GM Loses Money On Every Volt Built 471
thecarchik writes "Doug Parks, vehicle line executive for the 2011 Chevrolet Volt, GM's range-extended electric vehicle, confirmed Tuesday that the company loses money on every Volt it sells. The expensive 16-kilowatt-hour battery pack, which likely costs GM somewhere between $8,000 and $12,000, is clearly too expensive to let the company build hundreds of thousands of Volts right away. Just 10,000 Volts will be built in 2011, though GM is working to increase that number. GM plans to chip away incrementally to lower the costs of the specialized components in the Volt, especially the power electronics. The price of consumer lithium-ion cells has fallen 6 to 8 percent annually since their 1989 launch; the large-format cells in automotive packs seem likely to follow the same curve and as costs are lowered the Volt may stop being a loss for the company."
In the Red vs Negative Margin (Score:5, Informative)
If you spend $1,000,000,000 developing a product that you sell for $50k then you will make a loss to start with - no matter what.
That's not what this is about. This is not about fixed or one-time costs. This is about gross margins on each item sold. That means the delta between what you can sell a given instance of the product for, and what it cost to make that particular instance above and beyond any expenses already incurred.
If you spend $1bil to develop a product and tool the factor etc, then prior to making or selling any product you are $1bil in the red. You have lost this amount of money even if you never sell a single product. So this cost alone cannot be used to say that you lose money on every item sold.
If, in addition to those costs, building an instance of the product costs $40k in labor, materials, and energy and you sell it for $50k, then you have a gross margin of $10k, and after the sale your total balance for the project is $999,990,000. You have made $10k on the sale. Sell enough product at this margin, and you'll eventually pay off the R&D expenses and the project as a whole will be in the black.
If, on the other hand, it costs $60k to build that product and you sell it for $50k, then your gross margin is $-10k, and your balance after the sale is $1,000,010,000. You have lost $10k on the sale. Every product you sell is actually costing you more money, not making you money. Unless costs are cut or prices raised, you can never pay back the expenses, because every sale simply costs you more money.
That is what it means to say "GM loses money on every Volt built".
However, TFA itself seems to be slightly confused on this distinction, and does not provide any link to the actual alleged quote. If Doug Park actually said that they are going to lose money on every Volt sold, then the 'gross margin' sense is what he meant. If he said that they don't expect the Volt (as in the project) to be profitable for several years, then that most likely means they are selling the Volt for a profit and hope to make back their expenses in several years.
Re:Not Surprising (Score:4, Informative)
GM developed the platform in Australia which most of their cars run on around the world. This is why they all have similar configurations, and feel/look the same. Despite the fact that they source parts from the same/similar suppliers, and keep branding consistent. At the time it was a huge undertaking and Holden (GM's Australian Subsidiary), released a movie called 6 Billion Dollar Baby, which was about the development of the platform and how it had cost Holden (not sure about GM, overall), an estimated 6 Billion Dollars to the release date.
http://www.google.com.au/search?q=Holden+6+billion+dollar+baby [google.com.au]
This was likely capitalized and will be depreciated over a very long time.
Re:Next question (Score:5, Informative)
Who is building all the new power generating plants we'll need when millions of drivers have electric cars? Now is the time to start. You can't build those plants overnight.
No one is, because no one needs to. Four big EV denier myths:
More electricity needed - debunked [futurepundit.com]. Here's the link to the original [ornl.gov] Oak Ridge Nation Laboratory Report (currently down).
More global warming - not true. DOE estimates average of 1.3 lbs CO2 per kWh. Coal (the worst CO2 emitter) emits 2.1 lbs CO2 per kWh. Electric cars get between 4 and 10 miles per kWh. Worst case, that means 0.5 pounds of CO2 per mile. 1 gallon = 19.4 lbs of CO2. So, that's around 38 mpg CO2 emissions equivalent in the absolute worst case scenario. In the average case, we are looking at around 59.7 MPG. Diesel emits more CO2 than gasoline, by a factor of about 1.15. So, worst case is 43.7 MPG diesel, and average is 68.7 MPG diesel. These numbers are EPA testing of Tesla roadster and Rav4EV.
Rare lithium - peak lithium is a Li [gas2.org].
Toxic batteries - lithium-ion is largely non-toxic. Tesla was working on recycling before the cars even hit the streets. Lead acid (which is toxic) is 97% recycled.
Re:Price vs gasoline. (Score:4, Informative)
Re:This is only temporary (Score:4, Informative)
The bailout was intended to get them through the bankruptcy by allowing them to shed obligations that made it impossible to continue doing business as they had. Union contracts were renegotiated, and pension and medical obligations were reduced. It allowed GM to cut the overhead by several thousand dollars per vehicle. The European and Japanese companies building in the US were not hampered by such heavy requirements, and have long been able to undercut GM on costs because of this.
Re:That's fine... (Score:3, Informative)
Suppliers don't like to make parts for vehicles less than 30-50,000 copies. They love it if a vehicle hits 250,000 per year (provided they can make some profit on each unit). Their costs become the car manufacturer's costs.
All electric vehicle batteries will be a long term cost problem. Lithium has a limited supply (only a few countries actually have mines, and recycling becomes problematic) and so as vehicle demand ramps up the costs for the limited commodity will go up.
GM's solution to the consumer's 'range anxiety' by having the small conventional gasoline engine is brilliant and will make ultimate real consumer sales beyond the 'poser actors' that own a dozen SUVs and want to appear green.
... yeah, I work in the automotive industry.
Re:Not Temporary, Microeconomics is stubborn (Score:5, Informative)
That's six to eight percent, annually. If you're going to lecture someone, please get it right.
Re:This is only temporary (Score:3, Informative)
It's close to paying back every dime it borrowed, and it's now almost certain that the taxpayers will ultimately pay very little for saving GM.
BWAHAHAHAHA!! [reason.com]
Who were you calling stupid, sonny?
Re:This is only temporary (Score:4, Informative)
Since nobody reads articles, I'll quote the link:
"About $7 billion of that came in the form of a straight-up, low-interest loan. And about $13 billion came in the form of an escrow account. So how has GM, which lost $38 billion in 2007 even as it sold 9.4 million cars, paid back its debt? It took money from the escrow account to pay back the $7 billion loan."
In other words, GM still owes ~$20 billion to the People.
They lied in their ads when they said they repaid the money.
(Gee... I'm shocked.)
As for losing money on the Volts, I remember hearing the exact-same thing about Priuses when they were introduced. Toyota was supposedly losing ~$5000 on each one but then in 2004 they announced they were "breaking even" and now they are making a nice profit on each one. GM's Volt will follow the same path if it succeeds, or else be a giant waste of money if it fails (like EV1 was).
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>>>The Leaf is more innovative because it changes how we think about cars. It forces you to actually think about driving, instead of just going because you can.
The Honda Insight & Civic Hybrids were the same deal - made you think about driving to get 60-90 MPG - while the Toyota Prius averaged just 40-50 MPG but also felt like any other car (it was automatic). The Prius sold ~10 times as many units than Honda's hybrids, precisely because customers DON'T want the car to feel different. They want a hybrid that feels just like their old car.
Corvette, Dirty? (Score:5, Informative)
They have 4 economical fuel efficient cars. YET they have 5 different Corvette models.
You do realize that the level of horsepower found in Corvettes is by highly efficient engine designs, right? Did you know that most Corvettes achieve 30+ MPG on the freeway? Sure, those V8s can suck gas when pushed to their limits but they are very good at taking small sips for everyday driving.
Re:This is only temporary (Score:3, Informative)
1) For the government to come out break even the GM stock price has to hit around 56 (stock has to almost double here).
There are 100 different ways GM can pay back the ownership stake that the government has in GM. The easiest way is to buy back the shares of stock the government has in GM. The government does not have to buy them on the open market. GM can buy a few million shares at $50 bucks a share with their profits. They can give them $ for their shares at fair market value to buy them out. The government does not have to sell the stock at 56 dollars to break even - that is just one route (by the way the number is $51.25).
3) Only in the case of GM is there an income gap. Most other companies tend to not have such a huge gap. This is a play by GM to put on a good face that they are "clean" when in fact they are not. Look at the model lineup. They have 4 economical fuel efficient cars. YET they have 5 different Corvette models. Yeah a company that has its priorities straight.
And your oh so mentioned below ford has 24 different models of pick up trucks (www.ford.com/trucks), what is your point? GM has a dedicated plant (bowling green, Kentucky) that makes corevettes. They have different models, based on price range, and is a profitable product line for Chevrolet. You say they have only 4 fuel efficient cars? What is your definition of fuel efficient? More car models getting more than 30 MPG than any one else? GM has that. Better fuel efficiency for similar car models? Check.
GM has Hybrid pickup trucks and large SUVs (as well as smaller). Most other companies don't have that. Yes they don't have a Yaris or Prius or Ford Edge that is hybrid. However they do have the Volt now which they have put a lot of money into and is a game changer. So much that the #4 car maker in the US (Nissan) made a car to combat it with the Leaf. They also have more cars that can do E-85.
Ignoring the facts does not help your case.
4) GM is not staking its future in clean technology. Look at point 3, and look at their line up. Ford is staking a part of their future on clean cars. Ford is doing the right things. GM is once again putting lipstick on a pig!
Not a sigle major car company is betting their future on clean technology. Ford is not betting the future on cleaner technology. I can still buy a pickup truck with the big honking V8 and and 400HP diesel. If they were betting their future on clean technology, they would put a 100 HP Piece of crap engine in the pickup truck to make sure it got 30 MPG. That is betting the future. What you are talking about is incremental gains. Get back to me in 5 years now that GM has lost their heavy debt burden from the Union Retirement Funds and am not paying janitors 45 dollars and how to sleep all day, and we can see who has the better lineup.
>>>>Having said all this, it is not impossible to re-engineer GM, but GM has never shown a willingness to do so. GM thinks this little happening as a blip introduced by the market and not by them. Right now GM thinks that they have done everything they and it is smooth sailing from this point on. RIGHT... WRONG! What bothers me is that Ford did real change... They did not take money from the government, and they are going to get hit again below the belt by GM. I just hope the next time GM is let to collapse.
Re-engineer GM? Re-engineer their lineup? I am confused as to what you are saying. So they have cars which are more fuel efficient than their direct competitors, get more power, are more reliable (JD power and associates), and in the same general ballpark in price. Hmmmm sounds like a winning combination for me.
Why do people not buy American? Simple. Grandpa Joe bought a Chevy in 1974 and he had a problem at 100k miles. Yes they have had problems in the past but people think they cannot change (and apparently you don't either). You have to look at the evidence and make your determinations from there, not from a grudge from 20 years ago from some wrong.