In the second of our year-long series examining the decarbonisation efforts of the world’s top 250 greenhouse gas emitters, Review editor Terry Slavin and David Lubin of Signal Climate Analytics peer under the hood of America’s biggest car maker
The change of regime in the White House has prompted some major U.S. companies to unexpectedly pin green colours to the mast, including American’s most greenhouse gas-polluting oil major, ExxonMobil (see Just how far apart are Shell and ExxonMobil on climate?).
But for breathtaking ambition it was hard to beat GM. Within a week of Joe Biden’s inauguration, the world’s fifth-biggest selling carmaker unveiled a plan to become carbon neutral by 2040, and set a deadline of 2035 to sell only electric cars – something none of the major automakers has yet done.
GM’s move set off a series of copy-cat announcements, with Jaguar Land Rover this month saying it would launch EV versions of its entire Jaguar and Land Rover line up by 2030, followed quickly by Ford, which set a 2030 date for its passenger vehicle line-up to be EV in Europe.
But how confident can we be that these companies’ green new paint job means something has fundamentally changed under the hood? After all, just months ago, GM was one of several car companies still publicly aligned with the Trump administration’s climate plans, which sought to undermine California’s right to ban the sale of new gasoline-powered cars and trucks in the state by 2035.
Signal Climate Analytics looked at 2019 data reported by the company and put it at number 18 out of 27 in 'climate impact maturity'
The question is a vitally important one, given that GM, as well as Toyota and Honda, are among the next 26-50 companies on Reuters’ and Signal Climate Analytics’ tally of the world’s biggest publicly traded 250 CO2 emitters, with Ford to be included on the 51-75 list in March.
Every month, over the course of 2021, this column will shine a light on what the world’s biggest greenhouse gas emitters are doing in the battle against climate change.
Ford, Toyota and VW, which was in our top-25 listing last month, will collectively introduce at least 76 EV models by 2025. GM alone has pledged to invest $27bn on 30 EV models by 2025 while Ford has recently committed $22bn, and VW a whopping $80bn by 2025, according to the New York Times. Given the typical five- to seven-year product development cycle to build a new model, investments in new fossil-fuelled vehicles is expected to slow to a trickle by the late 2020s.
While GM has previously experimented with Volt and Bolt, market response has been tepid. Signal Climate Analytics looked at 2019 data reported by the company and put it at number 18 out of 27 in “climate impact maturity”, defined as how much a company is demonstrating commitment and success in building and selling low- or zero-emissions vehicles.
In 2020, however, GM passed several rivals to reach the middle of the auto sector pack, jumping to number 11 in overall maturity, leaving Ford far behind at 19. So what happened?
While the Biden administration’s commitment to prioritise climate action may explain the timing of GM’s announcement, we may need to look eastward to fully understand the business logic.
Much of GM’s recent improvement on Signal’s climate impact maturity score in 2020 was due to the introduction of a new electric vehicle with partner SAIC, China’s largest automaker. The Mini EV, a micro vehicle with a very low price point, sold more than 127,000 in 2020, placing the GM joint venture third only to Tesla and BYD in the key new South Asian marketplace.
January sales in China were a remarkable 38,496 vehicles – roughly three times that of Tesla
And 2021 is getting off to an even stronger start. January sales were a remarkable 38,496 vehicles – roughly three times Tesla sales, and nearly half of the number of Bolts GM has sold in the U.S. since its introduction in 2017, according to InsideEVs.
In European and North American markets, however, it will be a different story. GM must not only get all the product innovation right, but successfully manage an undercurrent of union resistance to electric vehicles.
It is estimated that electric vehicles will require 30-40% less labour per vehicle to build, and that may mean fewer jobs, especially in newly redesigned high-efficiency factories – something GM says is a must to be competitive.
But electric vehicles will bring new jobs, too. Last March, GM announced that it was developing a new battery technology called Ultium that will have more range, and be cheaper than Tesla through using 70% less cobalt.
The batteries will be made at a new $2bn plant in Ohio, creating more than 1,100 jobs, and qualifying GM, along with Ford and Tesla, to benefit from Biden’s announcement that the federal government’s fleet of 650,000 vehicles will convert to American-made EVs. However, here too there are challenges to navigate with the workforce. According to the Detroit News, GM CEO Mary Barra acknowledges that battery makers will be paid less than assembly plant workers to remain competitive with other automakers.
GM last year spun out a new company, called BrightDrop, focused on electric delivery vehicles.
But the fact that GM’s EV flagship will be the world’s first all-electric Hummer points to a big decarbonisation blind spot shared by the industry at large, which could in time lead policymakers to apply the brakes to EV.
We have to run our current core business smart and strong, because that will ultimately allow us to invest in this all-electric future
As Signal, under its previous name Constellation Research, identified in research last year for Reuters, over the last decade the auto sector has “truckified”, particularly in the U.S., where demand for bigger gas-guzzling SUVs and trucks continues to rise as demand for passenger cars declines.
This chart below in the IEA’s 2019 World Energy Outlook shows the outsized impact of this trend on global CO2 emissions: with SUVs coming second highest, behind the power sector and ahead of heavy industry, in terms of change in CO2 emissions by source.
But Philip Warburg of Boston University’s Institute for Sustainable Energy questions whether the U.S. can meet its decarbonisation goals while continuing its love affair with super-sized vehicles, pointing out in a blog, “An electrified U.S. fleet dominated by oversized SUVs and pickups will consume substantially more energy than a leaner line of electric vehicles, making it much harder for clean electricity sources to edge out the gas and coal plants that still supply most of our electricity.”
Meanwhile, Tesla’s Elon Musk signalled that the carbon footprint of his vehicles would be vastly inflated in future by purchasing $1.5bn in bitcoin and announcing he would accept the cryptocurrency, which is highly energy-intensive to “mine”, as payment from customers. On top of the energy that is consumed in producing EV versions of SUVs, there are vast amounts of resource-intensive metals like copper, lithium, aluminium and cobalt, whose mining is fraught with environmental and human rights risks, as regularly reported on in The Ethical Corporation magazine.
Being the first EV auto major who knows how to scale could put GM back in the drivers’ seat.
Nevertheless, the continued sale of these highly profitable vehicles is viewed as key to providing companies like GM with the investment cash they will need to get the EV revolution on the road. As Dan Flores, GM spokesman, says: “We have to run our current core business smart and strong, because that will ultimately allow us to invest in this all-electric future.”
From the planetary boundaries perspective, however, it may be arguably better for GM to focus not on rolling out electric SUVs but expanding its production of mini vehicles with SAIC for the Asian market – though lack of transparency and accountability will be serious concerns for ESG-minded investors.
The business case is more straightforward, given that companies in China have access to almost all the key supply chain ingredients it takes to build an electric car – batteries, cobalt, high-efficiency LEDs and lighting. (See Policy Watch)
Being a more prominent member of the EV club will also have other privileges, foremost among them market valuations that bear no resemblance to their petroleum-powered peers.
As Signal/Constellation found in its auto sector report for Reuters in 2018, shareholder returns of the relatively few automakers whose vehicle production consists of between 20-100% EV & PHEV was 26.2% between 2015 and 2019, compared to 5.4% for the entire auto sector.
And Morgan Stanley auto analyst Adam Jones was recently quoted as saying that policy moves against the internal combustion engine could “transform what were once profit-generating assets into potentially loss-making and cash-burning businesses” as early as 2030.
Today GM’s market capitalisation is $76.3bn. Were GM's market capitalisation per vehicle sold to rise to half that of Tesla, GM would be valued at $186.55bn, a level that would solve many problems for GM - making its dream of transformation a practical and profitable reality.
Being the first EV auto major who knows how to scale could put GM back in the drivers’ seat. Mary Barra is smart enough to know that transformation requires a compelling case for change and an overwhelming commitment to change. GM’s 2035 goal fits the bill. ●
Terry Slavin is editor-in-chief of Reuters Events Sustainable Business. David Lubin is chairman at Signal Climate Analytics
This article appeared in the February 2021 issue of the Sustainable Business Review. See also:
Brand Watch: With few Black CEOs, U.S. firms struggle to walk the talk on race equality
ESG Watch: BlackRock’s Fink pushes on rapidly opening door with latest letter
Policy Watch: China’s national emissions trading market boosts global carbon pricing push
In focus: How far apart are Shell and ExxonMobil on climate?
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