Sales of the Chevrolet Volt are up substantially this year -- which may not be good news for GM considering it loses money on every one.
General Motors is losing nearly $50,000 for every Chevrolet Volt it builds, according to a new report – more than the actual sticker price for the new vehicle.
The maker acknowledges it is definitely losing money but insists “the math is wrong” in the report by the Reuters news service – and that the loss is significantly less when spread out over the life of the Volt program and when other products that will share the Volt’s underlying technology are taken into the equation.
But there is little doubt that battery car technology is, at least for now, a big money loser for all manufacturers – a factor that recently led Fiat/Chrysler CEO Sergio Marchionne to declare plug-in hybrids, battery-electric vehicles and related products “economic lemons.”
Sales of the Chevrolet Volt have been slowly but steadily building since the plug-in hybrid was launched in December 2010. Volume hit a record 2,831 in August, a nearly 1,000-unit increase from July and up more than nine-fold from the 302 sold in August 2011. The bad news is that every one of those Volts is digging GM a little deeper into the red.
According to a study by Reuters using internal GM data parsed by outside analysts, the maker spends as much as $89,000 to build each Volt. That figure includes not only the piece cost for components and assembly line labor but also takes into account the reported $1.2 billion GM has so far invested in Volt’s R&D.
“Reuters’ estimate of the current loss per unit for each Volt sold is grossly wrong, in part because they allocated product development costs across units sold instead of across the lifetime volume of the program, which is how business operates,” said GM spokesman Jim Cain. “Reuters’ numbers become more wrong with each Volt sold.”
Nonetheless, Cain admitted that it does cost GM more than the $39,995 sticker to build the Volt. But the automaker has figured that this number is already pushing the limits of market elasticity. Indeed, many analysts already contend it is high enough to limit Volt’s sales potential.
The underpinnings of the Volt are based on the conventionally powered Chevrolet Cruze sedan – though the platform has been significantly revised to make space for the plug-in’s big T-shaped battery pack and to convince buyers they aren’t just paying a premium for a gussied-up econocar.
Beyond the initial research and development costs, most of the manufacturing costs cover that battery pack which consists of 16 kilowatt-hours of lithium-ion cells and an elaborate climate control system. Lithium technology tends to operate most efficiently – and live longer – when maintained at a temperature of around 70 degrees Fahrenheit.
At the time GM launched the Volt project it estimated the batteries would cost at least $1,000 per kilowatt-hour. That figure has begun to drop and officials have hinted to TheDetroitBureau.com that GM is now paying less than $700 a kWh, while some outsiders believe the figure could dip to $400 by the end of the program. Nonetheless, the battery pack remains the single-biggest cost item on each Volt.
Now-retired GM Vice Chairman Bob Lutz, who conceived of the Volt program, conceded early on that the project would lose money. But he and other GM officials have repeatedly stressed that all new technology will lose money in the beginning. The question, according to Lutz, is whether it will pay off longer-term if that technology moves into the mainstream.
Indeed, many analysts believe that it cost Toyota twice as much as it charged, initially, to produce a Prius Hybrid. Executive Vice President Bob Carter will not discuss early losses on the program but insists that Toyota now makes money on each Prius as costs have come down. He also stresses that the hybrid has been a major “halo” vehicle for Toyota.
And Chevrolet’s strategy for Volt has been quite similar, the maker hoping that the plug-in hybrid would burnish GM’s image as an environmentally friendly manufacturer.
Asked whether the Reuters numbers are correct, a well-placed GM source insisted “the math is wrong,” especially if it only accounts for initial Chevrolet sales. As of August, GM has sold or leased about 23,000 of the vehicles, including 13,500 this year. It missed its 10,000 target in 2011 and is likely to fall short of its goal of producing 60,000 in 2012 – 45,000 of those earmarked for the U.S. market.
“There’s no question they’re losing money on the car,” asserted analyst Jim Hall, of 2953 Analytics, “and it would be no surprise if they’re losing more than the MSRP,” he added, though he quickly cautioned that the numbers will change not only as GM sells more Volts but also as it expands the number of battery-based vehicles in its line-up.
A second model, the Opel Ampera, is now on sale in Europe, China and other parts of the world. The maker will launch a third plug-in next year, the Cadillac ELR sharing the same underpinnings as Volt – though it will use a more powerful battery pack to improve both range and performance.
Meanwhile, GM insists that the Volt program’s R&D effort is responsible for much of the technology that will go into the upcoming Chevrolet Spark battery-electric vehicle, GM’s first pure battery-based model since the EV1 of the 1990s.
One thing is certain, GM is not alone when it comes to investing a lot of money in a project generating relatively low sales. Toyota reportedly has invested $10 billion or more into Prius and other battery car projects – including the new RAV4-EV and Prius PHEV, its first plug-in hybrid.
Nissan, meanwhile, has estimated a $5 billion price tag for its own Leaf program. Sales of that battery-electric vehicle, or BEV, initially outpaced those of Volt but have sharply slipped in 2012 – to just 685 in August, or roughly half the 1,362 the maker moved a year earlier. The maker insists volume is down as it shifts product to other markets just coming online. The real test will come in December when Nissan begins production of the battery vehicle in Smyrna, Tennessee. That plant will eventually have capacity to produce 150,000 or more BEVs annually.
Part of the challenge for manufacturers is finding a price tag that will resonate with consumers. And, at least for now, the numbers appear to be far lower than what it actually costs to produce a battery-based vehicle. Chevrolet Volt sales took off, earlier this year, when the maker began offering a $279 a month, two-year lease – some dealers cutting that price to as little as $199 a month.
The Nissan Leaf is priced at $36,050 – though – like most battery-based vehicles listed in this story it is eligible for federal tax credits of up to $7,500, as well as possible state and local incentives. The fact that Leaf has a 50% bigger battery pack than Volt, at 24 kWh, suggests to numerous analysts that Nissan is losing as much or more on every one of the vehicles it sells when compared to the Volt.
The Prius plug-in is coming to market at $32,795. It has, however, a much smaller battery pack than Volt, and is capable of only about 13 miles per charge, a little more than a third of its Chevy rival. Even so, company officials admit the program is in the red, as is the longer-range battery-electric RAV4-EV. In fact, Toyota only plans to build and sell about 2,600 of the latter model, most or all of them in California.
That underscores a problem GM and other makers face. The Obama Administration has put a premium on battery power as it presses the industry to meet tough new mileage standards. Regulators in California have gone even further. They have set minimum targets for so-called Zero-Emission Vehicle sales – mandates being copied by a number of other states.
“No one wants to be locked out of California,” says John Mendel, the top U.S. executive at Honda which is launching a plug-in version of its 2013 Accord, as well as a pure BEV version of its little Fit model.
The strategy of Honda, Toyota and many other makers is to produce only as many battery cars as needed – for now – and hope that battery costs will plunge to the point where they can increase volumes in the future.
“As we get closer to the next generation (Volt), we’re going to get closer to making money,” insisted GM spokesman Cain.
How soon that will happen remains to be seen, however. So, for now, only a handful of makers, notably GM and Nissan, are making serious efforts to sell more than the minimum – even though they know that every battery car that rolls out of a showroom will put them even deeper into the red.