Chevrolet Volt: What Might Kill GM's Next Electric Car?

By Karl Brauer November 29, 2010

2011 Chevrolet Volt at Chevy dealership - 287.JPG

It's all over but the selling.
 
General Motors has fully and effectively introduced the all-new 2011 Chevrolet Volt to an eager American public (and media). The journalists have all driven it, the Twitter and Facebook pages are in place, and there's even a host of celebrity and high-profile endorsements for the car, ranging from electric vehicle enthusiast Alexandra Paul to President Barack Obama.

There's no denying the awareness and image boost the Volt has provided to GM over the past few weeks, and given the automaker's recent history that alone may justify the car's $1 billion investment.

But the bigger question remains: Will it sell?

Managing the $40,000+ Price Tag

The Volt's starting price is $41,000, though adding leather and polished wheels bumps the price to $43,000. GM is quick to point out the $7,500 federal tax credit available on the Volt because of its 16-kWh lithium-ion battery pack (The $33,000 Nissan Leaf, with a 25-kWh battery pack, will also qualify for the $7,500 credit.)

But too often the details of this tax credit are glossed over. Details like not getting that price chopped right off the car at purchase, but having to chase it down as part of your next tax return.

In other words, Volt buyers will still pay over $41,000 for the car (not including taxes, registration, fees, etc.), which means either having that much cash available up front or qualifying for a loan - and making loan payments - based on a $41,000 purchase. Reducing an annual tax bill is all well and good, but it's not the same as reducing the purchase price of a vehicle by $7,500, even if that's how a Volt buyer (or GM) wants to look at it.

So the $41,000 question is - does the Volt cost too much? For buyers with a Lexus LS 600h, Porsche Cayenne S Hybrid or Tesla Roadster already in their garages, probably not. For the other 98 percent of the U.S. population, maybe.

GM plans to produce and sell 10,000 Volts in 2011, a number that shouldn't be too tough to hit given the environmental "first-on-the-blockers" who won't even be looking at the sticker price (which is good, because many of those first 10,000 will likely go for more than the Toyota Prius sales history.JPG

$41,000 sticker price after dealer gouging).

But for the 2012 model year GM is prepared to ramp production of the Volt up to 45,000 units. This is when we'll finally know if the Volt can establish a significant sales rate.

Toyota sold 140,000 Prius hybrids in 2009 and is on track to sell roughly the same number in 2010, but the Prius starts in the low $20,000 range, or roughly half the cost of a Volt. If one were to argue that twice the price of a Prius translates to half as many sales, Chevrolet could still move 70,000 Volts a year. By that logic 45,000 Volt sales almost sounds conservative.  Toyota Prius and percent of green car category.JPG

There's also a Volt lease program that asks for $2,500 down and $350 a month for 36 months. Those numbers sound reasonable at first glance and may prove the most popular path for potential Volt drivers.

Fuel prices are another factor to consider. If they remain stable, and in the $3-a-gallon range, the Volt could struggle to meet that 45,000 sales goal for 2012. Higher gas prices would inevitably lead to higher sales, but how much does gas have to cost to substantially shift consumer buying habits toward fuel-efficient vehicles? You can find plenty of predictions on that topic scattered across the Web, though no one really knows for sure. volt payback chart - small.jpg

Educating the Public

If the Chevrolet Volt's pricing issue remains a potential hurdle to long-term success, at least it's an easily identifiable one. There's a second issue that could prove both more challenging to widespread buyer approval and more difficult to solve: ensuring people understand exactly what the Volt is and how it works. 2011 Chevrolet Volt - how it works -395.JPG

Controversy surrounding precisely how the Volt's drivetrain is defined and operates has already sprung up, but it ultimately had more to do with engineering terminology than end-user functionality. Regardless of how its defined, the Volt is a vehicle capable of going approximately 40 miles on pure electricity before continuing on for an additional 300-plus miles on gasoline. Simple, right?

Wrong! This is a vehicle unlike any ever previously sold to the American consumer. It has the ability to be powered by electricity from a wall outlet, electricity from an on-board battery, electricity from an on-board generator, or a varying combination of all three depending on driving distance and conditions. This makes it both a technological marvel and a marketing nightmare.

Keep in mind that the average U.S. driver has never even touched, let alone read, his vehicle owner's manual. Now this same group of buyers is expected to both understand how the Volt works while actively maximizing the car's potential energy efficiency by plugging it in, carefully considering daily driving needs and even engaging specific driving modes for specific circumstances (i.e. "Mountain Mode" when scaling a steep pass).

For technically savvy drivers, these activities will be part of the appeal in owning a Volt. Yet for every driver who revels in the car's complexities there will likely be thousands who are simply overwhelmed by them. While it's easy for most people within the automotive industry to grasp how the Volt works, it won't be the same story for the majority of consumers. Think of the questions potential buyers will likely ask.

"It's electric, so I have to keep it plugged in or I'll get stranded when the battery is drained, right?"

"Does the engine or electric motor power the wheels?"

"It runs on gas, so why do I have to plug it in?"

"Can I get those carpool lane stickers for it?"

"Does it get better fuel mileage than a Prius?"

"Does it really need premium fuel?"

Of course none of those questions has a simple answer, and some of them involve explanations that could challenge an engineering student.

One could argue the Toyota Prius was as advanced when it debuted in 2001 as the Volt is for 2011. The Prius also has a history of costing more than similar mid-size sedans. However, the Toyota has never required driver modification. Sure, an awareness of how the Prius' battery, motor, engine and brakes work can lead to altered driving patterns and higher fuel efficiency. But even the most oblivious owner can simply fill the car when the gas gauge nears "E" and still benefit from excellent fuel mileage.

Understanding and optimizing the Volt's technology will require a much higher degree of driver commitment.

EV1, Part 2?

It doesn't take a feature film to understand why GM's EV1 failed. It can be explained in three words: Nobody wanted one.

Yes, GM built just over 1,000 EV1s. And a couple hundred former owners have made plenty of noise about how great the car was and how GM shouldn't have abandoned it. But 1,100 cars and 200 passionate owners do not define success in the modern automotive marketplace, even for a specialized car like the EV1. It simply cost too much while putting too many lifestyle demands on its owners.

There's no denying the Chevrolet Volt provides a far more capable and practical automotive package than the EV1. But those same two issues, what it costs and what it demands of its owner, put it at a disadvantage against cars like the Ford Fusion Hybrid, Toyota Prius or Volkswagen Jetta TDI.

Exactly how this plays out in Volt sales over the next two years remains to be seen. 

But it should prove interesting.

 


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mzohar says: 9:41 AM, 11.29.10

GM is resisting the electric vehicle for forever, and the Volt is one more chapter in this story.
The problem for GM is that many other companies are on the EV rush, so GM does it half way, just to be there. I would not buy the Volt, even not with your money.
BTY, Volt is not an electric car, it is a plugin hybride. The only true EV on the market (for us, regular people) is the Nissan Leaf.

mzohar says: 9:49 AM, 11.29.10

Sorry, but Mr. Karl Brauer has only some info. about the Volt that he is writing about. He forget to write that there is a 4th drive mode and it is the most used on this car and it is mechanical power transmission between the Gas motor and the car transmission. Which makes it a regular hybride, and a regular car while in this mode.

thriftytechie says: 6:30 PM, 11.29.10

"The only true EV on the market (for us, regular people) is the Nissan Leaf."
Speak for yourself. The bottom line with the Leaf (and other pure EV's) is that if you drive about 40 miles from home-base, you have precisely three options a) turn around and go home b) be prepared to sit around somewhere for several hours to charge up or c) call a tow truck.
Think about it.
The Volt is not at all as elegant as a pure EV, but the bottom line is that it REALLY can be used as a car.

So let's play this game of projecting sales.
For the Leaf and other "100-mile" EVs that Honda, Ford, Tesla et al are releasing there is a cold-hard fact that is not a matter of opinion: It is a niche vehicle. i.e., a mental experiment will quickly show that it generally will not be a suitable primary car for anyone. Oh sure, there will be the stray buyer who has too much money, doesn't really need a car (or rationally just needs a 'beater' used car) and will buy the Leaf as a show-piece, but the meat of Leaf sales will be from well-to-do households that make $150 K or so and already have one conventional car. Perhaps they have kids and own a SUV or CUV or perhaps they don't and own a sedan or a Prius. In any case, these types could reasonably buy/lease a Leaf as their second car and use it for commuting and/or local errands.
Long story short, the Leaf and its ilk will appeal to one primary market: Well-to-do couples' secondary vehicle.

The Volt will also be a niche vehicle, but a mental experiment will show that it at least it has a broader niche than the Leaf and while it is more expensive, it is a BETTER VALUE than the Leaf (especially with the appealing lease terms) because of it's vastly superior functionality (i.e. it delivers 37 MPG and 300+ miles of range even in a worst-case-scenario of a non-charged battery.).
A mental experiment will show that the Volt will appeal to the same demographic as the Leaf but can easily also appeal to well-to-do singles because it can most definitely serve as a primary vehicle. Another market that not too many have talked about: fleet sales. The Volt's high-upfront cost is mitigated by lower fuel costs; perfect for fleets that have cars that drive up to a hundred-or-so miles a day, but then are returned to a depot at night.

Detractors of the Volt have a valid point: It is expensive and the fuel savings do not justify the cost of the vehicles. But this point will not necessarily lead to low sales. Remember how well the Prius sold despite the fact that the fuel-savings never justified the higher cost?

So what we have here is the cutting edge, next-level hybrid at a next-level price. I agree with edmunds assessment that the first 10,000 will sell fine regardless of cost just because it's the latest and greatest...(Hey, remember when they sold 1 million iPhones for $599 a pop?). The question is where is GM getting this 45,000 figure for 2012 ?

Well, they'll sell a few thousand to GE who has publicly announced their fleet-building intentions. And because the Volt is at least somewhat rational for entities that require fleets (Electric companies, 'cool' companies, etc) I think we can count on seeing many company-based fleet sales of the Volt. So I will go out on a limb and say that fully 10,000 Volt sales in 2012 will be fleet-sales. That leaves GM to garner around 35,000 retail sales. That seems like a stretch considering Toyota couldn't move 20,000 Lexus 250h's in 2010. However, GM's lease terms really is quite accessible. $350/ month is doable for a large segment of the population. That's the real news. Forget the $40,000 sticker. If GM is able to offer the lease, I believe that this can actually canibalize a good portion of Prius lease/sales. It's a more advanced hybrid, a more expensive car, and my back-of-the napkin calculations show that it is not much more expensive than a Prius lease. I believe that the 45,000 number for 2012 is aggressive, but I would be very surprised if GM is unable to sell/lease 40,000 Volts in 2012. They should be able to do it. The market is there.

metuchenscale says: 7:32 PM, 11.29.10

When you have to worry about both (1) running out of gas, and (2) running out of electricity, both decreasing at different rates, so the car can keep going and not get stranded (requiring a tow?) while realizing that you have to get the gas from one location and the electricity from another- sounds like a nice drive could turn into a nightmare! I'll keep my '10 Prius, thank you.

thriftytechie says: 8:41 PM, 11.30.10

@ metuchenscale

The Prius is a fine vehicle. But come now. You exaggerate the complexity of the Volt. Step 1) You fill up the gas tank. Step 2) You plug in the car to charge it.
Repeat.
If you drive to and from work with the Volt on a daily basis, don't even repeat step 1). Only repeat step 2.

How do you tell if you're out of gas on a Volt? Same way you figure out if you run out of gas in a Prius. Or any other automobile, for that matter.

thedarkhorse says: 7:41 AM, 12.14.10

@mzohar
The Volt has a limp home mode that will get you safely out of the way of you run out of electric/gas power. Why is this a bad thing? Try doing that with the Leaf.

@metuchenscale
I guess you will really hate the Prius Plug In when it arrives, in oh, two more years. It will be so confusing having that plug thing to use.

zanardi10 says: 12:57 PM, 12.18.10

Sorry for being so slow to respond to this excellent article! I have a dumb question (I think). Has anyone thought through how Volt (or Leaf, or anything receiving a tax credit) residual values will take into account the tax credit? (Before anyone starts the inevitable flaming, I am personally very much eager to see these cars hit the market. My question is not a concealed attack, it is a question!) Let's say I buy the Wattcar EV300. I pay $37,500, and get later on a tax credit for $7,500. Leaving aside little details about timing etc. (grin), I paid $30,000. Let's for the sake of this argument ignore depreciation (I know, that is a huge thing to ignore!) Won't a used Wattcar trade in the $30,000 range? That is, since it cost me only $30,000, I would be cool if someone offered me $28k for it or $32k ... I "anchor" my value in the car around $30,000, not $37,500. Still with me? If so, here is the question: doesn't all this put massive downward pressure on the price of a NEW Wattcar, if used ones, even one-day-old used ones, depreciate by 20%? This is "tax credit depreciation;" regular depreciation may even add to it. I guess I am just wondering about the complex dynamics of big tax credits, since they greatly aid the first buyer but not subsequent ones. Or maybe this is all moot as long as the $37,500 remains a "false" price, as no one would ever really pay it. But the image of the car as depreciating like a falling rock can't help its brand value, even if it is a false image. Makes ya wonder, though, if the tax money would be better spent by just giving it to the OEM, so that the car sells as $30,000, pure and simple. Anyway.... maybe I am thinking too hard here.

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