Key facts
- General Motors recorded a $10.9 billion charge related to its electric vehicle strategy reset.
- The company indicated that the most challenging phase of its EV strategy is nearing completion.
- GM reported substantial growth in its subscription-based services, OnStar and Super Cruise.
- OnStar revenue increased by over 20% year-over-year, reaching approximately $800 million in Q2.
- Super Cruise revenue saw a 70% year-over-year increase.
- The automaker aims to capture high-margin revenue from subscriptions, retaining about 70% of earnings from its software business.
General Motors has recorded a $10.9 billion charge to reset its electric vehicle strategy, while also signaling that the most difficult period for this transition is nearing its end. The automaker is increasingly focusing on its software and subscription business, which executives highlighted as a significant growth area during a recent earnings call.
GM's subscription services, particularly OnStar and Super Cruise, are driving substantial revenue. OnStar, offering safety and navigation features, generated approximately $800 million in the second quarter, marking a more than 20% increase from the previous year. The company anticipates adding about 1 million OnStar subscribers this year, bringing the total close to 13 million. Super Cruise, the hands-free driving system, is also experiencing rapid growth, with GM expecting to reach over 850,000 subscribers by the end of the year, following a 70% increase in revenue from the service year-over-year. A notable percentage, between 30% and 40%, of eligible owners continue paying for Super Cruise after their initial free subscription expires.
The company's strategy emphasizes high-margin revenue streams from software, with GM retaining about 70 cents of every dollar earned from its software business, a stark contrast to the typical 4-10 cents profit margin on car sales. To further boost adoption, Super Cruise will be a standard feature on higher trims of the newly redesigned Chevy Silverado and GMC Sierra pickup trucks. GM's approach includes including OnStar Basics with new vehicles at no extra cost, bundling essential safety and navigation features.
This push into subscriptions aligns with a broader trend among automakers seeking to generate recurring revenue as the industry shifts towards electric vehicles, which typically require less maintenance than traditional gasoline-powered cars. Competitors like Ford and Tesla have also introduced or adjusted their subscription models for advanced driver-assistance systems. Analysts view GM's subscription strategy positively, with one noting the potential for significant revenue streams with margins unattainable through vehicle sales alone. Following the earnings report, GM's stock saw an 8.8% increase.