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GM Loses Money On Every Volt Built 471

Posted by timothy
from the making-it-up-on-current dept.
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."
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GM Loses Money On Every Volt Built

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  • by BadAnalogyGuy (945258) <BadAnalogyGuy@gmail.com> on Thursday December 02, 2010 @09:13PM (#34426230)

    This is only an issue in lower volume production runs.

    Although they can never overcome the cost penalty associated with each vehicle, they can make it up in volume.

    • by sanman2 (928866) on Thursday December 02, 2010 @10:02PM (#34426682)

      It's the razorblade model - you buy it, and they hold a razorblade to your b*lls

    • All reports but this are saying that GM is breaking even on the Volt, which is pretty believable given its high price. Whether it's profitable or not probably depends on accounting rules. I expect they're really making a small marginal profit, but using Hollywood accounting to turn it into a loss.

    • by Kurofuneparry (1360993) on Thursday December 02, 2010 @10:30PM (#34426882)

      You're misreading the difference between constant costs (overhead) and variable costs (production costs). Volume only works if you can get the variable costs (the costs of producing each item) below the profit of selling each item.

      Economies of scale (making each item cheaper to produce by producing more) doesn't work for the Volt: the batteries have a constant cost and making more only makes them MORE expensive if anything. This is because the resources to make them are limited and increasing demand causes prices to increase.

      Therefore they can't overcome the cost penalty by making it up in volume. This move only makes sense for GM if the practice and market establishment of selling now will later be useful for them when making the cars is profitable. There's another explanation: the owners of GM are pushing this for political reasons. Considering the rhetoric about making them make cleaner cars [whitehouse.gov] when the bailout occurred, it would be a conspiracy theory to NOT believe that the government had a hand in this.

      Then again.... I'm an idiot.....

      • by guyminuslife (1349809) on Thursday December 02, 2010 @10:46PM (#34426990)

        No, it wouldn't be a conspiracy theory to not believe in a conspiracy. Unless that were the conspiracy. My question is, who is behind this conspiracy to make us believe that there's a conspiracy? Clearly they're doing it to draw attention away from the truth of their non-conspiracy. Perhaps this GM bailout could have absolutely nothing to do with the Illuminati and the Freemasons. Maybe the Volt isn't a coverup for the Kennedy assassination. Once you go down the rabbit hole...you'll probably find rabbits.

      • by plague911 (1292006) on Friday December 03, 2010 @12:24AM (#34427618)
        You are right you are in idiot. The batteries do not have a constant cost. They have a decreasing cost as even damn blurb said so "price of consumer lithium-ion cells has fallen 6 to 8 percent annually since their 1989 launchprice of consumer lithium-ion cells has fallen 6 to 8 percent annually since their 1989 launch" Seriously wtf did you put any effort in your ideas at all?
      • by timeOday (582209) on Friday December 03, 2010 @12:45AM (#34427726)
        There is an obvious precedent here: the Prius. It was sold at a loss for the first few years, but lately has been highly profitable, and they keep making it cheaper to manufacture year after year.

        MANY businesses and product lines lose money at first.

        • Not to mention the fact that the Prius was a loss-leader. People who were in the general Prius demographic but couldn't afford one (or who wanted more leg room, or more seats, or something else) were lured to Toyota lots, and ended up driving off with Corollas or Camries, which do make money.
      • I don't know how the above was modded Insightful.

        The batteries are a variable cost, much like the steel to make the car, the tires on the car, the labor that is used to build each car, etc. The cost is associated with each car built. Constant costs are fixed costs. These would be the costs associated with the plant the cars are built in, the robotics used to build the cars, the building maintenance of the plant, etc.

        Let's think of it another way: If the Chevy was to make 10,001 Volts, they would have to

  • by Dr. Spork (142693) on Thursday December 02, 2010 @09:13PM (#34426232)
    It won't be a problem. They can make it up in volume.
    • by MrEricSir (398214)

      The best part about this joke is that it's actually true; if you buy enough of something it gets cheaper, therefore the manufacturing cost drops. So in a way they actually WILL make up for it in volume.

      Well, assuming anyone will buy a Volt.

      • Re:That's fine... (Score:4, Insightful)

        by definate (876684) on Thursday December 02, 2010 @09:46PM (#34426544)

        Yes, and no. While most production have economies of scale, without more information we can't be certain if this one does. This requires technology specific information, and business specific information, as to whether they're setup to have economies of scale.

        Given this is a new process, it is entirely possible that they are not setup for this.

        Without more information, we won't know. However, given they are a desired car, this car has benefits for the rest of the company, and GM has competent management, then we can assume they know all this, and would scale up production if possible.

        So, in all likelihood they're telling the truth, or they are really stupid.

        • Re:That's fine... (Score:4, Insightful)

          by blackraven14250 (902843) on Thursday December 02, 2010 @10:11PM (#34426756)
          Buying batteries for 10,000 cars seems very likely to have no issues with "too small of a scale".
          • Re: (Score:3, Funny)

            by Anonymous Coward

            10,000 Volts???

            That's just shocking.

        • That information is out there :) There is even a hit of it in the blurb. Batteries are very much an economics of scale technology. I do not understand for the life of me why you would pretend the information is not out there but there is loads of research into this.
          • by definate (876684)

            Given I work in the very area you're talking about, I doubt the information is out there. The hints in the blurb aren't anything you can go by, to definitely judge a company.

            Internally each company based on when they invested in the technology, how much they invested, what their estimated capacity was, what their estimated time to obscolescence was, will have different economies of scale for even IDENTICAL technology. Hell, a company which has 2 plants which produce the same IDENTICAL components, would have

    • and finally realize the amount energy stored in a ton (literally) of even the latest batteries is nowhere close to a gallon of gasoline. I've said it before and I'll say it again. Until we get cold fusion there will be no widespread use of electric cars.

  • Reality bites ... although yea, the hope is eventually costs will come down, especially with volume. BTW, are those batteries somehow recycled at end-of-life?
  • Not Surprising (Score:5, Insightful)

    by pookemon (909195) on Thursday December 02, 2010 @09:14PM (#34426244) Homepage
    You lose money on every product until you've sold enough to pay off the retooling process, the design process and to force the price of new materials/parts to drop. 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.

    So why is this news? (Slashvertisement anyone?)
    • Re:Not Surprising (Score:5, Insightful)

      by PixelJaded (1904696) on Thursday December 02, 2010 @09:27PM (#34426374)
      Obviously you've never worked in a highly competitive mass-market industry. $1 billion R&D / tooling cost is pretty normal for a mass market GM vehicle platform. If you're selling 1+ million vehicles at $50k then $1,000,000,000 is chump change. If you spend $100 million on development / tooling you'll either lose out badly on unit costs, lose out badly on quality or both against someone like Toyota, GM, Ford, Volkswagen, etc. who are plowing the $1+ billion necessary into each platform. This is not news purely because GM went into the volt expecting to lose money the first few years. Its not the million vehicles they sell over the next few years that they care about (that's tiny compared to their pure petrol / diesel volume), its the several million hybrids or all-electric vehicles they expect to be selling every year by 2020 that they're focusing on.
      • Re:Not Surprising (Score:4, Informative)

        by definate (876684) on Thursday December 02, 2010 @09:54PM (#34426614)

        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:Not Surprising (Score:5, Insightful)

      by bigdavex (155746) on Thursday December 02, 2010 @09:46PM (#34426546)

      You lose money on every product until you've sold enough to pay off the retooling process, the design process and to force the price of new materials/parts to drop.

      Yes, but that's not what "loses money on every Volt it sells" means. That phrase means that they're taking a loss on each marginal unit completely ignoring the fixed costs. What you're describing is, "GM hasn't yet recouped its development costs."

      • by pookemon (909195)
        From TFA

        Every major automaker spends billions of dollars a year on research and development costs. And they know that when they launch certain new technologies, they will lose money for some years before costs fall and volumes rise to let economies of scale make a particular new feature or technology profitable.

        That almost sounds like what I wrote. And, in case you missed it:

        You lose money on every product until you've sold enough to pay off the retooling process, the design process and to force the price of new materials/parts to drop

    • by Chris Burke (6130) on Thursday December 02, 2010 @09:51PM (#34426588) Homepage

      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.

      • 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.

        They could also produce it as an introduction of all-electric cars for the mass audience, with the intent of pretty much using it as a gigantic ad campaign for GM's long term future, and to get people to associate electric cars with GM rather than let someone else take that spot (as they did with quite a few other labels in the past 20 years, like "reliable" and "hybrid").

  • by Enry (630) <.enry. .at. .wayga.net.> on Thursday December 02, 2010 @09:16PM (#34426270) Journal

    This whole 'new technology is pricey and scary' has to stop. It's new, it's expensive, we get it.

    Someone (GE in this case) will step up and start buying. As production increases, volume drives the cost down. Technology improvements drive the cost down even further.

    It stinks that GM is losing money on these, but they're putting the effort into it, and I have to applaud them for it. Then again, didn't the PS3 and Xbox 360 cost more to make at launch time than they were selling for? Maybe GM is on to something...

    • by tirefire (724526) on Thursday December 02, 2010 @09:23PM (#34426338)

      It stinks that GM is losing money on these, but they're putting the effort into it, and I have to applaud them for it. Then again, didn't the PS3 and Xbox 360 cost more to make at launch time than they were selling for? Maybe GM is on to something...

      (emphasis mine)

      Oh, they're on to something, alright. GM is "too big to fail". This makes it easy for them to start risky, costly ventures, because they'll either succeed and make GM rich, or the gov't will bail GM out with more loans until GM is profitable again.

    • by longacre (1090157) on Thursday December 02, 2010 @09:27PM (#34426370) Homepage

      didn't the PS3 and Xbox 360 cost more to make at launch time than they were selling for?

      GM should have built an augmented reality gaming system into the windshield so they could make up the loss by selling new software.

    • by jmorris42 (1458) * <jmorris.beau@org> on Thursday December 02, 2010 @09:31PM (#34426410)

      > Then again, didn't the PS3 and Xbox 360 cost more to make at launch time than they were selling for? Maybe GM is on to something...

      It made economic sense for Microsoft and Sony to sell at a loss because there was other revenue streams available to make up the initial loss. They get about $10 per game sold even if it isn't one of their own. Lose $100 on the console, sell ten games over the life of it and you are good. Factor in that they KNOW the production cost will drop quickly and it makes more sense. Finally add in the battle for market share angle and it makes enough economic sense that the shareholders aren't going to want blood and souls at the next stockholders' meeting.

      None of those arguments are available to GM pissing away tax dollars subsidizing yuppies who want bragging rights for being greener than thou. Selling a Volt today at a loss doesn't open up any future revenue streams. The biggest cost is batteries and they are going to slowly drop in cost whether GM build the Volt now or when they are economically viable. And unless you count the market share of unprofitable green cars (ALL hybrids are currently selling at a loss with the possible recent exception of the Prius) as something valuable there isn't a market share building angle to justify it. It is pure politics.

      • by MBCook (132727) <foobarsoft@foobarsoft.com> on Thursday December 02, 2010 @10:23PM (#34426834) Homepage

        I doubt the Prius made money when it was first released, at least in Japan. At a certain point, GM will have to learn to design and build electric cars. It may make sense for GM to get this learning experience going, so that they won't be far behind Nissan and will be ahead of some of the other manufactures because they'll be on generation 2 or 3 when Honda is on generation 1. This will also get their name out there. For a long time, Toyota was hybrid car. Honda had one, but it didn't sell as well and didn't get the mind share. Heck, despite the fact many people sell them, Toyota is still the hybrid car thanks to the Prius, just to a lesser degree.

        If GM hadn't needed a bailout, I think people would be applauding the move. It's risk taking, trying to move forward past what they've been doing for 50+ years. The problem is it's not their money anymore so people are unhappy with them risking it.

        I wasn't a fan of the GM bailout. I would have liked to see them split up and sold out to other car makers or something else. I'm just not sure GM needed to keep being GM.

        That said, I think this is a good move. While they are risking money, they are taking risks. The Volt is interesting, and if they just spent the next 10 years waiting for other manufacturers to make electric cars common, they'd just be wasting a big opportunity. Getting ahead of this market could be quite a bit easier than taking back a big chunk of the normal ICE car market. Plus they are only selling/making 10,000. It's not like they are starting with 200,000. It's a good toe-dip start.

      • Actually, it might make sense for GM to sell the Volt at a loss (not that I think it does, but it might). When Toyota started selling the Prius, they were losing money on every car they sold. At the time, GM had decided not to build hybrids for that very reason (they would lose money on every car they sold). Toyota sold the Prius as a loss leader. They did not start making a profit on the Prius until sometime between 2006-2008 (and I'm not sure that covered the losses they were taking on it before them).
    • by rsborg (111459)

      Apple deals with this chicken-egg problem by going to part manufacturers and offers them a deal they can't refuse with prices that allow Apple to create the product at a decent price.

      Obviously, their attention to detail and hype-machine allow them to actually meet or exceed their sales targets.

      Were GM to create a vehicle that had such attention to detail and if they had a cash hoard with which they could not be reliant on the bank-sharks, then they might be able to use this strategy to create such a compell

    • by chrb (1083577)

      Then again, didn't the PS3 and Xbox 360 cost more to make at launch time than they were selling for?

      Exactly this. Each PS3 originally cost an estimated $690.23 [slashdot.org] New technology is expensive. Over time, economies of scale and other cost reductions take hold, and products get cheaper. Having paid $x billions of dollars for design+factories+retooling+manufacturing, yes, it costs, and initial sales do not meet costs - that's why we have the economics concept of a breakeven point [wikipedia.org].

    • One thing that no one has acknowledged so far in this discussion, is just how tight a grip on GM's gonads the Chinese have, a grip that gets ever tighter as the Chinese cut back on their Lithium exports because they need more and more of it themselves.

      We do have, here in the US, some promising Lithium deposits, but only one mine, now nearly abandoned, has actually been slightly developed. Bringing these online and producing the usable Lithium to build these batteries with will take an estimated 10 years if

  • Price vs gasoline. (Score:5, Insightful)

    by olsmeister (1488789) on Thursday December 02, 2010 @09:20PM (#34426304)
    If gasoline were to suddenly become significantly more expensive, the asking price could be adjusted accordingly.
  • by maxrate (886773) on Thursday December 02, 2010 @09:20PM (#34426306)
    Electric eels.
  • That would save them the cost of the engine and all it's secondary components (cooling system, exhaust system, etc etc)

  • by Aphrika (756248) on Thursday December 02, 2010 @09:35PM (#34426456)
    Nothing new in manufacturing really, but it might be the first time it's been seen in production cars I suspect. You make a bunch at a loss initially, tweak the technology, the manufacturing process, streamline the design and eventually you start making a profit on them.

    In some situations, those early losses will be spun back into R&D costs on the budget and targeted as profit that has to be made on future units.

    Hopefully they'll stick with it and start driving costs down so that the technology can be made cheaper and is more efficient, rather than pulling the plug (no pun intended) and giving up on it.
  • This no big deal (Score:5, Insightful)

    by Howard Roark (13208) on Thursday December 02, 2010 @09:44PM (#34426534)

    It's a well known fact that all hybrids lose money at first. Toyota lost something like $5000 on each early model Prius. This will all work out.

  • Ahh, union labor ... (Score:3, Interesting)

    by The AtomicPunk (450829) on Thursday December 02, 2010 @09:44PM (#34426538)

    ... is there anything you can't screw up?

    • by damn_registrars (1103043) <damn.registrars@gmail.com> on Thursday December 02, 2010 @10:06PM (#34426724) Homepage Journal
      Back on planet earth, the UAW actually bought a portion of GM. Why would they intentionally screw up the profits of GM when they have their own money invested in it? After all, you can't extract money from a company that doesn't exist...
  • Step 1) Sell the car at a loss.
    Step 2) ...
    Step 3) Profit!!!

    Wow...
  • Some vital stats:

    * Gas/petrol usually costs about 15 cents per mile. This (and other electric cars presumably) will cost just under 4 cents per mile (based on current electricity costs), so the overall cost is only 4x cheaper (I was hoping for a full 10x or even 100x cheaper, but it's still good).

    * It takes 10 hours to do a full recharge to do a full 40 mile recharge on 120 volt, but only 4 hours with a 240 volt supply. Maybe America et al. should switch to the 240v power like Europe to get faster cha
  • Economy of scale.
  • GM versus Sony (Score:5, Insightful)

    by damn_registrars (1103043) <damn.registrars@gmail.com> on Thursday December 02, 2010 @10:27PM (#34426866) Homepage Journal
    We may recall that when the PS3 first came out Sony was losing money on each unit sold. That didn't exactly bring down Sony in the process; nor did it cause people to scream out that it was the result of some great conspiracy.
    • by santax (1541065)
      Yes, but those are 2 totally different businesses. Sony, like MS, took the loss on the hardware knowing that the average ps3-owner would buy 3 to 4 games a year. That is where the profit was made. And this was all calculated from the start. Now, not to many buyers of a car will buy 4 sets of tires each year and when they do, there is no guaranty that they will buy them from your company or from another brand. Unlike the console where you have to sign contracts and hand over license fees to even make a game
  • by Man On Pink Corner (1089867) on Thursday December 02, 2010 @10:43PM (#34426964)

    Japanese manufacturers such as Toyota/Lexus and Honda. They've been selling hybrids worldwide for around ten years now, and you can bet that they, too, lost money on every sale for at least the first few years. In doing so, they bought themselves ten years to refine their processes, tooling, and supply chains, iron out bugs, and discover (and patent) non-obvious efficiencies and improvements.

    Meanwhile, the American auto manufacturers chose to stick with the same old profit-heavy SUVs, elderly sedans, and rental-grade compacts they'd been selling for the past twenty years.

    The history of alternate-fuel technology is yet another demonstration of US companies' skill at trading the next decade's earnings for the next quarter's. I have zero sympathy for Chevrolet and whatever learning curve they (and their customers) are about to climb with the Volt, because with any competent management in place they would already have several years' experience manufacturing these cars by now.

    Good thing they're "too big to fail," I guess.

  • by ballpoint (192660) on Friday December 03, 2010 @12:13PM (#34431844)

    It must be difficult to make a profit on selling volts, because you never know how many ampères your customers are going to pull and for how long. Now, selling joules, or watts by the hour, seems a better business model to me.

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