Will Automakers' Push for Fully Electric Cars Drive Profits?

General Motors’ GM president Mark Reuss said in an interview that the company is now primarily interested in electric vehicles, which are crucial to the auto industry's evolution and growth in America and international markets. However, high costs and other concerns are currently restricting the sale of electric vehicles in America.   

Auto Makers’ Strong Focus on Full Electric Cars

General Motors and Volkswagen AG VWAGY are now shifting focus to fully-electric vehicles and are planning of investing heavily in it, according to The Wall Street Journal. By 2023, General Motors’ prime intention is to introduce 20 fully electric vehicles in the global market. This is likely to include the plug-in cars in America under the company’s Cadillac and Chevrolet brands.

Moreover, Volkswagen has decided to invest significantly in vehicles powered by battery. Apart from plans of launching its fully-electric microbus by 2022, the automaker’s electric vehicle line-up will include a plug-in SUV for the U.S. market in 2020.

To capitalize on the industry’s shift toward fully-electric vehicles, Continental AG CTTAY, a leading manufacturer of car parts, recently announced its decision to lower spending on traditional engine parts.

High Battery Cost a Hurdle

However, the shift to electric vehicles may not be highly profitable since the high cost of lithium-ion battery is eating into automakers’ profits. Moreover, buyers are worried about the low number of charging stations and battery range.

Notably, the plans to go all-electric by General Motors and Volkswagen are largely been driven by China where regulatory bodies fine automakers if they fail to sell a certain number of cars with zero emission. In fact, Volkswagen believes that by increasing the scale of electric car supply in China, it will be able to bring down the price of these vehicles substantially. Eventually, the price of electric cars is also expected to drop in America, which is likely to boost the sale of those cars in the country.

For now, the cost of electric cars is considerably higher than gasoline vehicles. Reportedly, the price is higher by $6,000 to $10,000 and hence is deterring buyers from investing in electric vehicles. Owing to such hurdles, plug-in electric cars were reportedly able to capture only 1% of total 2018 auto sales in the United States. This was primarily aided by the dominance of Tesla, Inc. TSLA in the U.S. electric vehicle market.

Hybrid Vehicle Prominence

To meet tailpipe emission standards and to capture the huge market of buyers who are unwilling to shift to full electric cars, Toyota Motor Corporation TM and Ford Motor Company F are focusing on hybrid cars in America and overseas.

Notably, to increase its vehicles’ fuel economy, Zacks Rank #3 (Hold) company Ford is planning to come up with a hybrid genre of some of its popular nameplates that could comprise Ford Explorer and F-150 pickup truck. These automakers will also continue to work on electric vehicles, but for now, the hybrid line-up will form the core part of their business.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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