2025 hasn't exactly been kind to the automotive industry as automakers grapple with sluggish electric vehicle (EV) sales (and hefty losses associated with them currently), a reduction in emissions standards, and the implementation of tariffs on imported vehicles and auto parts, among other unfavorable developments.
When it rains it pours, and General Motors (NYSE: GM) just announced a significant $1.6 billion charge due to changing EV dynamics -- and Ford Motor Company (NYSE: F) has a billion-dollar problem of its own.
What's going on?
Investors knew that the U.S. EV market was sluggish and headed for an even steeper slowdown during the fourth quarter without the valuable $7,500 federal tax credit on EV purchases. Investors also knew automakers were altering their strategies left and right, including reductions in EV development, plant delays, and vehicle launch postponements, among other things.
It might not have been until Tuesday, however, that investors saw hard data showing just how expensive these changes in plans can become. General Motors announced a $1.6 billion special charge that will hit third-quarter income "on a planned strategic realignment of our EV capacity and manufacturing footprint to consumer demand." The charge breaks down into a $1.2 billion accounting write-down in the value of EV plants and equipment and $400 million in cash charges for canceling supplier contracts related to EV investments.
A more complicated way to explain where the charge comes from: When comparing net carrying value of assets such as plants, you compare them to the undiscounted net cash flows those assets are expected to produce over their useful lives. When the carrying value exceeds the undiscounted net cash flows, an impairment loss is recognized for the value difference.
It's a painful realization that essentially reads that unfilled production capacity isn't generating the planned earnings. The bad news seems baked into the stock, which isn't surprising considering its crosstown rival Ford, one of the few that breaks out its EV profits and losses, lost a staggering $5.1 billion in its Model-e division during 2024. Investors knew the pain was coming at some point, in some fashion.
The blame, as expected, falls largely on the whipsaw effects from changing policies. "Following recent U.S. Government policy changes, including the termination of certain consumer tax incentives for EV purchases and the reduction in the stringency of emissions regulations, we expect the adoption rate of EVs to slow," the company said in a press release.