery manufacturing plant with a total investment of US $2 billion 300 million. Prior to that time, GM has invested in Cruise for many times, with a total investment of more than US $2 billion.

Bola is well aware of the huge amount of capital needed for transformation, so she has also launched a drastic reform in the future. Since taking office, Bola has been promoting general weight reduction. Since 2017, GM has sold Opel, Horton and other brands, and has closed down some factories in South Korea, Thailand, India and even the United States.

After selling the Australian Horton brand this year and selling the engine plant and the vehicle factory in Thailand to the the Great Wall motor, the main market of General Motors will be left only by the US and China, and the original international business department is only South Korea and South America.

"The company is undergoing a painful but necessary transformation." At a staff meeting in March last year, Bola said GM could no longer invest in slow cars and small cars, nor could it invest in a remote market with unprofitable profits. Money must be invested in electric vehicles and autopilot cars. "This is the foundation of the company's future."

Although so far, GM's transformation and downsizing are relatively recognised by the capital market, the relatively radical adjustment has also posed some hidden dangers. The strike last year is a microcosm.

In mid September 2019, due to the lack of agreement with the UAW, UAW organized about 48 thousand employees in the United States to hold a massive strike. The strike lasted more than 40 days, causing adverse effects to General Motors for at least 3 billion 600 million dollars.

It is widely believed that the strike is related to the transformation of the automotive industry and general motors. Because transformation requires a lot of capital, car companies can only spend money on investment in transformation only by saving costs, but traditional business is stifled in downsizing, which has led to resistance from American trade union workers.

Bet on the two largest markets in China and the United States

The challenge facing general transformation is how to ensure that the technology of high investment can feed the company in anticipation, and how to ensure that the market tilt it is carrying now is safe.

After downsizing, GM clearly focused on the two major markets of the United States and China, which are "more promising". In 2014, China formally replaced the United States as the world's largest market for GM, and has continued to this day.

As the fastest growing and largest new energy vehicle market, China has also become the forefront of GM's new energy vehicle launch. Previously, GM had proposed a plan to launch 10 new energy vehicles in the Chinese market in 2016-2020 years. Qian Huikang said in an interview that the target will be overfulfilled at present.

However, GM's performance in the Chinese market in recent two years has not been satisfactory, and its business revenue has been further reduced last year. According to GM's annual report, the equity earnings of the company's joint venture in China in 2019 amounted to $1 billion 132 million, a sharp decrease of 42.8% over the same period last year.

In 2019, the sales volume of General Motors in China dropped by 15%, to 3 million 90 thousand vehicles. This is the second consecutive decline in general motors in the Chinese market, which has fallen by more than the market. Last year, GM's brands launched more models in China, but for a variety of reasons, GM failed to reverse the situation.

In addition to the overall slump in the auto market, GM's own layout is also unreasonable. The most critical of all is its bold and radical installation of three cylinder engines on many models.

The three cylinder engine is a solution to reduce vehicle energy consumption and emissions. Last year SAIC increased the promotion of the three cylinder engine. The new generation of Buick's new Buick corkola, Chevrolet Chuang Jie, Chevrolet Chuang and other new models launched in the second half of the year were fully equipped with three cylinder machines.

Although the technical strength of SAIC's three cylinder engine is not bad from the point of view of its parameters, its reputation in consumers is not so good. Many people think that the three cylinder jitter is strong and the use experience is poor, which makes Buick and Chevrolet two brands worse.

GM has finally realized and faced the problem. Recently, there are reports that some of the models that originally carry only three cylinder machines will also offer four cylinder versions this year to provide consumers with more choices. Although this may lead to a worse three cylinder locomotive type, it can improve the sales volume of related brands to a certain extent.

Qian Huikang said in an interview that GM's business is more focused and is good for the Chinese market itself. "The scale effect of the Chinese market has enabled GM to gain more voice in product development, and help to introduce more targeted products to better meet the needs of Chinese consumers."

The final outcome of the $20 billion gamble remains to be tested by the market.

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