Software and new business are expected to drive revenue growth and margin expansion at General Motors through the next decade, accounting for more than a quarter of the company’s revenue by 2030 and transforming it into a “platform innovator.”
In a presentation released on Wednesday (Oct. 27), GM said revenue from software and new business is expected to have a compound annual growth rate of 50%, reaching $15 billion by 2025 and $80 billion by 2030. It also said the new business portfolio is expected to generate margins in excess of 20%, boosting the company’s overall margins to between 12% and 14% by 2030.
“The path we outlined shows GM transforming from automaker to platform innovator, driven by steady growth in our core automotive businesses, the scaling of EV production and the rapid growth of Cruise, BrightDrop, GM Defense, OnStar Insurance, connected services and more,” GM Chair and CEO Mary Barra wrote in a letter to shareholders released with the presentation.
Software-Enabled Services to Top $20B by 2030
The software and new business category includes Cruise, a self-driving car service that is to launch in 2023; BrightDrop, a line of electric commercial vehicles; GM Defense and software-enabled services.
Software-enabled services alone are expected to account for between $20 billion and $25 billion by 2030. That includes $6 billion from OnStar Insurance Services, a range of auto and home insurance policies that offers discounts to drivers of connected vehicles.
Sales of these services are expected to pick up in the coming years as more connected vehicles hit the road, GM Chief Financial Officer Paul Jacobson said during a call with investors and analysts. “By definition, that’s going to be a little bit backloaded, but we can see a little bit of growth on the horizon as we look at OnStar and some of the connected services, which is really the baseline today, going forward. But certainly we would expect that to tick up significantly in the growth rate as we get into the second half of the decade.”
During the third quarter, GM created a new digital business team to establish digital market leadership for the company, Barra noted during the call.
Internal Combustion Engine Vehicles to Continue to Improve
In other news, like other manufacturers, GM had to cope with supply chain problems and other challenges. The company reported that lower wholesale volume as a result of the semiconductor shortage and increased commodity and logistics costs drove down third-quarter earnings per share (EPS) and earnings before interest, taxes, depreciation and amortization (EBITDA). Market share in North America also decreased, primarily due to low retail inventory, because the semiconductor shortage led to production disruptions.
Presenting the outlook for the rest of the year, Jacobson said, “Despite some ongoing volatility in the supply chain, which our teams continue to work to mitigate, we expect sequentially higher volumes in Q4. We also expect costs from commodities and logistics to increase along with investments in our growth initiatives.”
This move will be funded by the company’s existing line of internal combustion engine (ICE) vehicles, and those vehicles, too, will be improved with new technologies throughout the decade, the GM reps noted during the call.
“To be clear, we will also continue to improve the successful ICE vehicles that are funding our future … while improving them to reduce emissions and also offer new technologies,” Barra said. “Our plan provides resources to maintain leadership in key segments like trucks and SUVs during and after the transition to electric vehicles.”