Dividends and GM bets on electric vehicles to jolt sales slump in China

When most of us in North America think about automobiles, we tend to think about Detroit and the 3 big companies GM. Ford and Chrysler-Fiat. The companies have operations around the world, but we are bias and look to the home market first. There is another market where all the big auto companies have operations in, which is China. The Chinese market does not have 100 years of personal ownership of autos such as the US does, they are a more recent market where automobiles are available and can be purchased by the average mythical family. In newer markets, innovation tends to be the rule. While Americans want power and trucks and SUVs, the Chinese market is more focused on electric vehicles. Partly they do not have the infrastructure for gasoline and electric can be plugged in.

In an article be Norkhiko Shirouzu of Reuters, GM is overhauling its Chinese lineup with greater emphasis on electric cars and smart-driving technology. The reason it is important to GM investors is China has been providing a fifth of its yearly profits.

GM is bring up an electric vehicle for Cadillac as well as Chinese brands such as Baojun and Wuling. Along with Buick and Chevy vehicles, GM sold 4 million vehicles in 2017 and 3.1 million in 2019. Part of the the reason for fewer sales is the tough competition in the marketplace, the formerly very inexpensive and poor quality Chinese vehicles of Geely Automobile Holdings and Great Wall are still inexpensive but the quality has improved. (Consider Toyota and Nissan (Datsun) when they introduced their vehicles to the US, they were inexpensive and not great quality. Now you would not say that).

The Chinese market is over 25 million vehicles a year and GM has a 12.2% share.

New GM China boss, Julian Blissett said in the next 5 years, more than 50% of our capital and engineering will go towards the electrification and autonomous-drive technology. The reason is the electrification of cars is going to happen much faster in China than the US.

Linking to dividend paying stocks, eventually all auto companies will be producing electric vehicles in the home market of the US and technology companies will play a significant role. In the old days, the auto companies would have bought the technology companies but will it be the other way around? Companies adapt to what consumers will pay for? we will be looking to China to see what the new automobiles will be like for American consumers. We do know, electric vehicles are less expensive to make than internal combustion engine vehicles because they have less parts. Will prices go down for the average car or stay the same with higher margins for the auto companies?

There are more questions than answers, till the next time – to raising questions.

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