In the recent midterm elections, some politicians were saying the US budget needs to be cut and they had various methods to do. The suggestions ranged from social security to raising taxes, very little was said about government subsidies.
In an article by Joseph White of Reuters, Chief Financial Officer of GM Paul Jacobson in a conference call to investors, GM expects federal subsidies between $3,500 and $5,500 an electric vehicle would add to GM pretax profits. The subsidies help make the difference between the combustion fleet and the EV fleet very comparable by 2025 profitable.
This year the profits expected which will be between $ 13.5 to $14.5 billion will come from the combustion fleet and go to fund the annual capital spending between $11 and $13 billion.
On GM’s most profitable lines including GM pickups and SUV with internal combustion engines or ICE, the margin is double digit.
The subsidies offered by the Green Energy Act and the Inflation Reduction Act would boost EV’s margins to ICE margins.
GM trails Tesla, Ford and Hyundai in EV sales this year, but expect greater production in both the US and China from 2023 to 2025.
Linking to dividend paying stocks, most profitable companies benefit from government subsidies. The subsidies come in for a particular purpose and companies like them so they tend to stay around even when from the outside the subsidies could be cut. From the inside, subsidies are a very useful addition and companies get used to having them. If the government stops some there are usually other avenues to find addition subsidies for governments have money for designated purposes. In the non-profit world, grant seekers are very adaptable, same for the corporate world.
There are more questions than answers, till the next time – to raising questions.