General Motors Company (NYSE: GM) loses as much as $49,000 per Chevy Volt it builds, according to one news organization's report, but the report is not as self-evidently accurate as it may first appear.
Reuters, a London-based news organization that is part of Thomson Reuters, made the assessment of losses on each Chevy Volt sold based on figures from automobile analysts who compared and contrasted the hybrid's selling price with what it costs to produce each Volt.
General Motors has sold approximately 21,500 Volts since the gasoline-electric hybrid was introduced in December 2010, and development costs of the high-tech car are estimated at between $1 billion and $1.2 billion by Reuters' own calculations. Production costs for the Volt are estimated at between $20,000 and $32,000, a wide margin to be sure. The Volt retails for a base price of $39,145 (before a federal tax credit of $7,500).
The issue with the Reuters' math, though, is that it only takes into account the 21,500 Volts sold so far, as if GM would never sell another one ever. If that is taken to be true, then each Volt sold has cost GM around $55,000 in development costs. However, each Volt sold spreads out the development costs incrementally, pushing down the R&D cost per unit. GM has acknowledged that it has not yet sold enough Volts to break even, but it suspects that it will reach the break-even point by the time the second- generation Volt is introduced onto the market in about three years' time.
"It's true, we're not making money yet," GM Vice President of Global Product Programs Doug Parks said about the Volt, according to Reuters. However, the Volt "eventually will make money. As the volume comes up and we get into the Gen 2 car, we're going to turn (the losses) around."
Basically, what GM is saying is that the Chevy Volt is a long-term investment, something which should be reassuring to investors and the market. Rather than playing a short-term game as it did in the early 2000s when it flooded the market with low-quality SUVs instead of developing vehicles for the future, GM has devoted resources to long-term, strategic technological development with the Chevy Volt. The Volt's technology will almost certainly find its way into additional future electric cars from General Motors, decreasing later R&D expenses and the amount of time needed to bring additional electric cars to market. In fact, GM has a 114 horsepower Chevy Spark electric car planned for a 2013 release, according to Car and Driver.
Moreover, the Reuters article did not take into account the almost 5,000 Opel Amperas and Holden Volts that have been sold in Europe, Australia and New Zealand, another factor pushing down the per-vehicle R&D costs of the Volt. Setting aside the per-vehicle R&D costs of the Chevy Volt and the contributions it will make to future EV development at GM, the Volt provides another, non-monetary benefit to General Motors. The Chevy Volt acts as a "halo car" for General Motors, demonstrating to consumers that the ostensibly reinvented company is capable of producing a high-tech, fuel-efficient car.
The Volt has won the 2009 Green Car Vision Award, 2011 Green Car of the Year, 2011 North American Car of the Year, 2011 World Green Car and 2012 European Car of the Year awards, an enormous pile of positive press for a company that has struggled in the past to present a positive image to consumers. The presence of a high-tech electric car like the Volt in GM's lineup increases the appeal of the company's vehicles across the board, a positive factor that is difficult to quantify but absolutely invaluable. The $1.2 billion of R&D money spent by GM on the Volt did not just go to build a single car, it will also contribute to the development of future electric cars and to overall brand-building for GM and Chevy. Moreover, as volume increases for the Volt, the relative cost per vehicle for the company will go down.
As the blog InsideEVs pointed out, rather sarcastically, in response to the Reuters feature, "In a related news item, I heard that Ford has delivered the first dozen C-Max hybrids, and it cost the company about $500 million to develop the program, and therefore Ford is losing $41,666,667 on every copy they sell."
While the Chevy Volt is not yet a profitable vehicle, volume should eventually reach a point where it will be, particularly as the market increasingly turns to more fuel-efficient vehicles and electric cars, and the early development of the Volt will leave General Motors ideally positioned to rapidly expand its EV offerings as demand for electric cars increases. Not to mention the fact that the Volt is one of the only cars that actually makes GM look good these days.
GM shares fell 11 cents to $23.26 in afternoon trading.