Another bad-news story about the Chevy Volt has left a lot of consumers scratching their heads. Even on mainstream radio and television stations, callers and reporters are asking, "Could GM really be losing $49,000 per vehicle?"
The short answer is that we don't know. In truth, there are probably just a select few executives at GM who know the realities behind the Volt's losses.
The bigger question is whether we should care.
The Chevy Volt needs more time to burn off its up-front capital investment. (Source: GM)
For those who haven't seen the story, let's back up and review some of the facts. A Reuters article published a few days ago contended that each Chevy Volt costs $89,000 to produce. Using that math, Reuters concluded that GM is losing about $49,000 per vehicle. The article went on to say that lack of interest in the vehicle has prevented GM from coming close to its original sales projections.
Reuters' estimate of the current loss per unit for each Volt sold is grossly wrong, in part because the reporters allocated product development costs across the number of Volts sold instead of allocating across the lifetime volume of the program, which is how business operates. The Reuters' numbers become more wrong with each Volt sold.
At first glance, it would be easy to dismiss GM's response, point to the whopping $89,000 figure, and conclude that the Volt is a massive loser. In reality, though, it's not that simple.
Those who've spent time around the world of automotive development know that many major vehicle programs now cost more than $1 billion; some exceed $2 billion. And much of that investment consists of up-front capital -- for product development, engineering, tooling, equipment, and parts. Looking at those up-front costs, it would be easy to point to the first car off the production line and say, "Wow, that car costs a billion dollars."
Great reality check, Chuck, and definitely worthwhile to put GM's Volt dilemma in perspective. We live in such an immediate gratification society that the impetus is to take the kneejerk reaction whether it's to dismiss a new technology or do some quick math that doesn't account for the total lifecycle picture.
I think your stance is a fair one: There is much more work to be done, but don't close the books on the Volt yet.
Chuck, this is a good summary of a lot of what has been discussed on this site for a while. On the other hand, one point you make needs a little more exploring. To point out that some of the technologies used in the Volt is really no different from the sharing of major components of standard cars. For example, most manufacturers have a smaller number of engines and transmissions than models. I am not talking about variations of the same model. For example, Chrylser has a V6 that was used in their LH sedans and the Pacifica, and I think the Prowler. So, until there are other cars that use components the Volt has pioneered, that cost is still with the Volt.
So, I think that the Reuters article is probably correct. Until GM gets to their sales goal, they will probably lose money. That is just the way industrial economics work (same with a chip factory, for example).
What middle-eastern oil sheik is the mainstream media working for now? We buy $800M of foreign oil a day in the US and all we get is story after story trash-talking electric vehicles. In the beginning it seemed as though the resistance was just the normal resistance to change but it has grown into something much more. I for one will be going electric when it's time to replace my hybrid Lexus. The choice to pay engineers and engineering-oriented companies over the priveleged few oil resource owners is an easy one...
I agree with you in principle. But considering that GM is a restructured (failed) company, the risk of an R&D project of this magnatude makes absolutely no financial sense. IMHO GM should be trying to stabilize their business for the first several years by getting costs under control, improving quality, and probably even restricting near term new model developments.
GM has instead gone full steam ahead on an expensive model, in an economic downturn, that serves a small (niche) market, that is full of risk. This is what gives rise to the theories of enviro nuts in the government pulling the strings at GM.
GM will fall again. Hopefully this time they will file bankruptcy like they should have before, and be sold off to a competent organization that can restart them with a clean slate.
Chuck, thanks (again) for bringing level-headed context to this ongoing story. There are ancillary costs as well that people have thrown out in the past two years to put their own context around the Volt ($200K per car if you factor in bailout and subisidy $).
Whatever. The point made here multiple times is that the R&D will benefit other GM vehicles for years to come.
Personally, I wish the investment was targeted toward a technology that didn't require such an infrastructure build out (fuel cells perhaps?) but time will tell.
That said, the Volt is a triumph of engineering, pure and simple and great engineering ain't cheap.
I was, at first, stunned to hear about the Volt losing 49K per vehicle. Thankfully, this article cleared that up to my satisfaction. There seems to be a dark undertone against EVs these days. These things are coming, folks, kicking/screaming aside. It will require a vast infrastructure change, no doubt, but we are capable of it.
Actually people should rejoice and rush to the Chevy Dealers and buy as many VOLTs a they can, after all it is a real bargain !?
Any time anything is on sale for 1/2 the production price people run out and buy 2 or more of what ever it is, even if they do not need it, after all it is a "bargain".
SO why is not VOLT in the same category ? The fact that GM is selling any vehicle at loss should only make it more appealing !
Chrysler does great job with FIAT 500, Daimler with Smart, BMW with MINI and so on, only SUZUKI is not selling the SX4 at "loss", and their sales are minimal, so loss per vehicle seems to work for others quite well.
GM just does not seem to be able to capitalize on it, after all it revealed that it lost $900 per every SATURN ever sold for 26 years (but kept it a secret), now the only totally unprofitable brand is OPEL - and oh yes you can buy the AMPERA OPEL = CHEVY VOLT in Germany without any Government subsidy for about $30,000 more than in USA - so perhaps the "loss per VOLT" guess is not all that far off.............
Charles, is the rumors are correct. If it correct they have to answer many questions like why GM is selling Volt at low cost and why they wants to promote more sales without profit and even too in loss. Is there any grant for ecco friendly vehicles from government side? I think they may get some subsidy from government source for each vehicle, which can make up this margin.
Brian, I agree with your comments - great engineering ain't cheap. However, the infrastructure build-out is already here! Remote charging stations (not at your house) will help, but it isn't essential. I'm at 225 mpg with 18,600 miles on my Volt.
Tesla Motors plans to roll out a “compelling, affordable electric car” that will sell for about half the price of its high-profile Model S by the end of 2016, company chairman Elon Musk said last week.
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