GM and Ford face profit challenges amid EV market slowdown

General Motors (GM) and Ford, two of America's largest automakers, are bracing for potentially lower profits as they prepare to release their second-quarter financial results this week. The anticipated decline in earnings stems from a combination of factors, including a slowdown in electric vehicle (EV) demand and the recent cyberattack on a crucial dealership software system.

According to data from LSEG, GM is expected to report a 7.7% drop in second-quarter net income when it releases its results on Tuesday. Ford, scheduled to report the following day, is projected to see a 10% decline in profit. These forecasts highlight the growing challenges faced by traditional automakers as they navigate the complex transition to electric vehicles and deal with unexpected disruptions in their sales networks.

A significant factor contributing to the potential profit downturn was the cyberattack on CDK Global, a retail technology provider serving over 15,000 U.S. car dealerships. The attack, which occurred in June—a critical sales month for the auto industry—forced CDK to shut down a key software system used by dealerships nationwide. The impact of this outage has been substantial, with consultancy firm Anderson Economic Group estimating that dealers collectively lost approximately USD 1 billion due to the disruption.

Beyond the immediate effects of the software outage, both GM and Ford are grappling with broader challenges in the EV market. The anticipated rapid growth in EV sales has not materialised as quickly as expected, making it increasingly difficult for these legacy automakers to achieve the production volumes necessary to drive down costs and reach profitability in their EV divisions.

Sam Fiorani, vice president at research firm AutoForecast Solutions, commented on the situation, stating, "It can't be expected that established vehicle manufacturers, who need to make similar investments that a start-up would in vehicle design and manufacturing facilities, could turn a profit immediately." This observation underscores the significant capital investments required by traditional automakers to compete in the EV space.

The EV market has become increasingly competitive, with Chinese manufacturers and Tesla engaging in aggressive pricing strategies that have triggered a global price war. This intensified competition has put additional pressure on GM and Ford's EV ambitions, forcing them to reassess their strategies and timelines.

In response to these market dynamics, both companies have already made adjustments to their EV plans. GM recently declined to reiterate its previously announced forecast of achieving one million units of EV production capacity in North America by the end of 2025. Similarly, Ford has announced plans to use a Canadian plant originally earmarked for EV production to instead build larger, gasoline-powered versions of its flagship F-Series pickup truck. Ford has also delayed the launch of its new three-row EVs from 2025 to 2027.

These shifts in strategy reflect the automakers' need to balance their long-term EV goals with current market realities and consumer demand. Both GM and Ford have cited consumer demand as a key factor in their decision to adjust their EV forecasts and production plans.

Despite these challenges, some analysts remain optimistic about the automakers' prospects. Evercore ISI analysts have expressed a positive outlook on GM, particularly in comparison to Ford, and expect GM to guide towards the upper end of their prior full-year forecast.

As investors and industry observers await the quarterly results, they will be looking for more details on GM and Ford's revised EV strategies, as well as comments on the impact of the CDK software outage on their dealership networks and overall sales performance.